It creates employment opportunity as the company expanding around the world. For example, when Barclays bank opens its office in Tanzania, many people were employed. The people employed include skilled and unskilled labour. Additionally, it helps the employer to get more training and thus improve their labour force (Gilroy,1993, p-42)
It creates customer awareness on the product. A good example is Coca cola, who produce their drinks all over world. (Gilroy,1993, p-42)
It allows the investors from one country to invest on other countries. This can be from different telecommunication company from other countries starting their businesses to the developing countries. The Impact of Multinational Enterprises (anon.,2010)
It adds government revenue from taxes and advertisements. For example the British Petroleum (BP) has to pay the British government for any advertisement associated with them. The Impact of Multinational Enterprises (anon., 2010).
Multinational enterprise is recognised to be the most important in international businesses. The table below how's the world's largest 500 firms (Rugman et al, 2006).
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From table above, America is still found to be on the top with 169 multinational companies. By the year 2001, 27 British MNE's was listed in the Fortune Global 500 ranking of the world biggest company (Rugman, 2005 cited in Rugman et al., 2006). However, by the year 2008, 34 British MNE's was listed in the fortune global 500. Additionally, in the year 2009, 26 British MNE's was listed. Finally, the newly result of 2010 shows that 29 MNE's company was listed in Fortune Global 500. The results show that the recession affects the British economy in the year 2009. The list of world's largest corporation found in Britain in the year 2008, 2009 and 2010 are shown in Appendix A.
Among the big company that was affected with recession was British Airways (BA). The figures in 2009 shows that the company got a pre-tax loss of 401m pounds (636 million U.S dollars), while the British airways made a great profit of 922m pounds (1.5 billion dollars) in 2008. Almost 1000 employees have been working for a free to help the company to recover from the recession. Additionally 4000 workers were given an unpaid leave (Welham and Wang, 2009 and Peacock, 2009).
3. Pest Analysis
The pest analysis is a business measurement tool that is used to analyze the micro and macro market environment. A PEST analysis is also known as STEP, STEEP or PESTLE analysis. The PEST becomes more useful on the larger and complex businesses. The Pest analysis means P political and legal, E economical, S social and T technological. The PEST analysis tool looks at political, economic, social and technological factors (Williams and Curtis, 2006).
The political factors include legal issues, government regulations, formal rules and informal rules which the company must follow. The examples of political factors are:
It is so important to assess this factor as it has high impact on the conduct of the business. Governments can have good policies which supports investiment.eg. The UK Government supports the fair trading commitment for both the local consumers and foreign producers (News BBC, 2005).Â (Antonio, n.d)The political environment of UK is very stable, though there is threat of terrorism to investors in and outside the country. British is still using her pound, any decision to use a single European currency will have impact to these MNEs
For a long period British has experienced a great economical growth having stable economy, enjoying a very strong currency (pound).At the late 2000s the country experienced an economical downturn.This had great effect to British MNEs.
Williams and Curtis (2006, pg 114) highlights that economic factors affect "the purchasing power of potential customers and the firm's cost of capital". The example of economic factors is:
Exchange rates and interest.
Williams and Curtis (2006, pg 114) defined social factors as "the demographic and Cultural aspects of the external macro-environment". The social factors affect customer requirements. The examples of social factors are:
Career altitudes ( Thornton's market analysis, 2010)
Among four factors in PEST, technological factor have had a high impact. This can be w seen in Amazon and Dell, where the customer can do shopping online. The change of technology has changed the production of industries. The example of industries that changes with the technology are insurance, financial services and banking. The Internet banking is among the best and newest technology used in most of the banking in UK. The figure below shows the internet banking site for Lloyd's bank. Pest analysis for Tesco (Henry, 2008)
In the situation shown above after conducting a PEST analysis, BRITISH MNEs can still grow by using Ansoff matrix tool. Below is the way showing how these British MNEs can make use of this tool in order to survive during this economic hardship.
