Effect of Multinational Expansion on Performance - Case Study Example

HOW FAR IS THE WORLD STILL NOT HOMOGENOUS? HOW DOES THIS INFLUENCE THE DECISIONS MADE BY MULTINATIONAL COMPANIES? Name Course Tutor Date Introduction Multinational corporations also called MNCs are corporations or business enterprises with facilities and a conglomerate of assets in a foreign host country and a parent company in the domestic country (Acheampong and Kumah, 2012). Multinational corporations have benefited mostly with globalization that turned and still turns the direction of the world. Multinational corporations have risen to play a critical role in the global economy. The proliferation of the MNCs can be traced back to 200 years ago where their scope was limited to part of foreign investments in various countries rather than long term joint venture investments as it is now (Acheampong and Kumah, 2012). Despite exceedingly succeeding, there are factors that make multinational corporations rethink of their strategies, especially when it comes to making appropriate investment decisions. This paper explores the extent to which the world is homogeneous and how this affects the decisions that are made by the MNCs. The Extent to which the World is Homogeneous There are differences eminent within the international environment with respect to political, legal, social, economic and social factors all which have implications on the investment decisions of MNCs. Political Environments in the world The political environment differs from one country to another. Governments are charged with the role of passing regulations and laws which differ from nation to nation (Rugman and Collinson, 2009). Some nations are politically stable than others that have experienced turmoil and political unrest as well as military operations (Rugman and Collinson, 2009). Governments have an administrative role of controlling international trade through imposing quotas, tariffs and the technical standards of the goods to be sold in different countries (Chanakira, 2012). There are countries that by virtue of their geographical position and diplomatic relation they are more politically stable compared to others. An example of countries that have at one time become politically unstable include Sri Lanka, Egypt and Syria (Chanakira, 2012). Political differences are also eminent in the form of leadership that is used to govern a given country (Rugman and Collinson, 2009). There are countries that re still entrenched in dictatorship regimes such as Syria while others under democracy leadership such as Brazil, USA, India, and South Africa among others (Ren, 2010). The political domain is also different along the laws that are set to govern the relations between people within the borders. Such laws include health and safety laws, tax policies, environmental laws, consumer protection laws, trade control laws, educational laws, discrimination laws and tariffs among others (Ren, 2010). All the differences in the political related factors prove that the world is no longer homogenized as it were years ago, but is undergoing change that will continue to make it heterogeneous. Economic Environments in the world The extent to which the world is homogeneous can be determined by looking at the economic differences that are eminent across the world. The difference in economic development and environments can best be described by an understanding of economic inequality (Luiz and Visser, 2014). Economic inequality is the level of difference in the population based on factors such as disposable income, assets, and wealth, which all are combined in the calculation of the GDP of a particular country (Luiz and Visser, 2014). There are countries that are classified as developed nations while others are classified as developing or moderately developed nations. The developed nations in contrast to the developing and moderately developed nations have higher per capita incomes (GDP) and also have much of their populations living above the poverty line (Mellahi et al., 2010). The citizens in the developed nations are classified as either middle income or high income in contrast again to the developing nations (Mellahi et al., 2010). The developed nations include countries like Russia, UK, Japan, Israel, Brazil and China. The moderately developed nations fall in between the developing and the developed nations. Similarly, the characteristics of these nations further align to be in between the characteristics of the two (Mellahi et al., 2010). Still on economic differences, there different currencies that are used between different countries. This is observed even in countries that belong to regional trade blocks. The currencies also have different exchange rates that further determine the economic direction of a given country (Rugman and Collinson, 2009). There are nations that are members to trade blocks that allow free trade within such economic regions (Rugman and Collinson, 2009). It is also evident that in different countries across the world there are differences in the labour costs and the rates of unemployment with some countries having higher labour costs as well as unemployment rates while some low (Mellahi et al., 2010). Similarly, there are countries with high level of taxes for particular types of businesses as well as high tariff charges. These factors collectively affirms the fact that the world is drawing away from homogeneity and slowly taking up the shape of heterogeneity based on economical point of view (Mellahi et al., 2010). Legal Differences Across the world The heterogeneity of the world can further be confirmed by the differences in the legal environment all over the world (Luiz and Visser, 2014). There are different legal systems in different countries depending on their locations and the political regimes (Luiz and Visser, 2014). There are countries that are confined to common law where the past court decisions determine the interpretation of law. Others have the civil law where the laws are codified and derived from statutes, and is widespread globally (Luiz and Visser, 2014). On the same note, there are countries that are under religious law that is based on religion (Hamilton and Webster, 2012). Even though much there is international law that can be seen as the point of homogeneousness in the legal systems, there is eminent difference in the legal systems of given countries (Luiz and Visser, 2014). The legal environments are controlled by the political parties in the regime and the government. There are different legislations that are set by the governments to ensure that they have control over all the relations within a country. There are different tax laws in different countries that is inclusive of the tariffs and quotas that are levelled on imports (Hamilton and Webster, 2012). Additionally, some nations have tax evasion policies such as the UK so as to allow fairness within their borders. The