Wednesday, October 23, 2019
Multinational Perspective Essay
Multinational corporations originated from the need for substantial capital and limited risks for large industrial or commercial consortiums for overseas trade. The modern concept of multinational corporations came into being during the 17th and 18th centuries and a good example of such a venture is the British East India Company in South Asia and the Dutch East India Company in South East Asia’s Indo-Chinese Peninsula. With the current communications and management technologies available, more companies are able to make the most out of international trade liberalization.  Today, multinational corporations are expanding themselves to increase their markets, increase brand presence and image and benefit from inexpensive raw materials and labor (Chang, 2003). Scenario for Multinational Corporations Currently, there is an estimated 40,000 multinational corporation’s world wide in and approximately 250,000 overseas collaborations running cross-continental operations. Most multinational corporations are from the United States, Western Europe, and Japan. By 1995, the top 200 multinational corporations alone had collective revenues reaching of $7.1 Trillion which is equivalent to 28.3 percent of the gross domestic product globally (Bernal, Kaukab, and Yu, 2005). The operations of multinational corporations are governed by the policies of The World Trade Organization (WTO), the International Monetary Fund (IMF), and the World Bank. Though the traditional view of multinational corporations is that of big manufacturers, current trends and developments in technology have also given rise to â€Å"micro-multinationals†[1] as well business process outsourcing (BPO) ventures (Ewing, 2005). Among the countries being targeted for multination expansion, China and India are the current top favorites of multinational companies (McKinsey Global Institute [MGI], 2004). Globalization has allowed access to markets via technology and has reduced distribution, lower internal coordination costs. It has also allowed for networking of specialized services and products in support of corporate functions through BPO’s whether within the companies internal operations or its external activities (Ewing, 2005). Entry to Developing Markets            Though the scenario of multinational expansion has changed, the methods of entry remain traditional in most developing countries (Hoos, 2000; Tubbs and Schulz, 2006). Strategies to enter new markets for multinational corporations are by mergers or direct acquisition, sequential market entry and through joint ventures Mergers            Merger or direct acquisition of existing companies is the forthright entry to a market. This is the strategy usually employed by large multinational corporations. It maximizes the economies of scale advantage to overcome barriers to entry (Ewing, 2005; Multinational Corporations, 2006). Considered as foreign direct investments (FDI), they are subject to not only commercial regulation but are also direct affected by fiscal and investment policies by the host country, and related international trade policies (United Nations Conference on Trade and Development [UNCTAD], 2005). Beginning in 2004, it has been identified as a critical in developing countries and studies have been commissioned to quantify their impact of the economies of developing countries (UNCTAD, 2004). The first ranked for FDI is India and was followed closely by China (Kearney, 2004). Though India has been able to outrank China and Mexico, China actually acquires more FDI significantly either country since 2002 (Department of Industrial Policy and Promotion, 2005; MGI, 2004). Sequential Market Entry Sequential market entry involves foreign direct investment and getting hold of a sector if the market related to the parent’s companies core line of business, usually its key product or competency. It is different from a merger that it that the parent company does not bring in all of products, services or operations into a host country (Multinational Corporations, 2006). This method is the preferred by smaller companies and conservative business to begin their multinational operations (Kearney, 2004). Sony, in its initial expansion to the United States first limited its operations to manufacturing televisions but eventually expanded its operations to the production of magnetic tape and eventually to the production of audio in the 1970’s. Today, Sony’s operations in the United States include semiconductors and personal communications. Sony’s United States operation used its expertise and leadership in manufacturing television to establish itself in the industry and its local competition and then used this it as leverage to expand its products in the United States (Multinational Corporations, 2006). Another development in multinational operations is that outsourcing of operations or services to other countries. According to both UNCTAD 2004 and 2005 reports, BPO is one of fastest growing industries globally. Joint Ventures            Joint ventures are operational or service partnerships with companies already existing or operating in the host country. This method of entry is limits is not as liberal as mergers or sequential market entry but is effective when entering heavily regulated markets. The method has been in particular use in entering the markets of China, the Soviet Union and that of Eastern Europe (Multinational Corporations, 2006). The issue of limited control for parent companies is the usually critique of this method and has raised issues regarding liberalization issues (Bernal, Kaukab, and Yu, 2005). Host countries and venture partners significantly benefit from the transfer of technology and management while parent companies are able to enter otherwise restrictive market. The concern for multinational companies however is the development of conflicts with joint venture