Suitability of United Kingdom for Multinational Business - Research Paper Example

Suitability of United Kingdom for Multinational Business INTRODUCTION United Kingdom is one of the countries located in the continent of Europe. It is located to the northwestern coast of Europe. It boarders only one Sovereign state; it boarders the Republic of Ireland located to the north eastern part of the country. The rest of the country is surrounded by the waters of the Atlantic Ocean. UK also covers a total area of 243,610 square kilometers. The UK is a powerful nation with one of the leading economic and cultural influence in the world. The market economy of the UK is partially regulated. The country is the sixth largest economy in the world with over $2,400 GDP. 2. DIMENSIONS OF DISTANCE The UK has special relationship with foreign countries such as USA and France. It is also a member of NATO, G8, G7, OECD, Commonwealth and EU. This membership enables it to develop good business and political relationship with foreign countries. However, the types of distance between UK and these countries affect these relationships a great deal. According to Ghemawat (137), the different types of distance between different countries influence global trade and multinational business strategies. The specific types of distance identified by Ghemawat which affect UK in its international trade and multinational strategies include Cultural, Administrative, Geographical and Economic distances (CAGE). In terms of cultural differences, UK may be considered to experience distance dimension in international involvements through language differences with foreign countries, different ethnicities, different religions and different social traditions and norms. The main feature that makes UK different from other countries is its British culture. For instance, the language spoken by UK citizens is British English. This differs from other languages spoken by UK’s trading partners. The language spoken in France is French while that spoken in Spain is Spanish. The language spoken in Netherlands is Dutch while that spoken in USA is American English. This difference in language affects multinational business strategies of multinational companies intending to enter the UK market. According to Alkema, Koster and Williams (5), one of the most important business strategies for a multinational corporation is to maintain its core business products and services while attempting to meet the needs of its customers in the foreign country. This is always hampered by language differences because the certain services are better offered and communicated using the local language of the host country than in British English. Furthermore, the social traditions, religion and ethnic communities of the UK may also not accept the products and services offered by multinational companies. Another example is that UK companies selling pork may not thrive well in countries like Russia. The second type of distance between UK and other countries is Administrative distance. In this case, multinational business strategies and international trade between UK companies and foreign companies will be affected by the absence of shared monetary and political associations, political hostility and government policies. If the multinational companies from hostile countries intend to enter the UK market, they may face political resistance and may not thrive in those markets. For instance, some Middle East countries such as Iraq are not politically friendly to the UK because of the UK’s affiliation to the US. This makes them not to get appropriate reception in the UK. However, the UK political system is welcome to most countries and is therefore appropriate destination for international business. Geographical distance also affects the international involvement of UK and other foreign countries (Ghemawat 142) For instance, if a country lacks a common border with the UK e.g. US, it becomes difficult for US companies to trade within the UK market. This is because it may take time to transport products from one country to another. This is even worse for businesses dealing with perishables. Furthermore, products which have low value to weight ratio such as cement may not be effectively traded in international markets because transporting large bulk will involve higher costs yet their value is low. Finally, Economic distance may affect international businesses between UK and foreign countries. In this case, the UK’s well established economy makes their costs and quality in natural resources, financial resources and intermediate inputs to be suitable for international for international trade. 3. INSTITUTIONS The political and social systems, openness, product lines, labour and marketing systems of the UK affect multinational business strategies and international trade to a very large extent. This includes a great deal of nationalization of the country’s local industries and institutions. This has opened the local industries into the international market because the country has allowed an open economic system through economic integration, unionized monetary system with neighboring countries and involvement in international political systems. The political and social system of the UK is appropriate for international trade. For instance, the political system under the leadership of the UK monarchy has established a constitution composed of international treaties which allows for international trade and boosts multinational business strategies multinational corporations. This is because multinational corporations depend on vibrant democracies which have checks and balances like the UK (Khanna, Palepu K and Sinha 68). Multinational companies of the UK largely depend on the rule of law and enforcement of legal contracts in their international dealings. The social system of the UK on the other hand is characterized by a check and balance system involving the national media which acts as a check on abuses and undue business by governments, company’s and non-governmental organizations. This political and social system of the UK is shared with other European Union countries and the US. This makes such countries to be potential trading partners with the UK, and the UK therefore becomes a suitable market for multinational businesses from those countries. The UK is also a suitable destination for multinational business because it has an economic system that is open to all types of foreign investments (Khanna, Palepu K and Sinha 68). However, this is limited by the country’s policies on monopoly. In this situation, some sectors have been monopolized, hence creating barriers to entry by international competitors. This limits the appropriateness of the UK economy for multinational business to specific but not all sectors. The labour system in the UK is not sufficiently appropriate for international trade in the sense that there is unionization of labour which often leads to industrial actions. These industrial actions often lead to costs and losses incurred by the multinational companies trading in the UK. This is contrary to the US system whereby unionization of labour does not result in industrial actions. Finally, the capital markets of the UK allow for international trade because companies can easily access bank loans, the corporate bond market is well established and the stock exchange is integrated. This allows for multinational in the UK companies to get enough investors. 