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INTRODUCTION

17 November, 2015 - 12:22

One of the main theories underlying this book is that MNCs have evolved via a process of creeping incrementalism. This process begins with a limited commitment of resources to exporting and importing, primarily of goods and raw materials. Such involvement enables the management of the firm to become familiar with the intricacies of international business and to get a feel for doing business in more than one country. The benefits of spreading business risk over many countries and hedging against unfavorable conditions in one country trigger further expansion into more risky (albeit more lucrative) modes of operation, such as licensing and direct foreign investment.

The 1970s found the world's MNCs diversifying into many far-flung fields unrelated to their core businesses. This rash of expansions and conglomerations was motivated by the prevailing managerial philosophy that in order to service a local market efficiently a firm had to have a complete presence in that market, including a manufacturing plant in the case of a manufacturing firm or a large, full-service office in the case of a service firm.

The 1980s ushered in an awareness that this multidomestic international business strategy had led to the establishment of too many small plants in too many places, which not only robbed the MNC of economies of scale but also created some distinct diseconomies. These diseconomies arose from the need for increasingly complex and costly control and communication systems to keep the numerous affiliates under control.

The strategy currently being implemented in an effort to recoup some of the benefits of the past goes by many different names; here it will be called globalization. Globalization involves rationalization or restructuring and the development of strategic alliances with traditional competitors. This last chapter provides a glimpse into the process of building a strategy of cooperation with organizations that thus far have been competitors.