How do multinational companies (MNCs) seek to exploit national and regional differences in culture and regulation? How should states respond to this?
Multinational companies are considered to be important players in the global economy. In the past years, there has been an increase in the number of multinational companies that have affiliates in different parts of the globe. Other than generating revenue to the host countries, it is worth noting that they employ millions of people. On the other hand, there has also been the creation of an intra-field that allows for the handling of worldwide issues such as global warming, loss of biodiversity, and terrorism (Bos et al. 2017. 230). It implies that the operations of these companies are not just restricted to economic factors but also seek to ensure that there is a consideration of both social and environmental factors.
There is the view that the emergence of many multinational companies has changed both national and global landscapes since countries have become more united. Contrary to the period where there was an emphasis on nationalism, there is growing stress on globalisation. The shift is prompted by the need to tap new markets, improve the awareness level of existing brands, and counter the threat of local competitors among other factors. Nonetheless, the functioning of multinational companies can be termed as being complex as it requires a balance of national and global interest (Brewster. 2017, 53). Although past studies have attempted to explore this functioning, there are many existing gaps.
Focusing on many organisations indicates that they must grapple with the global-local tension. While there is the need to conform to the ongoing global inclinations, there is an equal need to ensure that multinational companies keep track of the current trends in local markets. The increase in the number of multinational companies can be linked to both integration and globalisation. Globalisation has the effect of making communities better connected thus allowing for the free movement of both goods and services. Despite the development of better communication and transport systems, there are incidences where interactions/ integration among different countries are seen to be complex. Such instances can be linked to differing ideologies, foreign policies, and political landscape among other factors.
Different studies indicate that modern organisations are increasingly becoming diverse in term of the labor force composition. The movement of people across borders has led to an influx of immigrants’ labour in developed countries. On the other hand, mammy multinational companies are seen as being keen on improving the efficiency of workers while also reducing the operational costs. Despite these moves, multinational companies must be seen to conform to the stringent legal regulations at the global level (Brooks and Chen, 2018, 200). The integration of various groups has led to many differences that call for effective management approaches. On the other hand, moving to new countries implies that an organisation must undertake to adopt policies and strategies that ensure that there is no conflict of interest with the local community.
The globalised nature of many organisations further implies that there is a need to have improved communication and marketing platforms. Contrary to small organisations, a large enterprise may find it challenging to communicate their values, policies, or new products. There is thus the increased risk of increasing the gap between the management, employees, and customers. Under the concept of a sustainable business model, an organisation must be in apposition to keep track of all the ongoing changes as a way of maintaining its competitive advantage and countering the threat of other market players. It implies that there is the central need to focus on globalisation and integration as well as ways that they impact on business operations.
The increasing level of competition has prompted many organisations to adopt varying strategies such as moving to overseas markets. Focusing on the Michael Porters Model indicates that there is an increased chance of gaining a competitive advantage through pricing, venturing into new markets, and improving the development of products. Through both differentiation and cost leadership, there is an increased chance of maintaining a dominant position in the market. On the other hand, there is often an effort to ensure that a business has control of vital resources. It implies that the decision to move to other countries may be influenced by the demand for raw materials or capturing an existing market gap.
The other model that can be used to shed more light on the functioning of multinational companies is the grand strategies model. The model is based on the view that collaboration among market players can play a central role in increasing the competitive advantage of an organisation. It concerns itself with the operations such as mergers, partnering, engaging third-party distributors, and acquisition as a way of increasing the position in the overseas markets. In the case of developing countries, multinational companies play an essential role in the propulsion of the global economy (Caligiuri and Paul. 2017, 800: Buckley & Ghauri, 2004, 81-98).
The increase in the level of business rivalry in different sectors has led to the emergence of generic competition. Under this approach, there is the pursuit of individual actions that see an improvement in the positioning of global brands. One such example is the lowering of pricing levels as compared to other brands. In the past, many global companies have been in a position to lower their prices thus successfully taking over different local markets. However, their trend creates the question on the measures that need to be put in place to promote international trade while equally maturing the growth of local market players. The argument rests on the fact that competitive strategies are largely seen as being influenced by the area of operation and the prevailing market factors.
