Chapter 1 (10) - The Evolving Multinational

• Geographic proximity
• Cultural similarity
• Similarity in economic development

• They expand to a neighboring country first because of the ease to capture vital market research and government policy.
• Costs of communicating with foreign subsidiaries is lower.
• Later, more distant expansion can be attempted.

• A firm's success is based on their understanding of local customs and consumer habits.
• "Psychic distance"

In markets with similar consumer buying habits and levels of disposable income, the firm's product formulation and its marketing approach may require only modest adaptation.

They focus on a the most competitive lines of business and add more as each gained familiarity with the local firms.

• As a firm adds new lines of business it develops a reputation as a good employer and as a good customer for local suppliers.
• It learns about local regulations, and increases its familiarity with local businesses.

• When subsidiaries of a firm are established in foreign markets and continue to add new functions that establish it as "centers of excellence."
• This may be accomplished through acquisition of local firms.

• Effective transfer of technical know-how
• The ability to secure resources locally

• Experience gained by a line of business in one country leads to greater knowledge of that line which can be leveraged across other countries for faster expansion.
• The same method applies to functional migration as the same functions may be easier to migrate after the initial.

• By identifying and taking advantage of economies of scale and scope, firms may be able to share capabilities across dimensions, allowing them to "skip steps."
• Development may appear irregular and asymmetrical, but minimum duplication secures greater efficiency.

When firms consolidate existing functions and lines of business and/or even shut down entire subsidiaries.

• Firms that expanded abroad long ago may have duplication in the functions and lines of business.
• Global industry competition pressures firms to operate more efficiently