4. Ansoff's matrix
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Ansoff's matrix is a very useful tool in business. The tool was developed by Igor Ansoff. Tuma et al. (2006) said that, Ansoff's matrix is a very useful tools used by most of managers when assessing the market and product. The American academic H.Igor Ansoff simplified the many routes in business to four simple strategies. According to Ansoff's matrix, business has only four method of growth.
The figure 1.2 shows the Ansoff's matrix (Campbell and Craig, 2005)
Figure 2.1 (Source: Campbell and Craig, 2005)
In market penetration, the organisation grows through the use of existing product in existing markets. The strategy used in market penetration begins with the existing customers. This strategy is used by the company to increase the sales. This strategy allows the business company to retain its existing customers than attracting new one. Example of the company that use strategy is HSBC. Lynch (2003, cited in Ansoff analysis, n.d) highlights that a company often enters in a market for a three ways. These are:
Getting hold of competitors' customer.
Improving the quality of the product.
Allowing the existing customers to use more of the company services (Campbell and Craig, 2005).
The use of market penetration is making the product more attractive than other products. There are many ways of attracting customers. These are:
By reducing the price of the product
By improving the quality
Uniqueness of the product
Advertising and promotions of the products.
Widening in product distribution (Campbell and Craig, 2005).
Campbell and Craig (2005, pg 107 p) defined market development as "as the growth by means of placing business's existing product into new market product "this strategy attract new customers from the existing product. The new markets can be new geographical market. For example a different region or county. The example, of companies that uses these strategies is Arm & Hammer and Mc Donald's (Ansoff analysis, and Campbell and Craig, 2005).
Campbell and Craig (2005, pg 107) highlights that market development occurs when a company introduce new products in the existing. The term new products can be either:
Completely new products, for example a vacuum in Cleaners Company start producing a washing machine.( Campbell and Craig ,2005, pg 107)
The development of different version for the existing product, for example the diet Pepsi from the normal Pepsi. (Campbell and Craig ,2005, pg 107)
The product developed strategy is the only strategy that is less risk. Many company can developed new product from there researches and design department .Campbell and Craig (2005, pg 107)
The diversification strategy involves introducing new product with new market. This strategy has higher risk because the product has to be sold to different new customers.
Diversification can be use full when:
Current products and markets are not providing any financial gain to the company.
The example of a company that uses this strategy is virgin group of UK. The virgin group of UK produces new products like virgin megastores, virgin cola, virgin airlines and virgin telecommunications (anon, thinking made easy, 2010)
5. Which of the strategies in Ansoff's Matrix would be executed for British MNEs?
The detailed discussion of Ansoff's Matrix is discussed in section 5. However, the best strategies to be executed for British MNEs are:
Market Penetration-Existing product for existing markets. In market penetration, the company aims to increase the sales within existing markets. Among the company that uses this strategy are Tesco and BT companies. Tesco has been using this strategy for 10 year. Tesco uses this strategy by changes the price of the product, using promotion techniques and the use of internet service. BT Company has been using this strategy. Example, BT brought an offer and that allows more phone calls. Ngfl Wales business studies a level (,2009)
Market Development -new market from existing product. In market development, the goal is to find new markets for the existing products. This can seen from Tesco Company, when they launch a baby wear. In this example, Tesco sells the children's cloth (existing product) and Sweden is a new market. Ngfl Wales business studies a level (2009)
Product Development-New product for existing market. In Product Development the company increases its profit by introducing new product in the existing market. This can be seen in virgin group, where virgin Mega stores and virgin Cola in existing teenage market. Ngfl Wales business studies a level(2009)
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Diversification (new products for new markets). In diversification, the business grows by introducing a new business and a new market. Diversification happens when there is a pressure in existing markets. Among the company uses this strategy are Virgin Group, UK. Virgin group was related with music and recording. The company introduces new products and new markets. The new products and new markets include virgin cola, virgin megastores, virgin airlines and virgin telecommunications.
