Multinational Enterprise can be described as company operating in several countries but managed from one country i.e. their home country. Generally, multinational enterprise derives its substantial revenue from operations outside of its home country and the operations are as a result of substantial direct investment in the foreign countries and could be operated in different ways. It could be decentralized firm with strong home country presence or global, centralized firm that acquires cost advantage through centralized production wherever cheaper resources are available. It could also be an international, firm that builds on the parent firmHYPERLINK "http://www.investorwords.com/1967/firm.html"'HYPERLINK "http://www.investorwords.com/1967/firm.html"s technology or RHYPERLINK "http://www.investorwords.com/4028/RD.html"&HYPERLINK "http://www.investorwords.com/4028/RD.html"D, or transnational, firm that combines the previous three approaches.
Firms have various reasons to go multinational, other than individualistic choices of CEO of company .one of it is they have an entry to new markets and access to specialized resources. With this they also get an upper edge in competing with domestic and international competitors as entry into new markets also provides new source of information and knowledge and so the company has broader options to decide their strategy against competition.
Basically the decision to transform into multinational firm is broadly divided in two motivations Traditional motivations and emerging motivations.
Initially resources whether it was raw materials or other key supplies made companies to invest abroad to procure them and have a product distinction in their home country. Many companies which already had product distinction in their home country, whether with their distinctive technology or brand recognition moved to international markets for new buyers so as to increase their sales. For many of companies reputation developed in one country can sometimes be profitably exploited in other country. Some companies simply went international in order to meet the sales for higher volumes of production which were much more than demand of their domestic market.
But importing or exporting only is not enough to declare a company as multinational enterprise, so once these companies started importing or exporting into these markets. They acquired enough knowledge and experience from the countries they deal with, for exporting companies their demand is created in foreign countries and their brands get developed. After this in order to meet the export demand more affectively and fight competition in the host companies the company invests in the production or assembling facility in the host country. This gives a company a status of true MNC from being an exporter.
Getting global was due to opportunist behavior of some companies, it’s cheaper in most of industries to get low cost factors of production (ex. Land, labor, machinery) with lower cost capital. It was also possible due to host country’s government subsidized these two factors in order to attract foreign countries. It gave chance for firms to grow multinational more easily and rapidly.
Whereas Emerging Motivations included
After being entered into new markets either through exports/sales agent or even setting up production operations, the attitudes of companies changed. From being an additional part of parent company, they started in thinking it in a broader sense and their former views for being a multinational became secondary to new set of motivations. Which were?
The universal range of choices for companies became an important condition to survive in those countries in which they entered setting up new motives subsidizing the earlier motives which were to grow sales, increase research and development investment which drove them to new countries crossing their national boundaries.
Companies often discovered low cost production sources around the globe when they went to search in secure supplies of raw materials. a company tempted abroad by market opportunities was often exposed to new technologies or market needs that stimulated innovative product development. This gave companies an advantage to have more advanced product and process technologies.
Some of the capability seeking motivations as being crossing national boundaries and turning into multinational enhanced their competitive positioning in their home country also, and on other side it gained those advantages of scale and scope.
The means of internationalization: Prerequisites and Process.
But, as we know to sell a product anywhere whether its home or host country company requires physical as well as intellectual investments & investments could be small or large depending upon the size, strategy and risk taking capacity of a company. But before making such investments companies often adopt various ways to make sure they are profitable from the investment.
The World after globalization is full of opportunities. But before investing into any country, a study of general overview of potential new markets is conducted before crossing national boundaries, in order to chose the right market for the product and to have some ready market rather than creating a new one. A company might explore a simple match of countries â€" for example same heritage might be shared by two countries e.g. the United Kingdom and Australia. Or there could be same language used in two countries such as United States and Australia, or some countries like China and Cuba which follow same culture, political ideology or religion. Neighboring countries united states and Canada. These simple matches are first targeted by companies as the chances of success are more.
Know-how developed in one country is often potentially useful in others, and can be transferred at low marginal cost.
Two Swedish based academics in Uppsala developed a model of internationalization during 1970s in which they described foreign market entry as learning process.
It is always challenging for companies to fight competition in host countries in spite of some technology or other benefits, so many company adopts different ways to enter the market such as offering contract services, selling patents, entering into joint ventures and strategic alliances.
The companies have option to choose level of control they want in their activities in foreign country. Some companies chose the way acquiring local firms of the international country which also proves as shortcut to gain knowledge about local markets. Example Marks and Spencer entered Canada by investing Canadian chain stores. Some companies also subcontract their product or services to local companies which help to minimize their local presence. Or otherwise they can operate all production operations and control themselves.
Dunning electric theory highlighted three factors which are considered for entering into new markets. Those are ownership, location and internationalisation (OLI paradigm) and companies only turns into multinational when they have advantages in all these three factors.
Ownership factors include ownership of particular intangible assets, innovatory capacity, superior work organisation. Company should have technology advantage which includes new or better products, production methods, knowhow and brand. There should be also supremacy in access to finance, capital markets and raw materials.
Whereas in international aspect company keeps into consideration the rules and policies of the foreign country which includes key arguments for not licensing. Contractual issues and costs.knowledge shoudl .Key arguments for not licensing , Contractual issues and costs , Loss of knowledge?, Avoidance of PA problem .Controlling product outlets directly
Location should be studied in accordance to transportation cost, production factors(men, machine,money,materials, land) access. Barriers of anti-dumping duty, nad product refinement. And also government policies for that locations. Ex. Some companies may get entry into special economic zones.
The company first study all these three factors and then enter into the foreign country considering there is scope and will be successful in competing the local firms after researching their strengths. The company look at options of countries available after studying the factors and they rank or score the countries based on the factors and also include other factors such as currency stability , exchange rates, demand in domestic market. After all the researches of factors the company have basis to start calculating the cost of entering the market and then enters the market.One way is firms start exporting to a country via agent, later establish a sales subsidiary and eventually in some cases start production in home country,
With highly developed phase of globalization, It has become very easy for company to turn into multinational but on the other hand the opportunities and feasibility has shred. but at the same time it will be difficult for domestic firms to hold challenge from multinational corporations as mncs account for over 40 percent of the world’s manufacturing output and almost a quarter of world trade.Almost 85% of the worlds automobiles ,70% of computers,35% of toothpaste, and 65% of soft drinks are produced and marketed by Mncs. And their share is increasing at fast rate.
So their will be the shift
http://www.iim.uni-flensburg.de/vwl/upload/0-19-924182-1.pdf
http://finntrack.co.uk/finntrack.eu/mba/mb276/workshop/hk/29_3_98_539.pdf
