1. MNEs have a number of characteristics, including:
(a) responsiveness to environmental forces such as competitors, customers, suppliers, financial institutions, and government;
(b) drawing on a common pool of resources, including assets, patents, trademarks, information, and human resources; and
(c) affiliates that are linked by a common strategic vision.
2. Under the premise that foreign markets are risky, companies expand their operations abroad incrementally and cautiously. Setting up a wholly-owned subsidiary is usually the last stage of doing business abroad. A typical internationalization process for a firm producing a standardized product might begin with a licensing agreement: a contractual arrangement in which one firm provides access to some of its patents, trademarks, or technology to another firm in exchange for a fee or royalty. Apart from a licensing agreement, a firm might export via an agent or distributor. This might be followed by the direct hiring of a domestic representative or the establishment of a foreign sales subsidiary. The next step might be the establishment of local packaging and/or assembly operations. This is typically followed by foreign direct investment.
3. Firms become multinationals for a number of reasons. Some of these include:
(a) a desire to protect themselves from the risks and uncertainties of the domestic business cycle;
(b) a growing world market for their goods or services;
(c) a response to increased foreign competition;
(d) a desire to reduce costs;
(e) a desire to overcome tariff barriers; and
(f) a desire to take advantage of technological expertise by manufacturing goods directly rather than allowing others to do it under a license agreement.
4. Multinational enterprises are different from companies that confine their activities to the domestic market. MNEs make decisions based primarily on what is best for the company, even if this means transferring funds or jobs to other countries.
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