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Over the last few decades, the process of globalization has created unprecedented opportunities for global business and trade. Many companies attempt to reach bigger markets to sell their products in different countries. As a result of this process many companies became a multinational. Multinational companies are the companies that "registered and operating in more than one country at a time, usually with the headquarters in a single country" (http:// answers.com/topic/multinational corporations/ accessed 14 Jan 2010). These companies originated early in the 20th century and proliferated after World War II.
Becoming a multinational gives a lot of opportunities to the companies, nevertheless these companies face many challenges.
MAJOR CHALLENGES FACING MNEs
Human Resource Challenges
Human Resource Management (HRM) is one of the most actual issues in international business. Qualified staff is very important in MNEs. Although multinational companies adopt standard principles of HRM, they meet several difficulties, because many changes occur in operating environment and structure. Multinational companies operate in different countries. Different people in different countries have different culture. Therefore, these companies face difficulties when they want to implement international standardized HRM. In order to overcome these difficulties and reduce cost, many MNEs begin to implement localized HRM.
MNEs may also face difficulties when they want to hire people from different countries. The shortage of talent can be an example of one of these difficulties. The talent can be defined as the people who are upward, progressing, professional and efficient. This problem is more actual for the developing countries. Furthermore, the differences in labor market and employment systems between the countries also create challenges for the multinational companies.
1.2 Cultural Challenges
Besides of the aspect of HRM, there are some other challenges that multinational companies may face. Culture is an important factor that may affect the operations of MNEs. People from different countries always have different traditions and attitudes towards business in foreign countries. Therefore, if MNEs want to manage business in foreign countries, they firstly need to understand the cultural fundamentals, and traditions of these countries. For example, "if foreigners want to run business in China, they must understand the Chinese traditions and business culture. In China three philosophy traditions - Confucianism, Taoism and Buddhism had dominated Chinese people for thousand of years. These philosophy traditions have been the roots of Chinese culture, which plays an important role in business behavior and decision making." (International Journal of Management. December 2008, Vol.3, No.2)
1.3 Government Regulations
Government regulations are one of the biggest challenges that MNEs may face. Each country has its own trade regulations, tax system, and custom rules. In some countries taxes are very high; entering in some county's markets is very difficult because of the government barriers. According to M. E. Porter, government can play either positive or negative role for MNEs. (M. Porter, Competitive Advantage of Nations, 2006). Although there is a very restrict government policy in business area in some countries such as Iran and Russia, however, in some countries multinational companies enjoy from "mild" government policy. For example, in countries such as UAE and Kuwait, government encourages the foreign direct investment (FDI). Free trade zone in UAE attracts many big companies; therefore many multinational companies have offices in Dubai.
But in some countries regulations are very restrict. To protect local jobs, to encourage local production and to protect their industries, governments use trade barriers, such as tariffs, quotas and etc. Besides these barriers, the changes in local business laws and regulations can also limit the power of multinational companies.
These are some major challenges that MNEs usually face in global market.
HOW DO THE DETERMINANTS OF NATIONAL COMPETITIVE ADVANTAGE HELP EXPLAIN HOW COMPANIES CAN MAINTAIN THEIR ECONOMIC COMPETITIVENESS?
Michael Porter, a Harvard University professor is a founder of the competitive advantage theory. In his book "Competitive Advantage of Nations" he focuses on determinants of competitive advantage and argues that "a nation can create new advanced endowments such as skilled labor, a strong technology and knowledge base, government support and culture" (http:// quickmba.com/strategy/global/diamond Accessed 14 Jan 2010)
According to Porter, (Competitive Advantage of Nations, 2006), there are four broad attributes of a nation that shape the environment for the firms to gain a competitive advantage:
2.1 Factor conditions:
A country creates its own important factors such as, infrastructure and etc. Factor conditions play a main role for the firms to maintain economic competitiveness. Firms can easily maintain their economic competitiveness in the countries where there is a good infrastructure, national resources, skilled labor, and other important factors of production.
A good example can be Japan. Despite its limited resources, Japan has succeeded in becoming a leading industrial power. Especially, electronic firms in Japan have gained a competitive advantage in world market (SONY, PANASONIC and etc.) The reason is the skilled, well-educated labor force. Japan's highly educated population and its very high number of engineering graduates per capita provide Japan a strong advantage. Similarly, the Arabic firms (Saudi Arabia, Kuwait, and UAE) have a competitive in the oil and gas business, because Arabic countries have the world's largest reserves of crude oil and natural gas. Thus, electronic firms in Japan and oil industry firms in Arabic countries can build on competitive advantage in world markets through the factor conditions in their home countries.
2.2 Demand conditions
It is the nature of home-market demand for the industry's product or service. "When the market for a particular product is larger locally than in foreign markets, the local firms devote more attention to that product than do foreign firms, leading to a competitive advantage when the local firms begin exporting the product" (http://quickmba.com/strategy/global/diamond/ Accessed 15 Jan 2010). The home demand conditions also have an important influence in company's economic competitiveness.
"Home-demand conditions in fashion-conscious France, for example, present a challenging market environment that requires designers and retailers to create superior competitive positions to hold their own. The French consumer provides an early indication of sales potential for fashion lines premiered in this market context" (A. Inkpen and K. Ramaswamy, 2006, Global Strategy: Creating and Sustaining Advantage across borders, Oxford University Press). Another good example can be Russia. There is a high demand for the cross-country vehicles in Russia because of the climate. Therefore the companies that produce such kind of vehicles benefit from the high level of sophistication of the Russian consumers and they have gained a competitive advantage in world market.
The size and pattern of home demand conditions also influences companies.
2.3. Related and supporting industries
When the local supporting industries are competitive, the companies can be more successful in world competitive market. It is the ability of an industry to work with its required suppliers. If the supporting industries are well developed, it can offer the nation an advantage for new companies in a particular industry. The presence of related industries is also important for gaining competitive advantage. One example can be Silicon Valley in the U.S., Detroit, for the auto industry. Adoption of the automobile took off in the USA after the construction of a national system of highways and gas stations. Argentina can also be a good example. This country is the world's third largest beef producer. Its success was sustained not only low cost production of quality beef, but also well-developed, flexible marketing system, domestic beef distribution channels (butcher chain stores, vacuum packing) and debt rescheduling by banks for livestock and trading enterprises.
These examples show how industries related with each other.
2.4 Firm strategy, structure and rivalry
This is also an important determinant of competitiveness. Although the goals, strategies and ways of organizing companies very different among nations, these factors have the same influence to the companies. In each nation companies are created in different ways. Here, cultural aspects play an important role.
Family-business based industries are dominated by owner-managers, such as in Italy. The most successful companies in Italy are family based that are dominated by owner-managers, while in the U.S the most successful companies are corporations. Such strategy and structure helps to determine in which types to determine in which types of industries a nation's firms will excel.