Organic Growth vs Cross Border Acquisitions for Multinational Companies - Research Paper Example

MNEs are often associated with direct foreign investment, which Andersson posits is associated with advantages of ownership and internalization along with inter-country differences in factor costs and technology” (Andersson, 1991:3). Directly correlated to this is Andersson’s assertion that “a considerable proportion of the flow of goods and factors between countries takes place within multinational enterprises” (Anderson, 1991:3); which in turn fuels the polarised debate regarding the advantages and disadvantages of business growth through cross border acquisitions via the MNE business format in contrast to organic growth.

The focus of this paper is to critically evaluate the advantages of organic growth versus cross-border acquisitions via the MNE format. Furthermore, it is submitted at the outset that the efficacy of business growth strategy with MNEs is directly correlated to the national political and economic framework within any chosen host economy; which in turn shapes the choice of entry to the marketplace. In considering this line of argument, I shall contextually consider the business entry strategies of China comparing the MNE structure against other cross-border trade models.

As highlighted above, pertinent to the debate regarding appropriate business growth strategy within the MNE context is the choice of entry strategy. This further links to a controversy that has reigned in respect of the corporate governance of MNEs, which has created problems regarding effective corporate governance in relation to activities of a corporate group and multinational enterprises (MNE), with practical difficulties of enforcement and accountability. This has led commentators to criticize the inherent limitations of the law as a tool for the regulation of MNEs, which is further compounded by the problems of state corruption and entry strategies for multinationals (Muchlinski, 2002 in De Lacy, 2002 at p.249). From a business perspective, this is often viewed as a perceived economic advantage of using the MNE format as part of growth strategy in cross border trade due to the tax advantages and limitation of law as a tool for regulation (Muchlinski, 2002, in De Lacy, 2002 at pp.249-250).