Multinational Enterprises In Asian Development - Case Study Example

Multinational Enterprises In Asian Development Introduction In the 1970s, Japan's industries had grown to global levels. Japanese efficiency and economic success led to the establishment of Foreign Direct Investments (FDIs) in European and North American nations (Westney, 2009 p630). China developed itself as a superpower and Chinese businesses grew around the world, particularly in the United States and parts of Europe mainly in search for better technology and foreign markets (Voss, 2011 p93). Towards the end of the 20th Century, South Korean businesses also went global. They focused on the expansion of technology based companies which included consumer electronics and automobiles. Thus far, South Korean businesses have succeeded impressively around the globe. This paper examines the rise and growing role of Asian-Pacific businesses in the global economy. It will analyse the growth of FDI from nations in the Asian-Pacific, particularly Japan, China and South Korea. The research will review the trends and expansionist strategies employed by multinational enterprises from these nations and evaluate how they managed to attain successes on the global level. Japanese Businesses The Japanese European Trade Organisation (JETRO) studied a number of things about the expansion if Japanese businesses into Europe (Sachwald, 1995). They identified five main motives for the expansion of Japanese businesses into Europe. First of all, Japanese businesses sought to expand into Europe for production reasons. Geographically, Japan has not been a very rich island in terms of natural resources. As such, their expansionist drives into foreign nations included the desire to acquire much needed raw materials. Thus, the establishment of foreign companies enabled them to establish production systems with their technology and capital and produce at points close to the customers that they previously exported to. Secondly, the cost of energy and electricity has been traditionally high. Japanese expansionist ideology was to make use of cheap electricity and energy costs. Again, Japan has always been an overpopulated island. Due to that, land costs are generally higher. The expansion into foreign lands enabled Japanese businesses to economise and save significantly on rent. Other costs like pollution and transport costs were significantly lower in other parts of the world. Thus, Japanese businesses expanded to foreign lands to take advantage of these production related advantages. Secondly, Japanese businesses moved to different parts of the world in order to develop new markets. In the 1970s, Japanese businesses had exported large volumes of products to people in different parts of the world. However, they realised that by establishing branches in parts of the world, they were able to get direct access to the market and localise to meet the actual demands and expectations of the foreign markets. The third reason that JETRO identified for Japanese FDI is the need to avoid trade friction. Japan had undergone a lot of persecution and resentment from nations around the world for their roles in the Second World War. Their exports were of high quality and were bound to receive some kind of resentment from producers of lower quality goods. It was thus natural for Japanese businesses to expect some degree of trade friction in foreign countries. To avoid the effects of these trade wars, some Japanese businesses chose to establish foreign branches of their company in other parts of the world. The fourth reason for the growth in the number of Japanese multinational enterprises (MNEs) was the need and desire to acquire information and new technology. Japan realized that nations like America and Germany had abundant human resource and technology. It was therefore more prudent to site operations in these nations to take advantage of the technology and highly trained personnel. The fifth reason uncovered in the survey was Japanese businesses' financial advantages that came with international expansion. First of all, there was a high yen exchange rate so the Japanese businesses could get some advantages in foreign exchange. Also, Japanese businesses were more likely to acquire funds and loans if they were operating internationally (Sachwald, 1995 p89). Westney (2009 p632) identifies four main strategic positions that made Japanese businesses successful internationally. First of all, Japanese businesses utilise a relatively lose control system. Unlike their European and American counterparts who maintained global integration strategies, Japanese businesses utilise a more local strategy. Secondly, the localisation strategy of the Japanese businesses encouraged a high degree of responsiveness. This is because they used international divisional structures instead of the global product division matrix which is used by most American businesses. This means that each international branch had local strategic business units that were opened and operated according to local standards and not standards imposed on the Japanese headquarters. Thirdly, Japanese businesses employed a higher proportion of expatriate managers. These Japanese managers were posted to head localised units. Finally, the Japanese businesses applied Japanese management and production systems. This ensured that Japanese businesses transferred their highly efficient methods and systems to local branches. These management skills were imposed in the context of local systems and structures. This means that the efficient Japanese models were coupled with local opportunities and changed as and when necessary. Also, the Japanese government was involved in a number of bilateral activities that created the background for the expansion of Japanese businesses (Adekola & Sergi, 2004 p38). In 2003, the Japanese Government entered a production agreement with the Mexican government. This allowed Nissan Motors to establish branches in Mexico to take full advantage of the cheap labour and the opportunities in the Mexican market. Case Study: Toyota Toyota began operations in the 1920s as a family engineering firm. A younger member of the family chose to specialise in the manufacture of cars. By September 1947, Toyota was manufacturing small