One of the approaches that is used by multinational companies in recording positive performances in the global market is cost-leadership. Under the concept of cost leadership, there is a stress on the reduction of the operational costs through the adoption of better technologies. It is critical to note that a reduction in production costs has the benefit of lowering the price of goods and services. In a typical market setting, a reduction in the price of goods and services is likely to increase the number of sales (Campbell, 2017, 25). It is these arguments that may help reason why many multinational companies tend to locate their productions plants in Asian countries such as China. Unlike other countries in Europe, many Asian states are seen as having low production costs.
The relocation of many multinational companies to Asian countries is thus prompted by the need to offset the production cost with an objective of increasing profit margins. Likewise, there is a growing adoption of online platforms and other technological features as being a way of countering the high cost of productions. The approach allows market players to move into new markets without the need to create physical plants or relocating any operations. An example is the fact that companies based in Europe have successfully been able to coordinate subsidiaries located in other third world countries. Other than being cost-effective, it ensures that a business is in touch with all the ongoing trends in the market.
Under the concept of cost focus strategy, there is concentration on a single market through segmentation. Rather than generalising marketing operations, there is an emphasis on the handling of the needs of each market separately (Leal, Marques, Marques, and Ratten, 2016). The move is centered on the realisation that each market tends to have varying needs. While a product may fit the interest of customers in Asia, it is not always the case that it may attract people in other parts of the globe. The approach is keen on ensuring that there is the adoption of strategies that lead to a high satisfaction level among customers. The strategy has in the past been termed as being effective in capturing new markets and creating a large pool of loyal clients.
The implementation of this strategy by multinational companies has seen an increase in the demand for green energies and sustainable operational processes. The shift to these new approaches is centered on the need to lower the operational costs and wastes (Dorobantu, 2018). Unlike other sources of energy, it is worth noting that green energy is environmental-friendly and cheaper. In normal settings, moving to a new market creates ta problem to the existing local players. Averting the market domination level by local players requires that the management adopt measures that fit with both the ongoing market trends and the needs of customers.
The primary aim of any business is to have increased exposure as compared to other rivals. However, the production of similar products and the complexity of global relations often create significant problems in the realisation of this objective. However, there are great opportunities that can be attained by ensuring that the operations or products of a company are different as compared to other rival brands. The need to dominate the global market has prompted many multinational companies to embark on vigorous differentiation and rebranding initiatives. Rebranding allows for the offering of products that perfectly fit in a specific target market. The rise in the level of globalisation and competition has prompted businesses to adopt effective communication systems as a way of increasing the sales level.
It is imperative to mention that being less committed in the market may create the risk of losing the market to other rival players. Before any differentiation attempt, there is a detailed consideration of the prevailing market factors, the products offered by competitors, as well as the needs of customers. In any differentiation initiative, there is an attempt to ensure that there is a reduction in the operational costs and that the products have an increased exposure level. These factors have in the past been found to play an important role in increasing revenue and product awareness levels.
The complex nature of the global market often makes it important to engage in ventures. While moving to new markets, there is the risk of local competitors and the high cost of creating new distribution networks. On the other hand, inadequate knowledge of the functioning of the local market may derail the operations of multinational companies. However, these problems are now being addressed by joint ventures which entail the coming together of companies with similar objectives (Glavas, 2017). The union serves to supplement the operations of each player and also reduce the operational costs. Unlike a setting where a business would be required to create new distribution systems, joint ventures allow for the sharing of both liabilities and assets.
The dynamic nature of globalisation, stringent regulations and instability in some markets make joint ventures the most effective way of dealing with risks. Through joint ventures, many businesses have been able to enter the market that would have otherwise proved to be inaccessible. The move has further led to the development of new ideas, increasing the competitive advantage, and improving the operational processes of the concerned parties. Focusing on many multinational companies in developed countries indicates that they often engage the services of other ventures in overseas markets (Kunisch, 2017: Lovelock & Yip, 1996, 65). The move is based on the fact that local players have an improved understanding of the function of the local market and the strategies that can be used to reduce levels of risks.
The increased levels of competition, globalisation, and complexity in accessing critical raw materials makes strategic alliances an ideal way of dealing with problems in the global landscapes. Under this approach, there is an evaluation of both the strengths and weaknesses of an organisation and ways that it may improve the operations of a business. These initiatives are often based on the need to gain a competitive advantage over other market players and also reduce operational costs. It is worth noting that the adoption of new technologies and conforming to the ongoing market trends can be challenging to a business. While huge corporations can keep track of these changes, there is the risk that small businesses may lack the capacity to deal with such trends (Quelch and Klein, 1996, 60-76).
