Multinational of generally called the transnational enterprises are those which operate in one or more country, which engages in foreign direct investment and owns in some way or the other or controls value added activities between many nations.
Observing the evolution of multinational enterprises (MNEs), it can be evaluated that MNEs have rapidly spread since the Second World War because of the investment in a few resources based activities. Before the world war the MNEs were restricted to a limit within the USA. This accounted to around 18% of the global stock if FDI in 1914, which accounted to a largest home country about 45% in the UK. (Dunning, 1983)
In the beginning countries like Mexico, Cuba, panama were the few host countries in the world which had a foreign direct investment in 1914which exceeded the stake with the British (Wilkins, 1970). Americans ventured into the international market by pushing up foreign direct investment in mining, manufacturing industries and petroleum which influenced the east European countries like Russia, Poland , Hungary etc. (Tolentino, 2000)
US had established its oil and petroleum MNEs into Russia which became successful. After the success of the Doheny's Mexican petro company and Mexican eagle Oil Company the biggest oil company further diversified its market into the British capital investment in Mexico. Hence the FDI into the Eastern Europe has gained an advantage to access high level of technology with the single European market (Bora, 2002).
Hence a few reasons for firms to go multinational can be analysed in different ways from behaviourists, (Simon, 1959). Economists (Nelson, 2005). To name a few they are saturation of local markets, maximise market share, increase sales and profits, to over the increasing competition, to avoid stringent rules and regulations, product specific markets, reduce investment and reduce labour costs, increasing advancement in technology. HSBC Hong Kong and shanghai banking corporation, which is from Hong Kong has its branches all over the world and is known as the worlds local bank.
Firms willing to become multinational enterprises usually concentrate on a few keen issues, success strategies which may spread widely relating to rate of return of each economy, magnitude of inflows which determine the period and the era of investments, intra firm pricing practices to be followed. For instance if a Chinese company has to become a global player then it has to determine the amount of expected return, within what duration depending upon the forex prices and the global economy.
According to Marxist-Leninist approach, the entire three links share in common, market access demands from industrial countries. It is remarkable to find the same denominator in the terms and conditions of the USA- china and EU-china, bilateral deals. No doubt china faced many difficulties but still china has negotiated transition periods to phase out such barriers. China was successful in resisting unbridled foreign-market access in telecommunications, internet services, insurance, securities regulation, fund management, cultural industries and legal services (Robson, 1997).
Foreign direct investment (FDI) is far different from international portfolio investment. Firstly is involves transferring and packing of assets and related products, like capital management, technology, organisational skills and structures. Secondly it does not involve in transfer of ownership i.e. the controlling power and the purchasing power lies within the hands of the firms in the home country.(Dunning1993).
As we explore more on situation it stipulates into the ray of the FDI and the impacts on host country we would come to know that if FDI flows into activities in the host country that are not internationally competitive then its effects on workers there might not be positive at all. This is evident from the fact that whenever a significant portion of the FDI has gone to developing countries in the past, it has been invested in activities that were not internationally competitive. This may be because the markets in the host country are not completely explored. This is why FDI in to the developing countries will be placed in areas which have greater opportunities and relatively risky. It observes that UK was one of the world's largest inward FDI in 2005 with a roaring figure of $165 billion which is nearly the size if Portugal's GDP.
A few marketing seeking firms may tend to invest in foreign markets to procure goods from many different countries, as it may reduce in raw material costs. It may also supply its finished goods to its host country markets as the local markets have been saturated. The firms have to act accordingly to increase the growth and profits of the firm for instance we find the same with dominos which have been constantly exploring new markets after the saturation of the UK markets.
As we analyse by exploring some simple yet powerful theoretical reasons why direct investment in competitive endeavours in any country, and especially developing countries, should bring benefits. Most recent FDI in developing countries has been 'greenfield' investment, that is, investment in the form of new plant and equipment, rather than acquisitions of ongoing operations of existing companies. Labour demand is mostly increased in developing countries where new investment whether by domestic residents or by foreigners takes place and practice open international trade policies and contributes, along with active and positive participation in economic growth, which in turn increases the demand for labour. In the case of FDI, the additional demand for labour comes in two manners, i.e., from the investors and from local firms that supply inputs to the foreign controlled firms. And it is certainly true in labour markets, as in any market that increased demand causes the price in this case, wages, which are the price of labour to raise. (Graham, 2000)
Replacement of current facilities with more modern ones will endeavour in China is seeking foreign investor participation could therefore result in as much as a 50% reduction in emissions of sulphur dioxide, however on the other hand; reductions could also be achieved in the emission of carbon dioxide, associated with global warming. All this could be achieved with no reduction in the amount of electricity being supplied.
Industrial and FDI strategies can also be derived from a continuous study of the import and export situation by huge production industries, as we analyse the trade balance in the light of domestic industry, we would see that the situation in domestic industry shows, the degree of import penetration and, set against capacity utilisation in the main industries, provide an important indicator for what could be done to upgrade finished goods industries. Partnerships with foreign companies should, for example, be envisaged in sectors where the gap between imports and domestic production has to be narrowed and where capacity levels are insufficient to maintain acceptable employment levels.
Firms become multinationals in many different situations a few of which may be transferring of jobs from eastern countries to its subsidiary firms in the eastern host countries. "FDI refers to any type of investment made to acquire lasting interest with enterprises operating outside its economy of the investor." (UNCTAD, 1993)
Franchising is using of intellectual property rights of a multinational firm by its subsidiary. Here the subsidiary firm has to meet some standards and brand values which have to be maintained to carry on its similar kind of operations by every kind if its firms. McDonalds which is a major player in the fast-food sector franchises its outlets to different firms, but the quality taste remains the same anywhere and everywhere if it's in the UK or in Germany this is how it is franchised to maintain stability and increasing growth.
In fact these global markets are relatively risky, when analysing the M&S case firms may fail due to wrong strategies and penetrating to different global markets at relatively wrong times. It may also depend on the form of policies and strategies the undertake to enter different markets. The abrupt shift in investors will reflect on the human scale of global economy. Here the firms take advantage of cost, product scope and economies of scale. Joint ventures also help firms to jointly venture into new projects with mutually shared risks and benefits. It can be ventured in both the forms either public sector or private sector. Example Japanese Bank for International Cooperation (JBIC) and the Indian government have recently ventured into a project to build metro trains in Bangalore city.
The increasing pressure for monetary stabilisation is one of the reasons for huge savings and tax increases by the host country government. Foreign companies are adversely affected by these measures, which lack a long-term strategy to systematically rebuild the industrial sector. The most important catalyst for sustainable industrial development in host countries during transition is through FDI and foreign collaboration. (Fischer, 2000)
Today's MNEs' success mainly depends upon close relationship between domestic banks and FDI, foreign enterprises, or wholly-owned foreign operations and their home country management. Future success will definitely involve international cooperation that aims to raise the overall competitiveness within domestic industries.