vehicles known as Toyopet (Hino, 2007 p81). In 1957, Toyota was exporting to the United States of America however, they received a lot of resentment from the American public in the early 1960s since consumers preferred larger cars (Kleindl, 2006 p129). In the late 1960s, Toyota increased its quality significantly to meet the demands of the American market (Hill & Jones, 2007 p270). The export from Japan to America was handled by the Toyota Motor Sales Company. In Europe, Toyota vehicles were exported by the Toyota Motor Europe Marketing & Engineering (Hino, 2006 p12). In the late 1960s, USA imposed a 25% tax on foreign vehicles imported into the nation. Due to this, Toyota and other Japanese car manufacturing companies like Honda and Nissan built plants in the United States to avoid the tax (Hill & Jones, 2007 p270). In the 1970s, American consumers became sensitive to fuel consumption rates so they increased their demand for Toyota vehicles. The increase in demand and proximity to good American researchers and research centres gave Toyota the opportunity to improve continuously through research and development (Hino, 2006 p56). Eventually, the Toyota Motor company merged with the Toyota Marketing companies in Europe and America (Hino, 2006 p61). This created the impetus for the internationalisation of Toyota around the world. Korean Businesses on the International Level The expansion of Korean businesses was based purely on national structuring and specialisation (Bende-Nabende, 2003 p176). It is estimated that 80% of Korean businesses that are operating in Europe into the sale of electronic goods (Bende-Nabende, 2003 p176). This include 'brown goods' like TVs, VTRs and the like. There were also 'white goods' like microwave ovens and the like. Others were into the sale of semi-conductors and components as well as office equipment. Korean business expansion drives were mainly centred around research and development through mergers and acquisitions to attain competitive advantage (Bende-Nabende, 2003 p176). Korean businesses mainly identified the cultural revolution in foreign nations and people's tendencies towards consumer electronics (Athukoralge, 2007 p63). In other words, Korean businesses focused on their leadership in research and innovation. This led them to enter partnerships and foreign investment drives that enabled them to build upon their innovative businesses. This surfaced mainly in the electronic sector and other forms of high technology items. Also, the markets that existed with the new trends in demand for new electronic products and tendency for households to change their electronic products each year led the Korean businesses to expand internationally. This is because customers there is a strong assurance in today's world that consumers will always demand new models of electronic products, as such, the establishment of local businesses put the Korean business closer to such consumers. In reaction to these opportunities around the world, the Korean statesman, Goh Ken Swee put in place arrangements that were meant to provide support for Korean businesses that sought to expand (Athukoralge, 2007 p63). The main Korean companies that benefited from the government's incentive arrangements for internationalisation were the chaebol businesses. Chaebol is a group of Korean conglomerates that are often family controlled (Sang-Gon & Pierre, 2001 p21). These businesses were large enough in the 1990s to expand to other parts of the world. They included large brand names like Samsung, Hyundai and LG. They were mainly centralised businesses with access to large financial grounding that can enable them to fund their international expansion drives. The Case of Hyundai Hyundai is a major chaebol in South Korea which began in 1947 as a construction company (Steers, 1999 p57). By the 1970s, Hyndai developed into two subsidiaries: construction and motor company. Each of them continued to focus on their respective specialisations. In 1995, Hyundai announced major restructuring which led to the creation of new branches within the Hyundai Group: KIA Automobile Group, Departmental Store, Heavy Industries and Development (Steers, 1999 p57). Each of these branches had independent operations and they embarked on separate partnerships and expansion drives. The 1997 Asian Financial Crises laid the impetus for Hyundai and many Korean companies to go global (Ungson et al, 2005). This led to the establishment of foreign operations in USA, Europe and different parts of the world. Hyundai became a global brand in the next decade. Chinese International Businesses The main prompters of the Chinese international business expansion drive was the desire to seek market expansion and resource acquisition just like the Japanese (Pearce, 2012 p97). This was the main reason for the formation of Chinese companies that sought to expand into the developing countries. The Sino-African business expansion drive can be justified on this motivation. These businesses mainly sought price advantages and mutual exchanges (Perekkan & Walsh, 2011 p198). On the other hand, the main reason why Chinese businesses expand to Europe and North America is to access technology and efficient strategic assets (Pearce, 2012 p10). This has led to a lot of Chinese mergers and acquisitions around the world. Although the Chinese foreign business expansion drive has motives similar to the Japanese, the Chinese businesses expanded with significant support of the state's support (Voss, 2011 p93). This is because China set off as a Communist nation. Due to this, the nation had to rely heavily on the government for support and direction. The state-owned enterprises in China had an agglomeration of resources that could lead to the leverage of their strengths around the world (Voss, 2011 p93). This is because such state-owned enterprises have sufficient finance and human resource that support their expansion to nations around the world. The Chinese government has also opened a number of corridors of trade in different parts of the wrold (Perekkan & Walsh, 2011 p198). This include the many treaties that China has made with different nations around the world. This enables Chinese businesses to open up branches in different corners of the world. Overall View of Asian Business Expansion on the Global Level From the analysis and study of the trends in the global expansion of Asian businesses around the world, it is apparent that Asian businesses had similar motives in their international growth. These commonalities can be classified under three main headings: Motives, Strategy & Propitious Conditions. Motives & Opportunities 1. Production Factors: The mergers and acquisition of foreign businesses around the world was based on the desire to cut down costs in production. This is because there were some cost challenges that these Asian businesses were facing in their home nation. This include the lack of raw materials and the strong laws on environment as well as other high costs of land and energy. These production and cost related factors caused Asian businesses to go global. 