Investments And Income


A multinational enterprise is a corporation, which manages its production or delivers goods and/or services in more than one country. Popularly, these are also referred as multinational corporations, transnational corporations or international corporations (United Nations.1988). Another popular definition of multinational corporations says that these are the enterprises, which have their management headquarter in one country and operations spread in several other countries (Investopedia.2010). Few multinational corporations, which have become household name in almost every part of the world includes Coca Cola, Dell, Siemens, Infosys and Microsoft etc (Investments & Income.2007). These above mentioned corporations have their presence in almost every part of the globe. Over the years these corporations have grown to such extent in size, that with their economic might, they sometimes influence the government policies in few smaller countries.

Every country has its own industrial set up and prefers to strengthen and develop it further. It is generally accepted opinion that growth of domestic industry helps in making economic development more stable and sustainable. But even with this opinion prevailing in almost every part of the world, corporations kept on not only in being converted in to multinational corporations and entering to newer countries but flourished also. It shows that there are few very strong features associated with multinational corporations, which has fueled their growth and expansion. This astonishing growth of multinational corporations against various odds forces us so as to ponder on the issues, which give birth and then fuel the growth of multinational corporations.

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      Study of present day business scenario and emergence of multinational corporations brings out some very interesting factors, which led to growth MNCs. Very fist fact is the growth of corporations itself. It is true that most of the successful business ventures started as a small entity at one point of time. These business entities performed well on account of various factors, including better resource and operations management and ability to market their product and services strategically so as to successful in domestic markets. But domestic markets have their own limits with certain number of customers present there. Domestic markets do not have unlimited potential. So to expand further, corporations need further growth in the number of customers. But if the domestic market is already saturated, where to go, is a important question, to be answered with? Foreign markets are the answer to this most important question at this stage of business growth. Companies look out for markets beyond national boundaries, and find newer markets to sell their product and services. With the emergence of internet as most strong communication channel in urban centers at least, boundaries of nations are disappearing and world is converting as single market for corporations. Reaching out newer markets and adding up new numbers to its customer base helps companies in getting stability in operations and mitigating the political and other types of business risk. Companies look for newer markets not just to widen their customer base but also to introduce new products and services, for which there may not be many takers in domestic markets. But these products may become a huge success in foreign markets.

      Other very important reason which encourages enterprises to go global is availability of better suitable manpower at locations other than their host country. United States may have better availability of R&D professionals, China may have better production professionals where as India may be hub of better software professionals. It is on this count that corporations may like to have R&D centers in USA, production facility in China and customer care facilities in India. Ultimately maximizing shareholder's wealth is the ultimate objective of the companies, which is served best if most suitable employees are hired at economical wages.

Resources are scattered in various parts of the world. USA have best R&D facilities, India have best IT professional, China have best production facilities encouraging Dell computers to hire Indians for doing R&D in USA, getting dell laptops produced in China and being sold worldwide. Not only the case of Dell, it can be seen in many other areas. India is a cheap source of leather and automobile products, resulting in many corporations sourcing these from India and marketing in various parts of the world. So we see, another reason for getting corporations multinational is availability and hence sourcing of resources from various parts of the world.

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Cultural diversity existing in various parts of the world is also one cause for the growth of multinationals. When people from different background and culture join one organization, it helps in generating newer product and business ideas. It makes people think without any prejudice and bias arising out of their culture, so as to generate better business thoughts.

Diversification is another important reason, why companies go global. By way of expanding operations in different countries, companies lessen the risk exposure arising out of economic and political instability in any particular country. It is not only different markets and production facilities only, but the expansion of range for products and services also help companies in getting better stability and sustainability (Chun Cheong Wan.1998).

Availability of the advance technology in countries other than host is also one of the reasons, driving companies to go global. For example Japanese firms have better automobile technology; where as American firms have better computer technology. So corporations from these countries like Toyota and Intel has become global in search of new markets.

Government policies also force many corporations to go global many a times. What so ever good a company may be doing with its products and services, but if government policies do not favor their marketing in domestic market, companies may have reach out other countries in want of market.

Economies of scale are another factor favoring growth and expansion of multinational corporations. It is on account of economy of scale that rates of mobile phones and lap tops are dropping day by day. When companies expand their operations in various countries, new demand arises from newer markets, leading to more production and hence reducing cost of the product. Sometimes it has also been observed that companies look up for new markets, when demand for a product gets dropping in an existing market.

With all the above mentioned situational factors in place and advantages to corporations becoming multinational, question arises that how a willing enterprise can go global. There are few practices ways which are adopted by corporations while expanding operations beyond national boundaries. These include entering in to an alliance, getting in to collaboration, forming a joint venture with a foreign firm, starting exports or establishing full fleshed manufacturing operations in a foreign country.

With penetration of internet increasing day by day, it is emerging as a very affordable and useful solution for many enterprises to get to customers from every part of the world. E-marketing space has also emerged as good marketing space for companies who want to strengthen their marketing with the help of new age marketing tools like internet.

Export is also one of the important ways for entering international market. There are two types of exporting, direct and indirect exports. Direct marketing is a very straight forward approach, where as in indirect exports company employs another home country marketing agency, who exports at its behalf. There are various ways of getting in to indirect exports such as Piggybacking, trading companies, consortia and through export management houses. In piggybacking, companies use the existing logistics and distribution network of an existing product and services for introducing a new one (Team Canada Inc.2009).

Another important way of getting in to international market is through licensing. Licensing is where company takes a fee and allows another firm to use technology, brand and expertise developed by it. Licensing also includes franchising, turnkey contracts and contract manufacturing. In franchising, company provides branding, concepts, expertise etc. to another company, which may be required to operate in other countries. Turn key contracts also falls in silencing, where company undertakes large scale EPC (engineering, procurement and construction) contract in other countries.

International agents are also one of the easy ways to enter in to international markets. It requires getting in to contract with organizations, who takes up marketing operations for company without taking ownership of the products. These agents and distributors simply charge some commission and work for the company. Appointing distributors is another way to enter in to international market. Main difference in distributors and agents is that distributor takes ownership of the product and hence gets paid for good performance in the form of incentives (William King.2009).

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Entering in to strategic alliance with already established firm in foreign location is also an important way to get in to international market. Strategic alliances are basically non equity based agreements, where companies remain independent and separate. Strategic alliances may be for shared manufacturing, R&D activities, distribution of products & services and marketing of these (Imran Fazal.2009).

Joint ventures are also important way to enter international market. Joint ventures are equity based new company set up with parties owning business in proportion to their share of equity. Companies form joint venture to have access to technology, core competence or management skills or to simply gain entry to foreign markets. Access to existing distribution network, manufacturing facilities and R&D facilities are most common form of joint ventures (Anderson and Coughlan.2010). If company is financially sound and expansion in other country is very profitable in long term, establishment of a subsidiary for full fleshed production and marketing operations is also taken up many a times.


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