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With the developing of the society, a majority of companies want to switch to multinational enterprise because located in third world countries not only enable to increase the market share but also enable to expenses by capitalizing on the low labour cost and slack regulations or policies in other countries. An interesting issues concerning what reasons indudec reaseced firms desire to become multinational enterprises and what key processes will be formed multinational enterprise that those two issues will be discussed in the following paragraphs.
The historical of Multinational words derived
Before we start to go into particular of firms becoming multinational enterprises, I will explain the definition of Multinational enterprises, which given derives from Muli-territorial firm displaying by Maurice Bay investigated in 1958 that companies occupied in number of countries. After two years, David Lilienthal gave new definition that was Multinational Corporation as standard name. Consequently, J.Dunning defines Multinational Enterprises (MNE) as an academics definition that “enterprises that engages in Foreign Direct Investment (FDI) and owns or controls value adding activities in more than one country”(Yip 2003,Dunning 1992).
Generally speaking, Enterprise may participate foreign activities by utilized improving efficiency or accessing new sources of competitive advantage as they entered global market (Behrman,1972). However, there are four types of foreign production may demonstrate as one part of reasons firms become multinational enterprises.
Natural resource seekers
The lower cost of acquiring particular and specific resources at high quality comparing obtained in home country and third country is became one of reason enterprise prompted to invest abroad in order to gain more profitable and competitive in the market they served. In terms of the physical resource, producers and manufacturing enterprises who from developed and developing countries by providing minimum cost to attractive investor. This includes mineral fuels, industrials minerals, metals and agricultural products. For instance, export of 37 countries in the world towards china last year, 16 out 37 countries exports more goods to China. In European area, this generalist comes from on the whole exports European countries have decreased by 20.3%, its exports to china only fell by 15.3%. Last year Germany exports to China reached 76 billion Euros, reaching a historical high, and last year export of USA dropped by 17% but exports to China only declined 2.2% from this we can see China has become an important export market for its neighbouring countries including Japan, Korean, it is also a major export exports market for European countries and United States. After that, besides physical resource, the second group of resource seeking MNEs consist of pursuing cheap and well-motivated unskilled and semi-skilled labour and third is that need firms providing technological capability, management and marketing expertise and organizational skills (Dunning and Lundan 2008). Due to the high labour cost in home country, enterprises prefer to establish subsidiaries with lower labour cost in other countries that lead to “supply labour-intensive intermediate or final products for export”(Dunning and Lundan 2008), such as China, Vietnam, Turkey, India and so on these developing countries are always been preference; enterprises not only focus on the countries, but also focus on local firms which have high technological capability, management or marketing expertise and organisational skills in order to launch into that avoid culture shock.
The Market Seekers
In general, market-seekers would undertake to sustain or protect existing market, or to develop or promote new market, these will be pursuing firms to exploit product but also exploit new market share (Dunning and Lundan 2008). Whereas, the products need to be satisfied to local taste or needs, only this way may enter the local market in easy and fast path. For example, General Motor entered the China market; they not only recruited local people to manage and develop the china market, but also they make cars according to customers needs. Obviously, recruiting local people is a good strategy, because they can communicate with local dealer well and obtains customer feedback in effective way to accomplish improving the quality and outlook of car. On the other hand, producing products in a local market better than a long distance, because it was saved transportation cost between supplier and factory.
The Efficiency Seekers
The motivation of efficiency-seeking FDI is to rationalise the structure of constituted resource-based or market-seeking investment in such a way that the investing company can gain from the common governance of geographically dispersed activities (Dunning and Lundan 2008). In other words, Learning experience by taking advantage of different cultures, economic policies, endowments and market structure would attempt to value china in a rationalization way. Thereby, low labour cost and resource intensive in developing countries would fetch investors who from developed countries, nevertheless, the discovered the core competence, the nature of consumer demand and the policies of government, the characteristics of the local competition are play a significant role in efficiency seeker motivation(Dunning and Lundan 2008).
The Strategic Asset Seekers
The investing firms involved include both established MNEs pursuing an integrated global or regional strategy, and first-time foreign direct investors seeking to access or to buy some kind of competitive strength in an unfamiliar market(Dunning and Lundan 2008). For instance, the acquisition of IBM's PC business by the Chinese firm Lenovo in 2005, combined PC firm would lead to global team in such aspects of product development, supply chain and sales diversification. The acquisition expends Lenovo's PC business increased annual revenue by USD 12 billion. Hence, enterprise demonstrated diversity activities and capabilities could capitalise the benefits of the ownership.
Process of multinational enterprises
As we discussed the reasons why firms become the multinational, now in this part will be illustrated the procedures of firms become multinational. In order to avoid the risk with any investment, the enterprises will make a long-term strategy as their international business with degree of their commitment, because of the long-term perspectives would make business in this position to decrease the risk while they gain maximising return to control over and achieve their potential success. Hence, there are four essential ways of firms chosen market, which are exporting, licensing or franchising, joint ventures and foreign direct investment.
Firstly, exporting would distribute direct exporting and indirect exporting, once firms decided to expand in other countries, they would contact with host country by indirect exporting in which means use of intermediaries to assist their exporting.
After that move to the direct exporting through agents or distributors; or firms would purchase the license in host country for allowing to sell property that contains technology, brand names, designs, products and any combination of these are need to pay for licensing; or franchising as a contract law based securities law and licensing. For example, Japan's Sony Corporation began with the establishment of a small television in San Diego by using sequential market entry, after two years, Sony's U.S. operations created of tape plant in Dothan, Alabama, and further by opening an audio equipment plant in Delano, Pennsylvania 1n 1977.
Next stage is firms may alternative to choose joint venture or other contractual forms. For instance, PepsiCo and Unilever would expand their international partnership for the marketing and distribution of tea products under the Lipton brand becoming the world's best selling tea. The agreement would double international Joint Venture volume and enhanced Unliever's Liption brand and tea realize how with Pepsi bottling and distribution network in order to expanding global market rapidly.
Finally, firms would establish or acquisition firms in foreign country directly. For example, Wal-mart began retail operations in China in 1996 with opening in Shenzhen. With 13 years development, now Wal-mart has 146 stores in China. Wal-Mart not only offers high quality customer service and products, but also set up the low price every day. Wal-mart are doing the whole industrial chain integration in order to control own brands.
Although Multination enterprise not only provide developing countries with critical financial infrastructure for economic but also improve social development, nevertheless, the numbers of jobs will be increased once multinational enterprise entered the host country. However, there are some problems as well, such as low-skilled and poorly paid, and much of profit will outflow from the host country to home country. On the other hand, Multinational enterprises are interested in making profit for their shareholders.