2. Development of New Markets: There were new markets that were identified by these companies. Instead of exporting and using distributors to reach foreign markets, it was appropriate for these Asian businesses to open up new businesses in foreign zones around the world and try to reach the customers. 3. Prevention of Trade Wars: The establishment of Asian businesses around the world ensured that locals of the foreign nations got employment and could connect with the products of the Asian companies. This prevented unnecessary trade friction that an export oriented strategy would have caused for these Asian businesses. 4. Acquisition of Technology and Information: The location of Asian businesses in foreign countries and territories caused these businesses to gain access to the best expertise in nations around the world. Samsung employs over 42,000 American researchers, most of who have PhDs. These American experts have continued to support the growth and expansion of Samsung around the globe. 5. Access to Funding: Most Asian businesses got grants and support from their governments to expand into the global sphere. This provided the opportunity for expansion by local businesses. Strategy The main strategy that Asian businesses have utilised around the world is the use of localised strategies. The American and European businesses sought to use a centralised strategy that created a method for the global compliance of local brands. On the other hand, these Asian businesses focused more on a responsive structure. Secondly, the Asian businesses often use local business structures that allow strategic business units to be created in relation to local conditions. This enhanced the local responsiveness of their operations around the globe. Thirdly, most Asian businesses maintained Asian management strategies which preserved efficiency and effectiveness that existed in the home countries. Due to this, Asian businesses succeeded in different parts of the world. The international management systems were supported by expatriate managers who ensured that the interests of the Asian businesses were honoured at all times. Propitious Conditions 1. Most Asian businesses focused on specialisation. The large Asian businesses had some businesses and operations in areas like consumer electronics, car industry and semi-conductor manufacture. Due to the world class skills and potentials that these Japanese, Korean and Asian businesses had, it was appropriate for these skills and abilities to be exported to different parts of the world. 2. Availability of Research & Development and Global Business Systems: The creation of global harmonisation standards and intervening organisations like the World Trade Organisation (WTO) and Organisation for Economic Corporation and Development (OECD) provided a background for the expansion of Asian businesses around the world. This is because these global bodies led to the creation of a conducive atmosphere for nations to receive Foreign Direct Investments. Asian businesses therefore took advantage of the opportunities that existed around the globe. 3. Presence of Conglomerates: The presence of large family owned businesses in Japan and South Korea as well as large state-owned enterprises in China provided a strong leverage for the expansion for expansion. This is because such businesses had the human resources and financial resources to open up new branches in different parts of the world. 4. Income systems and structures: Generally, the cost of labour in Asia is lower than the developed world. On the other hand, income and wage levels in nations in North America and Europe were generally higher than normal. Due to this, Asian businesses had labour cost advantages that most Western nations could not match. This led to the proliferation of Asian businesses around the world. 5. Government Policy: Most Asian governments have come up with conscious and systematic efforts to expand their nations' opportunities around the world. The Japanese government has bilateral arrangements with many governments around the world. Korea's government has a strong agreement with the US government and other EU nations. This allows Korean businesses to access opportunities around the world. China has also undertaken a number of business arrangements around the globe in recent times. They have bilateral arrangements with many nations that allow Chinese FDI to enter such nations. Conclusion Favourable factors that exist elsewhere acts as the basis for the expansion of Asian businesses overseas. Most of these companies use local strategies everywhere they operate. However, they focus on the discipline and management styles they know in the home country. References Adeko, Abel & Sergi Bruno (2004) Global Business Management: A Cross-Cultural Perspective Ashgate Publishing Limited, Athukoralge Premcheaha (2007) Multinational Enterprises in Asian Development Surrey: Edward Elgar Publishing. Bartnik, Roman (2009) Organizing International Innovation: Research & Development Mandates and Co-ordination Patterns Berlin: Metropolis Verlag Bende-Nabende Anthony (2003) International Trade, Capital Flow & Economic Development in East Asia Ashgate Publishing. 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Voss Hindrich (2011) The Determinants of Chinese Outward Direct Investment Surrey: Edward Elgar Publishing. Westney Eleanor D. (2009) “Japan” in Oxford Handbook of International Business Oxford: Oxford University Press. Read More