Question:

Describe the strategies MNEs have in entering international arenas.Include Dunning's Eclectic Theory of Foreigh Direct Investment.

Example of Answers:

Multinational enterprises (MNEs) are firms that are headquartered in one country, but own and control manufacturing, services, facilities, or other business entities on foreign soil.

The 3 types of strategies are:

Revenue Maximizing Strategies: to maximize the net present value of future cash flows of foreign investment adjusted for exchange rate movements or to maximize profits so that shareholders could receive larger dividends and see their share prices rise over time.

Cost-Minimizing Strategies: Another reason why MNEs go abroad is to minimize costs. For example, if the domestic market for a product is highly competitive, then the MNE may not make much profit. The only alternative for the MNE in such an environment will be to cut costs. When the MNE finds that it is unable to domestically cut costs for various reasons, then it would decide to move production abroad or outsource some of its components from abroad in order to show a decent profit to its shareholders.

Risk Minimizing Strategies: Another way for MNEs to maximize profits apart from maximizing revenues and minimizing costs is to minimize risk. A key approach to minimizing risk is through diversification abroad.

Sources:

Gaspar, Julian. Introduction to Global Business: Understanding the International Environment & Global Business Functions. Cengage Learning. Kindle Edition.