International Business Strategy - Essay Example

Executive Summary Multinational corporations have become common in the world nowadays and almost every business feels the need of taking its businessabroad. This need occurs when the domestic demand has been satisfied and still the company has this insatiable thirst of getting the profits in broader sense. Then it thinks of another consideration which is to expand globally. This document talks about the considerations multinational corporations take care of while expanding their activities in further foreign countries. There are legal, political, cultural and social aspects of the country that the company has to enter in. there is also an example of Tesco’s entry in China regarding all the aspects mentioned above to depict practical application in the real world. Then the company has to make a research of the types of segments and what kind of segments among them are the target segments for their products. They also have to keep in mind that whether the products the multinational is offering are of any interest to the customer ort not, and whether the customer’s needs are fulfilled by it or not. Multinational’s mode of entry, its strategies and the implications are discussed. The research is given to empower the statements stated and support the fact related to multinational corporations worldwide. Table of Contents Introduction 3 Different aspects of MNEs 3 Tesco’s entry in China 4 Corporate strategy for multinationals 5 Research 7 Conclusion 9 References 10 Introduction The entry of multinational companies is a common trend in many countries due to globalization all over the world. Many of the countries are following this ritual of entering another country after the success of their business in their own country. That needs expansion; expansion in every area of their business as that would lead them to earn greater revenues. The companies take into consideration many different aspects like what country to enter, what cultural, social, political and legal constraints they would have to face there, what mod of entry they should select and what business procedures they should conduct. There are also other considerations whether there is a need of the products that companies is offering in that country and what is the perception of that brand or company in the minds of consumers. All that is very important for the business to thrive in another country. Companies also have to find allies of the same host country so that they can help them know about the consumers’ needs and wants more clearly as they belong to the same country and know better. Different aspects of MNEs When ever a company moves from one country to another, it considers the role of political, social, cultural and legal factors that would affect the business dealings in that country. Foreign direct investment and mergers and acquisitions are some of the ways a country can enter another country after making certain dealings with its allies and offering them something better so that they are willing to work with them. The world is not limiting itself to what I is and where it is. I is trying to expand its horizon in every possible way. The company lying in one country is thinking of going beyond its boundaries and catering to the needs of consumers living abroad. In that way the foreign direct investment is becoming superfluous and they are earning money to raise their business expertise in many other related fields. Domestic savings increase, large reserves of capital at macroeconomic level are observed that help in relaxation of political restrictions for that company. Channels of distribution must also be taken care of like whether the company should enter being a retail store, departmental store, designer outlets or a flagship store. The basic motivation of the multinational to expand their business is the sense of ownership; if they enter the market first as compared to the competitors (first mover advantage) then they would get the label of that brand and product and have the recognition in the minds of consumers in such a way that whenever a product would be named, the brand name would come in their minds instantly. Tesco’s Entry in China Let’s take the example of Tesco’s entry in China. The motivation behind this entry was to gain control over china’s major hypermarkets named as Hymall which owns 25 stores in china. The major spread of this market is seen in china all over and the control is wide. Tesco wanted to have all this in its hands and that is why it chose joint venture entry mode to take hold of things. It was decided that hypermarket business would adopt the network of retail store all over the country so that every consumer’s needs are catered. The idea behind being spread over a vast area was to become competitive and that their presence would give the competition a threat as they would have the advantage of being present almost everywhere. That would make the customer reach easy and would help Tesco make profits. Sometimes the basis for motivation for going international is reach to resources or technology. Tesco not only wanted to make its business grow larger and reach to every consumer out there but also wanted to have reached to the technology that it was lacking and was needed badly by its business which could help them flourish in China. That is why they made agreements with the hypermarkets chain so that the required resources are taken from them and Tesco would be saved from all the hectic work of searching the resources all over again in China. Corporate Strategy for Multinationals The basic corporate strategy of a multinational is to maximize global profits. These multinationals try to operate in the way they have done in their own countries but that again depends on the cultural and social values in the host country that would allow them to do so or not. Some cultures are ethnocentric that consider their own culture as superior to those that are other than their own country. Then the multinationals adopt the policy of licensing or foreign direct investment. In this case the companies give their operations to another licensee and that company operates in another country according to the rules and regulations of the parent company. Plants are established in another countries and they operate their according to sometimes their own home country practices or sometimes according to the molded practices relevant to the host country. Market development is the initial motive for foreign direct investment. Looking for new markets when the domestic demand has been satisfied and when the company