Sample Answer
Strategies and Competitiveness of Multinational Enterprises
Topic 1: International Joint Ventures vs Strategic Partnerships
Multinational Enterprises (MNEs) often face the choice between forming an international joint venture (IJV) or establishing a strategic partnership. An international joint venture is typically used when a company wants to enter a foreign market but requires local knowledge, regulatory compliance, or shared financial risk. For example, Toyota formed a joint venture with China’s FAW Group to produce vehicles for the Chinese market. This arrangement allows the MNE to leverage the local partner’s distribution networks and understand local consumer preferences, while sharing capital and operational risks. IJVs are particularly relevant in markets with restrictive foreign investment regulations, where full ownership may not be possible.
A strategic partnership, on the other hand, does not require the creation of a new legal entity. MNEs might opt for this when they want to collaborate on specific areas such as technology sharing, marketing, or logistics without the full commitment and risk of a joint venture. For instance, Starbucks and PepsiCo partnered to distribute ready-to-drink beverages globally. Strategic partnerships allow MNEs to access expertise, technology, and markets while maintaining operational control and flexibility.
In justifying the choice between the two, factors such as risk, control, investment requirements, and regulatory barriers must be considered. IJVs are preferable when local knowledge and risk-sharing are essential, while strategic partnerships are ideal when collaboration on non-core areas suffices and companies wish to maintain greater autonomy.
Global Product Structure
A global product structure organises an MNE’s operations around its product lines rather than by geography or function. Each product division is responsible for its own global strategy, marketing, production, and research and development. For example, Procter & Gamble organises its operations around product categories such as beauty, grooming, and household care, rather than by region.
MNEs adopt this structure to focus resources, streamline decision-making within product lines, and foster innovation. By having a product-focused approach, firms can respond quickly to market changes and maintain consistent brand standards worldwide.
However, two main drawbacks exist. Firstly, it can lead to duplication of functions across regions, increasing costs. Each product division may maintain its own marketing, finance, and R&D teams, resulting in inefficiencies. Secondly, global product structures may reduce coordination with local markets, as divisions prioritise global product goals over regional customer preferences. Balancing global efficiency and local responsiveness is therefore critical to success.
Economic Integration and National Responsiveness
Economic integration refers to the harmonisation of policies, regulations, and economic practices across countries, such as through the European Union. For MNEs, integration reduces trade barriers, simplifies regulations, and creates larger markets, encouraging investment and operational efficiency. A company like Nestlé benefits from the EU’s single market, which allows streamlined production and distribution across member states.
National responsiveness, however, remains crucial. Differences in consumer preferences, culture, and regulatory frameworks necessitate adaptation. MNEs must balance integration with local adaptation to succeed internationally. McDonald’s, for example, adapts menus to local tastes while maintaining core brand consistency.
The interplay between economic integration and national responsiveness shapes global strategy. Firms must identify which operations benefit from standardisation and which require localisation. This dual approach maximises efficiency while respecting local market needs.
International Logistics and Competitiveness
International logistics encompasses the planning, execution, and management of the flow of goods across borders. Efficient logistics reduce costs, ensure timely delivery, and enhance customer satisfaction, all of which contribute to competitiveness. DHL and FedEx exemplify logistics-driven competitive advantage, offering fast, reliable global delivery services.
MNEs are concerned with inventory management, supply chain resilience, and transportation networks. Advanced logistics enable companies to respond to market fluctuations, reduce lead times, and maintain high service levels. For example, Zara uses sophisticated logistics to replenish stores twice weekly, maintaining fashion relevance and customer satisfaction.
Global logistics also support cost leadership strategies. Optimising shipping routes, consolidating shipments, and leveraging free trade agreements reduces operational expenses. This combination of efficiency and responsiveness strengthens market position and overall competitiveness.
