Strategic Management: Formulation and Implementation

Market Size And Characteristics

The comparative advantage of MNEs is that they are able to select production and organizational techniques to take advantage of size and/or scope economies. This enables them to develop and exploit not only new "hard" or direct production technologies, but also new soft technologies (e.g., in purchasing, inventory control, work organization).

The willingness of MNEs to adopt process technology may have two effects on host countries. The first is that some functions will be performed differently by foreign affiliates than by indigenous. The second effect is on the activities which have to be undertaken in the host countriesbe they in the production of primary, secondary or tertiary goods. MNEs would prefer to standardize their technologies in all their production outlets, thus avoiding the costs of adaptation. Nevertheless, empirical research suggests that the main reason why MNEs choose to adopt their process technologies in their foreign subsidiaries is because of the smaller output produced by the latter.

Technology adaptation by affiliates in developing countries was more common in marketseeking than in resource seeking or rationalized foreign direct investment, FDI. The most important stated reason for such adaptation was the idiosyncratic demands of the domestic market. Other researches found that the most common reason for the adoption of imported production processes by foreign firms was to take advantage of comparatively cheap labour.

Market characteristics also affect the willingness of MNEs to adopt their products to meet local needs. However, some writers argue that MNEs are reluctant to adopt their products to that economic and cultural needs of consumers in host countries, and they encourage a global uniformity of purchasing patterns.