Challenges faced by MNCs
Protectionist interventions by host states provide challenges to MNCs wishing to expand into those countries. They constitute trade barriers limiting a firm’s ability to disperse its production activities in global locations where they can be performed most efficiently (Hill, 2011p224-5). Tariffs, for instance, raise the cost of exporting products to the country. This may put the MNC at a competitive disadvantage compared to domestic firms in the industry. The firm may find it more economical to establish production facilities locally in order to compete on an equal footing with indigenous firms. Thus an opportunity is availed to produce locally provided a cost benefit analysis and environmental factors such as economic factors and country attractiveness are conducive.
Quotas may in turn limit the firm’s ability to serve the market in that country from outside that country. The firm may respond again by setting up production facilities within the country. This may be at greater production costs. Hill (2011) states this was the reasoning behind Japanese auto making expansion in the US market in the 1980s and 1990s. This followed a VER agreement between the US and Japanese governments when the US Japanese imports. Again, Japanese auto makers e.g. Toyota turned the challenge into an opportunity to enter the lucrative American automobile industry.
It is important to point out a firm may still want to locate production facilities in an optimal location in a given country to avoid trade barriers being imposed by another country in future. A firm may also locate more of production activities in a given market, than in another, in order to comply with local content regulations (Hill, 2011 p224).
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...012) Protectionism versus risk in screening for invasive species. Journal of Environmental Economics and Management.. 65 pp. 438-451.
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Having looked at all the different types of entry modes that one can choose to use, the decision on the entry form to go with inevitably will remain upon the management of the firm. The management has a better understanding of the firm and will have to decide which one will; best suit the firm in accordance to its size and growth level. If a firm is at its entry level into the international market then the most preferred mode of entry is exporting. There are a number of factors that the management has to take into consideration when choosing the country with which to form an international relation with, not just the distance. Some of these factors include the culture of the people in that country, the level of economic development in that country and the government policies in the country (Gillespie, 2011).
It is true that some companies are registered and operating in more than one country at a time—this is, generally, that the company has its headquarters in one country and operates wholly or partially owned subsidiaries in others. In economic terms, establishing a multinational company includes both vertical and horizontal economies of scale and an increased market share. The purpose of this essay is to analyze if multinational companies apply a regional or global strategy on their way of working. For carrying they were taken some relevant cases of two authors. According to Alan Rugman, the world’s largest 500 companies are often called multinational enterprises, producing and/or distributing products and services across national borders. On
The World Trade Organization has outlawed import quotas on manufactured goods. Recent trade negotiations proposed that countries convert quotas into tariffs (148-149). There is also a global quota which permits x number of goods to be imported but doesn’t restrict who or where the import comes from and a selective quota which is specific in number and country (149).
Introduction In the reading "A first time expatriate's experience in a joint venture in China" we have come to understand the nature and structure of the joint venture between the U.S.A. and China and the role that James Randolf played in strengthening and maintaining the international partnership. Controls Inc. was a subsidiary of the parent company Filtration Inc. and so was shielded from any outside competition. When Controls Inc. was given the charter to pursue its own business, they realized the need for being cost effective as a result of which they started an operation in Singapore with the name Controls Asia-Pacific with the prime objective to have a presence in the region and to study and evaluate any possibility of a joint venture. James has been an employee of Controls Inc. for the past 23 years with experience in managerial positions of about 15 years.
We all know that the foreign investment is a necessary part of global expansion. Many developed countries prefer to invest developing countries. For instance, the US has invested much more fund in China. Since the initiation of its market reforms in the 1980’s. China has been a preeminent recipient of foreign direct investment (FDI). Until 2011, there is over $1.2 trillion have been invest in China as foreign direct investment, it made Chinese industries has been transformation, and contributed enormously to the nation’s industrial output. In addition, the more foreign manufactures, the more Chinese subsidiaries have dominated (Wei, Xiao & Yuan, 2014).
(MNCs of multinational corporations) can operate `geocentrically', planning the location of their production and the pattern of their investment according to the balance of advantage across the whole capitalist world economy. For example, in the short-term these geocentric MNCs have the ability to increase the level of production in one country at the expense of another and in the longer term they could even shift the entire balance of their production between countries.
The large initial capital investment needed for new entrants is another major barrier. The cost of machinery and manufacturing is expensive. It is hugely important and costly to have a global presence in manufacturing as it is extremely expensive to ship machinery to clients around the globe.
"Businesses when entering foreign markets must 'Think Globally, Act Locally,' effectively using the concept of the international product life cycle, and improve value chain activities to sustain their competitive advantages" (Industry-Specific Competitiveness Of A Nation).
In conclusion, it is clear that there is a tradeoff between the benefits and costs related to foreign direct investment. It is therefore means that it would be up to the country’s government to decide which foreign direct investments will fully benefit the country’s economy and which ones would not. Although it may take a while for foreign direct investment to be fully set up in a country, it will in the long run leave a permanent imprint (Moran 2011, 45)
The main concept discussed in this essay is foreign direct investment. FDI is, according to the OECD, “a category of cross-border investment made by a resident entity in one economy (the direct investor) with the objective of establishing a lasting interest in an enterprise (the direct investment enterprise) that is resident in an economy other than that of the direct investor.” Firms invest in foreign economies in order to exploit their particular advantages and FDI is the preferred process, as opposed to licensing or agreements and exports. The advantages that firms often possess are patented technology, managerial skills, marketing skills and brand names.
Firms tapping into larger markets around the world leads to more access to capital flows, technology, human capital, cheaper imports and larger export markets (McCubbrey, 2015).
The trade should be a factor for development and the eradication of poverty, but in fact its turned into a way of unfair economic development in developing countries and as a tool to impose far-economic policies, and far from justice by developed countries to developing countries, where trade between developed and developing countries is happening on the basis of unequal, which requires to be more Justice and fairness for the protection of the weaker nations.
This is based on the resulting desired effects that include: ownership advantages; location advantages; and internalisation advantages (Agarwal & Ramaswami 1991). Ownership advantages relate to an organisation’s ability to develop (especially differentiated products), its multinational experience and the organisation’s size. These components represent an organisation’s skill and assets. Ideally, for any organisation to successfully compete with other companies in the host country, they need to possess superior or advanced set of these assets and skills to enable it earn significant economic returns capable of surpassing the higher costs they will incur in foreign market servicing (Agarwal & Ramaswami 1991). In addition, with the capability of manufacturing differentiated products, an organisation or firm possesses higher control modes that eventually leads to increased efficiency. This practice is supported by empirical data as observed by Coughlan and Flaherty (Coughlan & Flaherty 1983). An organisation requires substantial resources during international expansion to cushion it against high marketing costs, economies of scale achieved, and contract and patents enforcing (Hood & Young 1979). The organisation’s size would naturally indicate its costs absorption capabilities. According to Buckley and Casson, an organisation’s
15. Hill, Charles W.L. International Business: Competing in the Global Marketplace. New York : McGraw-Hill, 2007.