4. INDUSTRIAL AND GLOBAL CLUSTERS Clusters can be referred to as the groups of interconnected companies and institutions in a geographical proximity, linked by common and complementary aspects and features (Porter 15). As explained earlier, the UK government has initiated nationalization of local industries within the country. This has resulted in clusters of companies; both global and local. The purpose of these clusters is to bring together the skills of various institutions and companies in the economy of the country in question. Multinational companies require such clusters so as to acquire skills from the local companies as well as other international corporations (Porter 15). In order for companies to succeed in international business, they need to identify areas where they can effectively form partnerships with foreign businesses so as to take advantage of technological sharing and development. It is clear in this century that international businesses are now well established and they no longer need to expand. What they only need is partnership with other international companies. This is possible and easy if there is a good industrial and global cluster system that will enable the partnering companies to come together in close proximity. There are many industrial clusters in the UK which multinational companies nay take advantage of and establish themselves in such clusters. Examples of these clusters include: cotton spinning industries clustered in Yorkshire and Lancashire, steel and Cutlery industries in Sheffield, Metal manufacturers in Birmingham, and potteries industries in Staffordshire. These clusters enable the companies within them to create synergies and share corporate efforts in order to achieve their objectives (Porter 25). This is more so in research and development practices. This aspect of industrial and global clusters in the UK enables multinational companies to share technologies, human and physical capital, infrastructure and natural resources. It also creates proximity for customers who will always know where to shop for specific products. Therefore, the UK is an appropriate destination for multinational business because it offers multinational companies the opportunity to form clusters alongside their multinational counterparts as well as the local industries. The success of the UK as one of the greatest economies is attributed partly to the fact that most of its top firms do not operate in isolation but each is a part of a pool of rival firms competing within a close geographical proximity. This can as well be adopted by international firms entering the UK so as to achieve the same results as the UK companies. 5. GLOBAL DIFFUSION OF TECHNOLOGY One of the most asked questions in international business studies is the role of global diffusion of technology in international trade. There is always a general theory that transfer of technology from one country to another occurs as a result of international trade (Perkins and Neumayer 790). However, it is important to understand the importance of this technological global transfer in order to assess the suitability of UK as a home of multinational businesses. Diffusion of technology comes about in situations where a business plans to establish its technology-based business in foreign countries. Most of the international businesses nowadays require technology. The diffusion of technology allows a multinational company to maintain its line of business in the foreign country by transporting its home technology to the host country. This also allows the company to exchange its technology with foreign companies and establish good technological partnerships with foreign firms. This enables them to improve the quality of its products and services in the world market. The UK is one of the most well developed countries in terms of technology. However, there are some technologies which are specific to certain firms in the international market. For instance, the technologies used by the Toyota Company to manufacture its cars are not similar to the technologies used by the UK car manufacturers. The technologies may be similar in some ways but they can never be perfect substitutes. Therefore, if Toyota plans to enter the UK market, it has to transfer some aspects of its technology to the UK. This will enable them to maintain their product line in the US market as part of its multinational business strategy. However, this technology should be acceptable in the UK market. The UK economy is dynamic and its levels of technologies keep changing from time to time. This is because the UK economy is flexible in terms of technological advancement. Since the business world is dynamic and constantly changes, there should always be counter-changing systems within an economy so as to meet the demands of the changing world. This is the case in the UK whereby its flexible technologies allows for adaptations to the changing demands of the world economy. In circumstances where business involvements demands new technologies as is always the case in international businesses, it is always important for the host countries to be flexible enough so as to allow for diffusion of new technologies from foreign countries (Perkins and Neumayer 802). This is the case with the UK where technologies are exchanged constantly with other large economies of the world such as the, US, Japan, France, Germany, Finland, China, India and South Africa. Therefore, the UK is a good and appropriate economy for international business because it allows for diffusion of foreign technologies into the country. Works Cited Ghemawat P. “Distance Still Matters: The Hard Reality of Global Expansion” Harvard Business Review 79.8 (2011): 137-147. Ghemawat P. “The Cosmopolitan Corporation” Harvard Business Review 89.5 (2011): 92-99. Khanna, Tarun, Palepu Krishna, and Sinha Jayant. “Strategies That Fit Emerging Markets” Harvard Business Review 83.6 (2005): 63-76. Perkins R and Neumayer E. “The International Diffusion of New Technologies: A Multi- technology Analysis of Latecomer Advantage and Global Economic Integration” Annals of the Association of American Geographers 95.4 (2005): 789–808. Porter M. “Location, Competition, and Economic Development: Local Clusters in a Global Economy” Economic Development Quarterly 14.1 (2000): 15-34. Read More