"Ngfl Wales business studies a level and Thinking made easy" (2010)
6. Will the benefits of new technology offset the investment in R+D for international business in era of globalization?
In this era of globalization new technology is a major aspect for achievement of any multinational enterprise. This is because technology has a lot of benefits that can affect the firm positively.
In early 1990s many European companies have increase their investment in technology in order to come up with new products and sustain their competitive advantage .US companies are leading (e.g. Microsoft) and other companies from Canada, Italy, German etc has improved the industrial sector and business as a whole through technology and investing in R&D.
The PEST is among the useful business tools. The PEST analysis is explained in section 3. It is found that the technological factor have had a high impact in business/industry. New technology are always introduced and implemented. Holdren (1997) said that "technological progress plays a central role in a modern economy ". The technology factors contribute more in the growth of economic and make the industry firm, either internationally or nationally. Technology Holdren (1997).
OECD Fact book (2008) defines Research and Development (R&D) as the "creative work undertaked on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of the stock of knowledge to devise new applications". R&D comprises of basic research, applied research and experimental development. R&D costs are company's future investment. Most of the technology company gain profit from research and development. Most of the company spends only a same percentage on research and development costs. In United Kingdom, the telecommunication and software companies are among the top spender in Research and development. BT and Vodafone are among the big company that spending in IT R&D.
The new technology had been found to bring more benefit to the company and be able to cover the cost in R&D. This can be seen from Tesco. There are different new technologies used in Tesco. The technology include Tesco Website, heat-sensing technology, scanners, better self service tills, checkout cameras, self service checkouts and implementation of new software like ExpeTune performance management software ( King, 2008).
In 2008, Tesco was among the company that has a increase in Research and Development. The increase in R&D expenditure reaches to 64 million pounds. The research was in food and drug. Tesco is among the largest company in the world. Its Tesco website one of the famous online grocer. Tesco.com is first internet grocery in United Kingdom. The online grocer in Tesco did a business of 1 billion pounds in last year. Nick Lansley, the head of research and development (R&D) at Tesco.com said that "Every where you look, tesco.com has consistently retained its innovative spirit, and this pioneering approach has been critical success factor in the ultra-competitive internet retail environment. From the first day of launch, we have continually added an unrivalled blend of new products, services and functionality to the site. Our competitors are forever playing catch -up" (Rebecca and Drayson, 2009.
Tesco also wants to open another "dot.com only" store for online orders. This new online store is going to be open due to the success found in Croydon online store. The Croydon online store trades at more than one million £ pounds a week. (King, 2008).
Technology also improved the queuing system by using heat-sensing technology in monitoring tills and lines. Additionally, new scanners, checkout cameras and self service checkouts improve queuing system. (King, 2008).
Furthermore, Tesco wants to invest more R&D and involving IT improvements to deliver savings of £ 450 million Tesco has started to implement ExpeTune performance management to uphold its servers (King, 2008).
The other company in Britain that leads in IT Research and Development spending is Vodafone and BT. Vodafone spends 280 million pound in R&D on mobile telecommunication sectors (Grant, 2010). The biggest telecommunication company has declared its profit increases to 100% more due to the growth of fixed broadband and mobile data (Bailey, 2010). Vodafone has used different new technology like HSPA + MIMO functionality to increase the download rates. The new technology allows the users to use mobile broadband services anywhere with a downloaded speed of 13Mbps (WiFi.co.uk, 2010). Additionally, the Vodafone improves downloaded spreads to 20 Mbps the use of new technology called 3G HSPA ('Latest technology news from Vodafone', 2009).
BT is the third biggest spender in Research and Development (R&D). The BT Company is among the company that is widely used in United Kingdom. The BT provides a cheap package. The package includes wireless internet connection, phone and TV (http://www.broadband.bt.com and grant, 2010).