FDI Strategy Issues - Essay Example

? FDI Strategy FDI Strategy The growth of multinational enterprises in emerging markets is making the world a much smaller place with each passing day. Year after year, it is possible to see the coming up of a multinational enterprise in a foreign land or region, as it struggles to get a piece of the trends in globalization. Countless corporations and firms are cashing in on the globalization trend as it is much easier to get to a newer market, and offer the firm’s products and services to customers who may not be familiar with their products or services. These trends come with different advantages as well as their fair share of challenges as pressure to belong grows on these corporations and firms regularly. To assist in these changing trends, foreign direct investment guarantees that the corporation is well-situated through mergers, joint ventures, or acquisition of shares. This guarantees their position in the growing market, and a place in their hosts’ market (Peng, 2012). MNE selected (who they are and what they do) Multinational enterprises are taking over the world by storm as they strive and struggle to capture the international market through some of the products and services they offer. One major MNE that is popular in this day and age is probably the McDonald’s fast food chain. This MNE has been around for a particularly long time and is keen on spreading its wings into different regions of the world, so as to capitalize on the changing trends. Changes in the technological and cultural field are making it easier for MNEs to break into emerging markets and take advantage of the growing number of consumers (Peng, 2012). McDonald’s Corporation probably has the largest chain of fast food restaurants around the world. It is situated in almost 119 countries, and has its headquarters in the United States. The corporation sells almost anything that is considered fast food, ranging from soft drinks to desserts for its ever-growing customer base. Sadly, one region that may not boast of having a branch of this corporation is North Korea. Challenges and advantages of FDI for the MNE One of the main advantages of FDI for the MNE is that the host country may be assisted in their quest for improving their infrastructure and projects that boost their economy (Dunning & Lundan, 2008). McDonald’s, in some of the areas that it is situated, can offer them the aid they need in order to be self-sufficient and increase their infrastructure developments. North Korea, as a region that does not boast of having a McDonald’s branch or franchise, may need the services and job opportunities that arise from the corporation’s presence in the region. Moreover, greater competition may arise from all the subsidiaries of the corporation, which may lead to an increase in productivity and gains from all groups participating in the business. Some of the challenges of foreign direct investment for the fast food corporation involve the exploitation of labor in the region. In order to make a mark in the region in which they are situated, corporations are pushed into focusing on their profits, rather than the positive impact of their presence. Also, the host’s country’s investment policies may be a tremendous challenge to the main corporation (Dunning & Lundan, 2008). If the host region has stringent investment policy measures, it may be next to impossible for the mother corporation to invest in the host country, or even find the right strategies to satisfy their overall organizational performance. Best way for the MNE to minimize foreign exchange risks For MNEs, it is crucial to identify the risks that are posed to its operations. The corporation needs to monitor its financial, portfolio, and structural risks and engage in risk management strategies that may protect the corporation’s investments in the host country. When it comes down to foreign exchange and MNEs, structural risks are the most crucial risks to monitor. This is because mismatches between cash inflows and outflows can cause distress that is financial in nature, and may affect the organization’s overall standing when it comes down to organizational performance (Jones & Wren, 2012). In this case, the length of the franchise’s investment may determine its ability to lessen structural risk. Operating strategies are an important way in which McDonald’s can mitigate some of the foreign exchange risks. Through shifting production facilities, the franchise may have a way to tie in the customer markets and assist in mitigating the financial risks they may be exposed to, in the long run. The use of derivatives to prevaricate each transaction is vital in mitigating financial risk as each transaction can be identified, and are short term (Jones & Wren, 2012). Corporations can moderate their costs by getting around its overall position, rather than individual transactions within the corporation. The risks corporations face after investing in different regions bring to focus the problems that they face on top of the usual issues that are present when coming into a different market. They must mitigate these risks in order to stay on top of their game, and make an impact on the different markets. How the MNE could leverage government policies to maximize the profitability of FDI Government policies on investments, both foreign and domestic, may have an impact on the operations and functions of an MNE. McDonald’s is a corporation that caters to a large number of customers in the different regions in which it is located. In light of the above, it is crucial for some of the strategies implemented to go in line with government policies when it comes down to their operations. For instance, investment costs from a foreign affiliate or franchise of the corporation could negatively or positively impact the business, and may determine which direction the corporation will take in terms of investing. This is either locally or in foreign markets. Economies of scale or scale economies in the host region may also impact how the corporation operates (Peng, 2010). The products and services that McDonald’s offers can be monitored by the government and some of the tax policies implemented when it comes to their trading may favor their dealings. This may assist them save a little more capital than they would, had they been operating on a small scale level. The trading tariffs that governments invoke in different regions may be a source in which MNEs and their subsidiaries may increase the profitability of FDI. McDonald’s can find a way in which most of the tariffs that allow for trade between the parent corporation and the subsidiary are low. This may guarantee that the products used are still of high and standard quality, which then guarantees a return in sales and a recording of profits. This kind of trading works for the corporation as it ultimately leads to a reduction in operating costs, and in turn, a rise in profit margins of the FDI (Peng, 2010). The financial management, operations, marketing, and human resources needs resulting from the proposed FDI The proposed FDI should be made out to ensure that the corporation is attaining its maximum potential, and at the same time, be responsible for all that is happening around it. This is what is termed as corporate social responsibility. Financial management from the proposed FDI may bring focus to the competitive nature of the growing business environment in emerging markets, and the improvements that are imminent in the business environment (Dunning, 2010). By trying to bring this into focus, corporations (parent) can ensure that they are at the forefront in championing these changes and welcoming them for the overall financial good of the business. In terms of operational needs, determining that low and high skills are crucial factors in the growth and development of the business may assist in predicting the direction an affiliate or a franchise might take. It is paramount to have these skills present in the corporation in order to exploit the returns of the investment strategies as set out by the mother corporation. Human resource needs should be in line with the corporation’s objective of giving all their support to these chains, and at the same time, ensure that the rights and privileges of all those working in their business environment are protected. By ensuring that the human personnel present in the franchise are paid on time and receive some of the benefits promised to them, the corporation is fulfilling their end of the bargain when it comes down to human resource (Dunning, 2010). FDI is bound to ensure the corporation’s growth and success, both in the source country and the host country. FDI strategies and their presence in MNEs can improve national competitiveness. The safe and continuous investment opportunities that arise from FDI strategies ensure that both domestic and foreign markets are at a level playing field. This ensures that not too much capital is invested in foreign countries, and at the same time, enough capital is invested in the mother country. MNEs are faced with the uphill task of maintaining this level playing field so as to ensure they enjoy their positions in the foreign and domestic market (Ramamurti & Hashai, 2011). This is while adapting to all the situations that arise in both markets. They must monitor their behavior in all markets and prevent the raising of questions as to whether they do belong in their host country or not. In doing so, MNEs may be a welcome phenomenon as they strive to achieve global status, even in the face of adversity. References Dunning, J. H. (2010). New challenges for international business research: Back to the future. London: Edgar Elgar Publishing. Dunning, J. H., & Lundan, S. M. (2008). Multinational enterprises and the global economy. Oxford: Oxford University Press. Jones, J., & Wren, C. (2012). Foreign direct investment and the regional economy. New York: Cambridge University Press. Peng, M. W. (2010). Global business. London: SAGE. Peng, M. W. (2012). Global strategy (3rd ed.). London: Macmillan Publishers. Ramamurti, R., & Hashai, N. (2011). The future of foreign direct investment and the multinational enterprise. Bingley: Emerald Group Publishing. Read More