partners who can become competitors (Multinational Corporations, 2006). Another concern for most multinational corporations regarding entering into joint ventures is that local policies, which their joint venture partners are subject to, are easily changeable. The creation of stable industry policies that may affect joint ventures and similar partnerships is one of the major focuses of developing countries trying to attract more investments (Department of Industrial Policy and Promotion, 2005). This move has been supported by the current agenda of the World Trade Organization (WTO), the International Monetary Fund (IMF), the World Bank and the United Nations (UNCTAD, 2004). Multinational Corporations in Developing Countries            Entering into s developing market requires the recognition and creation of strategies to deal with poor economic conditions, low educational levels, technological barriers or lack of existing channels and infrastructures for the distribution of the product and service (UNCTAD, 2005). Globalization and Trade Liberalization            A major reason for multinational expansion is accessing a wider market. This coincides with the international agenda of globalization and trade liberalization. The Asian Financial Crisis may still be a haunting scenario for many investors (Bernal, Kaukab, and Yu, 2005), but the current trends in Asia, particularly China and India, is creating renewed interest in expanding to developing countries (MGI, 2004).            The efforts of developing countries to liberalize trade and industries have also been encouraging. Recent trends have allowed the return of Coca-Cola to India (Nayak, 2006), the ranking of Asia as the most attractive FDI region (Kearney, 2006) and the growing success on BPO’s in India and the Philippines (UNCTAD, 2005).            The operations of multinational corporations have been constructive in the development of markets, the introduction of new products and the development of industries as a whole. Investments of these companies have helped stressed local economies space and opportunity to expand. The technology and management knowledge that multinational companies bring in has helped local research and development to improve standard practices and policies.            Multinational companies have been able to benefit from reduced labor, materials or overall operation costs. A significant benefit of going global is establishing brand and product presence. Many companies have also benefited from the variated market that globalization has provided them increasing product efficiency and marketability. Global Trend and Scenario            Though multinational corporations significantly contribute to international trade and development have not enjoyed acclaim. Their presence and nature if operations is said to be more detrimental to local economies than beneficial (Baitu, 2006; Tubbs and Schulz, 2006, Chang, 2003). Studies have also shown the negative effects of the operation of multinational corporations prompted some governments to take a protectionist approach which ahs deterred not only these corporations but trade liberalization in general (Wysocki, 2006).            According to the UNCTAD report regarding multinational corporations in least developed countries (UNCTAD, 2002), the â€Å"highly centralized nature of these corporations†is the main apprehension against them. Though multinational corporations contribute significantly to local economies in the form of investment, technology and commerce, there is very little barrier to exit from the local industry in case of a national economic downturn (Hoos, 2000). They have been said to have contributed to the aggravation of labor conditions, environmental degradation, and degeneration of social conditions, declined local industries and livelihood, and raised inflation levels (Tubbs and Schulz, 2006).            Furthermore, the mobility of multinational corporations leaves host countries with less bargaining power and allows them significant leverage over countries that are highly disadvantaged and needy of the jobs and investment they provide (UNCTAD, 2002). Current Issues and Concerns for Multinational Operations            In an international environment, a company’s concerns will have to consider more external factors. International trade laws, liberalization and globalization are the obvious concerns that emerging multinational have to face. More importantly, companies have to orient themselves to local markets, governments and policies that may they may not be familiar with (Wysocki, 2006). Exploring international markets also increases competition not just with traditional competitors but also for new business developments such as micro-multinationals (Ewing, 2005). The risks and challenges of becoming a multinational company need strategies that consider the company’s goals, international market scenarios and effective local marketing approaches. Recommendations In general, there should be further quantitative and qualitative studies on multinational corporations’ actual impact to host countries from individual to industry levels especially for the least developed countries that host them (UNCTAD, 2002). Multinational companies nowadays are not just commercial ventures; they also serve as highways of liberalization. Some multinational companies have greater assets than the poorest of developing countries leaving these nations with limited bargaining power. The need to attract investments by multinational companies must not undermine the focus on welfare, health and social life (Baitu, 2006). The following considerations are framed UNDTAD’s World Investment Report for 2004 and 2005, the 2002 Report Multinational Corporations in Least Developed Countries; and Bernal, Kaukab and Yu’s The World Development Report 2005 for the WTO:            Host countries must focus on creating industry competencies that do not just cater to the current needs of multinational companies operating in the country. Developing countries must not become dependent on multinational companies and focus on boosting domestic growth.            