There are also many changes at the government level that ensures that there are improved levels of collaboration among the concerned stakeholders. The government has realised that an increase in the level of investment has positive impacts on the FDI levels. An increase in the level of investment is regarded as being one of the ways that countries can register improved levels of growth (Gorg, 2001: Ferner, Almond & Colling, 2005, 304-321). It is critical to note that the expansion of many businesses has contributed to a reduction in levels of unemployment and other economic challenges. Through the active contribution of international companies, economies in third world countries have greatly improved.
Other than the outlined technique, foreign firms also tend to use different innovations as a way of venturing into markets. In recent years, there has been a growing shift towards online platforms and other new technologies (Khanm, 2016). The technologies are regarded as having the effect of placing these companies in an improved global position. An example is the fact that the use of social media platforms is credited as being one of the factors that helps increase the performance level of a company. When compared to other marketing approaches, social media platforms appear to be cost-effective and easy to use thus generating high sales level.
Different scholars are of the view that regular innovations help increase the presence of a company in the market. Innovations are an effective way of countering the risks that are created by rival firms. An example is the fact that innovation ensures that there is the incorporation of the merging market factors and trends in the development processes (Helfaya, 2017, 1075). One of the merging trends in many companies is the adoption of hybrid technologies as a way of cutting down on the high cost of energy. Secondly, the move is influenced by corporate social responsibility where businesses are having a high awareness level of the impacts that their operations have on the environment and the local communities.
A look at the market performance of some of the successful brands indicates that the positive market reception can be linked to diversification. Rather than sticking to a single product core, there is an attempt to diversify the operation of a business as a way of cushioning it against financial risks. There are many ongoing pilot studies in emerging economies with the objective of determining the factors that are likely to disrupt the smooth running of marketing activities. Nonetheless, past market operations indicate that there is a positive connection between performance and diversification (Hickman, 2018). Unlike the local market, the international market is seen as being exposed to high levels of risk.
Cases of political instabilities or economic downturns may have an adverse implication on the performance of businesses. In extreme cases, the business may be pushed out of the market. It is this realisation that prompts many international businesses to engage in different ventures that allows for the cushioning and countering the risk that is created by other rival brands. Other than diversifying the product offerings, there are also attempts to venture into new activities and markets. During economic downtimes, the strategy has proved to be useful as it has cushioned many businesses against financial risks.
Franchising can be defined as being one of the most elaborate techniques that is used by businesses to increase the presence of its brands in the global market. Most global brands such as McDonald’s have engaged in franchising where they allow third parties to aid in the distribution of their products and services. Through franchising, there has been great ease of penetrating new markets and dealing with the threat that is created by other brands. While the concerned organisations are saved from the cost of having to establish new distribution systems, they also contribute to an increase in the revenue levels (Jiménez, 2015, 340). Other than benefiting the organisation, these strategies have proved effective in propelling the economic growth level of the concerned states.
From the listed information, it is evident that the decision by companies to move to other markets in the globe is often influenced by the need to increase the revenue level. In most local markets, the competition level enables enterprises to focus on unsaturated markets. On the other hand, globalisation has increased the ease of moving goods and people from one region to another. An example can be seen in the introduction of internet platforms that are highly effective in promoting collaboration and sharing of ideas. Contrary to the period when it was necessary to have physical stores in overseas markets; it is now possible to use online platforms.
The other driver of globalisation and the movement of companies in a new market are centered on the need to take advantage of the available factors of production. There are many instances where companies tend to move closer to the source of their raw materials. The case is common in a situation where access to such raw materials is seen as giving a competitive advantage to the company. On the other hand, the move may be prompted by the existence of unexploited markets. In the past years, there has been an influx of global companies in developing countries. They view such economies as having great potential thus increasing the prospects of making profits.
Likewise, moving to new markets is cited as being one of the approaches that can be used to spread risk. The argument rests on the fact that having a fixed core business or core area may increase the exposure to risk during economic downturns (keyes, 2016). However, moving to other countries has the benefit of cushioning business operation from risks. Focusing on the operations of these companies indicates that they have had significant impacts on the host economies. Through business expansion, they have generated revenues as well as offered employment opportunities to the local people. Under the currents setting, the increased levels of integration and interdependence make it is vital to have elaborate networks of trade and communication.
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