employment laws are also different from one country to another some being favourable while some of them being relaxed in some way so as to attract investors. The other bunch of laws that differ with respect to the country are the consumer protection legislations that are meant to promote fairness to the consumers. There are countries that have laws that prohibit corruption of any form such as Australia when sourcing for contracts as well as when conducting business. Sociocultural Environments in the World Culture is one way of determining the extent to which there is conformity or difference across the world. Culture can simply be defined the way of life of a given group of people in the society. Culture entails values, beliefs, social systems, attitude and norms that are tied to a given group based on their geographical locations and the social environments that around them. It is very lucid that across the world people within certain geographic conditions will conform to a common language that helps in negotiation, promotion and advertisements (Hamilton and Webster, 2012). Culture is also reflected in the manner in which people consume certain goods based on their perception and beliefs. Some goods are seen as symbols of status in some societies and thus preferred over the others (Hamilton and Webster, 2012). Similarly, some groups have different perceptions regarding gestures. The difference in culture can further be attributed to the differences that are observed in religion (Hamilton and Webster, 2012). Even within some boundaries, more than one religion exists further making the world a heterogeneous rather than homogeneous. In the Islamic states, the involvement of women in the public arena is strictly a sin while in other countries this is not an issue of concern due to the revolution of the social systems and laws (Hamilton and Webster, 2012). The cultural dimensions as predicted by Hofstede, differ from country to country (López-Duarte, 2013). There are different ways in which people from different countries the inequality in the distribution of power among individuals as well as how the distribution is accepted (López-Duarte, 2013). This is referred to as power distance and has been established to have some differences. The second aspect is uncertainty avoidance where some societies or countries often prefer the need of already established conducts in business, the converse is true (López-Duarte, 2013). The perceptions and stand for or against masculinity and femininity also differs across the world (Subba Rao, 2010). These differences across the globe in cultural beliefs and norms affirm that the world has been drawn from the homogenous state to a more dynamic homogeneous state. How the Heterogeneity Factors affect the Decisions of the MNCs Multinational corporations are forced to align with the complex differences that appear between their domestic business environments and the environments where they are entering or expanding into. The political, cultural, economic, legal and sociocultural environments have implications on the strategic decisions that MNCs undertake (Chanakira, 2012). When MNCs are making decisions of entry or expansion into a country, they are faced with the political barriers. Different countries will have different policies and laws that regulate the business environments. A business has also to conduct a political risk assessment in order to determine the level of political stability (Contractor, 2012). The other factors of political importance is the availability of funding for the MNCs as regulated by the government. When the government has some laws that create barriers to entry then such things as partnerships and joint ventures are opted for (Chanakira, 2012). There are also countries that belong to trade blocks where there is free trade agreement. If the parent company is located in a block with the host country then the decisions are made based on that fact (Grant, 2010). MNCs must also adhere to all the necessary regulations that are required by different regions so as to have smooth operations. When an MNC is located in a country facing political instability, the MNC is free to withdraw its operations from the country in question (Contractor, 2012). There are also countries with laws that attract foreign direct investments while some lack, this makes the MNCs decide on how to invest. The economic environment also affects the decisions of the MNCs (Subba Rao, 2010). Most MNCs are attracted to the developed nations based on the fact that they have high and middle income citizens that are potential consumers (Grant, 2010). There are countries with favourable employment regulations making them prime as locations for expansion (Contractor, 2012). When making investment or expansion decisions, most MNCs look at the minimum wage that has been stipulated Vis a Vis the unemployment labour so as to balance the two before entry. When targeting many consumers, MNCs will go for the countries that have high disposable income allowing for consumption (Contractor, 2012). When MNCs are determining locational decisions an economic scan is conducted so as to get an overview of the area as either prime or barren of opportunities (Fung, Liu and Swenson, 2014). The level of technological development as well as the availability of infrastructure will determine the locational decisions of a country (Subba Rao, 2010). When there is no technological development, an MNC must decide whether or not they are willing to import the best technology (Dong, Zou and Taylor, 2008). Most MNCs also have to make decisions based on the cultures that exist in a country (Grant, 2010). The MNCs must tie their product development to the perceptions and cultural beliefs of the country in question. MNCs will also look at the legal settings so as to identify what to comply with and what methods to use in resolving disputes (Grant, 2010). Lastly, the MNCs must also evaluate the exchange rates of different countries to determine whether there will be return on investments or not (Grant, 2010). Conclusion The world in general has changed due to globalization that has made alterations in the global business environment. This has positioned the contemporary world as a place that has shifted to be heterogeneous. All the factors discussed above have implications at their own level on the operations and entry modes of MNCs as have been explored. The factors or rather challenges are the same factors that make the world heterogeneous. The question of how far the world is homogeneous can best be answered by taking a sneak peek into the cultural, political, legal, technological differences that all prove the heterogeneity of the whole world. Bibliography Acheampong, G. and Kumah, B. (2012). Impact of firm-level factors and market entry mode on performance: A study of service MNCs in an emerging economy. 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