Developing countries should be liberally cautious in accepting FDI to the country so as to ensure the survival of its local industries. It should not take a protectionist approach creating false security in its local industries but only to alleviate the pressures of advantage that multinationals have by reasons of economies of scale.            Closer coordination with trade associations and international liberalization agencies will allows for developing countries support and knowledge in dealing with multinational corporations. At the same time, multinational corporations can benefit form the standardization of commerce and industry, decreasing speculation and uncertainty for their ventures.            Consideration of social issues can help multinational companies have a better local feel for the host country’s markets. Pubic relations in smaller countries become crucial in building brand and product awareness, purchase and loyalty. It also allows for the feasibility of introducing product extensions and even non-related ventures.            Involving multinational corporations in the host country’s environment, community, research and development can establish a more meaningful relationship. Multinational corporations can benefit form having greater involvement in factors that affect its operations. Fears of multinational corporations being insensitive to local concerns can also be alleviated. Conclusion            Multinational expansion is but one of the key indications of globalization. Liberalization signifies a country’s acceptance of globalization. Together, multinational corporations and liberalization act as vehicles for development and cooperation.            As in all relationships, work must be put in to make it work. Multinationals grow when local economies grow through the development of labor, resources and market expansion. Host countries benefit from the investment, technology transfer and the development of its emerging industries. New multinational companies in particular could prosper and establish themselves well in developing economies where competition may not as stiff and industries not as crowded as they would be in developed countries.            The key is in finding a balance between multinational investment and local industry growth and in creating  a relationship between multinational corporations and host countries that are based on mutual development.    References Baitu, J. (2006) Globalisation for the Common Good and Social Justice in Sub-Saharan Africa [Online]. Available from [Accessed 12 September 2006]. Bergsten, C. F. (2000) The Global Trading System and the Developing Countries in 2000 [Online]. Working Paper 99-6 Institute for International Economics. Available from [Accessed 12 September 2006]. Bernal, L. E., Kaukab, R. S., and Yu, V. P. B. III (2005).The World Development Report 2005: An Unbalanced Message on Investment Liberalization. WTO Institutional Governance and Dispute Settlement, of the Trade and Development Programme: Geneva, Switzerland. Brown, A. G. and Stern, R. M. (2005) Concepts of Fairness in the Global Trading System. Gerald R. Ford School of Public Policy, The University of Michigan: Michigan, USA. Chang, H. (2003) Foreign Investment Regulation in Historical Perspective: Lessons for the Proposed WTO Investment Agreement [Online]. Available from: [Accessed 12 September 2006]. Department of Industrial Policy and Promotion (2005) Foreign Direct Investment-Policy & Procedures. New Delhi: Government of India. Available from: [Accessed 12 September 2006]. Ewing, R. (2005) The New Multinational: Lilliputian, Not Leviathan [Online]. Speaking Freely – Asia Times Online. Available from: [Accessed 12 September 2006]. Hoos, J. (2000) Globalization, Multinational Corporations and Economics. Kiado: Budapest. Kearney, A.T. (2004) China and India Jockey for the Top Most Attractive Foreign Direct Investment Destination Globally While the U.S. Is Challenged by These Rapidly Evolving Economies: Global executives see the best business environment since 2000, yet a return to positive global FDI flows could be complicated by a new mix of operational risksâ€Å". A.T. Kearney: London, United Kingdom. Nayak , A. K. J. R. (2006) Globalization of Foreign Direct Investment in India: 1900s–2000 [online]. Available from [Accessed 12 September 2006]. McKinsey Global Institute (2004). China and India: The Race to Growth [Online]. McKinsey Quarterly . Available from [Accessed 12 September 2006]. Multinational Corporations (2006) Encyclopedia of Management, Volume Mar-No. Available from [Accessed 12 September 2006]. Tubbs, S. L. and Schulz, E. (2006) Exploring a Taxonomy of Global Leadership Competencies and Meta-competencies. The Journal of American Academy of Business, Volume 8, Number 2, March 2006, Dissertation Paper presented at the Eastern Michigan University. Eastern Michigan University: Michigan. United Nations Conference on Trade and Development (2002) Multinational Corporations (MNCs) in Least Developed Countries (LDC’s). United Nations Conference on Trade and Development (2004) World Investment Report 2004. United Nations Conference on Trade and Development (2005) World Investment Report 2005. Wysocki, B. Jr.(2006) Symbol Over Substance [Online]. Original Article printed in The Wall Street Journal, September 25, 2000. Available from [Accessed 12 September 2006]. [1] Micro-multinational are companies who have small manpower and overall scale unlike the traditional multinational corporations. An example is Navin Communications who have engineering operations in Mumbai, India and headquarters in Mountain View, California (Multinational Corporations, 2006).
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