looks that the sales are becoming stagnant, and then it expands to other markets for the thirst of growth. To avoid import tariffs to other countries, the companies find it easier to expand to their countries. The protective instruments have to be taken care of when the company is operating in another country because the government policies do not sometimes allow the company to operate in the way it wants. When transportations costs are high, the companies have another escape to avoid these which is setting up plants in other countries. The pants are built either close to the input resources for the company or to the market in order to reach the customers easily. That is also convenient for the consumers and that is the biggest advantage for Tesco to operate in china. The sales are high for the fact that consumers can reach easily for their needs to be fulfilled. To keep away from fluctuating exchange rate, the companies prefer to set up their plants in another country. For example if Tesco UK had to send its articles to China then it had to take care of the price of that article in UK currency and how much would it cost in Chinese currency. People would also face problems in buying the article as it would be expensive. To acquire foreign business is also the chief concern of multinationals. As Tesco did, it acquired the famous hypermarket chain in China which eliminated the threat of competition and gave the empowerment of becoming the leading store in that business area. Cheap foreign labor is also the important factor to drive the multinationals to expand to different countries, one after the other. The companies are able to find good labor and capital at fair prices which the encouragement for the business to keep its activities on the track in the country where it is interest to carry out its business. The company has a list of choices from which it has to choose; sometimes the list is of the companies where it can go to expand the business or sometimes the choice is about the resources present in a certain country to select the suitable one. Research The research has shown that the products and the brands consumer knows about are already enjoying the advantage of brand awareness. The company does not have to engage in high costs of advertising to make people aware, educate them or make them get to know about the offerings the company has made for them. In developed countries, there are companies that take the infrastructure, especially the soft infrastructure as granted. The infrastructure is usually under developed and needs major improvements. For that purpose, many engineers and experts are needed so that they not only work to mend that infrastructure so that it becomes suitable for the multinationals to operate but also they must be hired for the activities of the business of multinationals to take place. The business models of such multinationals need to be very strong because they need to have lifelines to make their business work. Many studies and the authors of those studies stated that the multinationals which want to expand to another country rely on research firms to tell hem about the data related to consumer preferences. The products that they would be interested to use and what are the needs that drive them to go for that product are major concerns of the multinationals. How much the consumer is willing to pay for what he requires and whether the product fulfills his need are the company’s strengths. Multinationals have to recruit the employees all by themselves as they do not have that much developed human resource department when it moves to another country. The employees are mainly hired from the host country that know about the customers and can very well cater to the needs of the consumers at large. In the beginning, companies were restricted to going global by taking their business abroad as they were afraid of the policies and foreign restrictions of carrying out a business in a certain country, but the trend has changed now. India and china are eyed as the most growing markets for the multinationals, due to the fact that the labor is cheap and capital is easily available. The costs companies have to pay for the labor and capital is low and they are well off in the end that they have saved a lot to invest that saved money in other areas of the business. Several companies have entered these countries with low cost strategy and fresh business models to cater to the needs of the customers and the requirements of the environment. Innovation is deeply ingrained in the strategies that these companies use as that triggers these companies to make decisions that are best for the business and can help them achieve the goals that they have already set in their mission and vision statements. The companies that reduce the chances of double taxation on their business can have different implications of foreign direct investment. Access to the information makes foreign direct investment easier in those countries as the data is readily available and the company can make use of it whenever and in whatever way it wants. It helps the company to shape its business the way its customer wants as customer satisfaction is the key to success for the business working in home country or host country. A multinational company replicates its business across different countries to steer clear of trade frictions. It is learned that the strategy a developed market company has applied to its business is different from that developed by an emerging market company. The business environment in china is quite challenging and many companies that have entered the market in the last ten years faced many hindrances as the business environment in china is peculiar. Maintaining the balance between local and global policies of that certain business is an area often paid great attention to. The training considerations and the development strategies are the ones that need consideration. The managers face a lot of difficulties while considering all of the opportunity costs regarding this matter. Very choice contributes a lot to the business and the managers of multinationals are confused what to let go and what not to. Capacity development and community development are the areas that need focus before the business actually starts operating in the country abroad. Capacity development means that the organizations strengthen and maintain the capabilities to set and achieve their own development objectives over time. They must maintain their capacity over time; as the time changes, trends also change. Thus, the companies have to be flexible to adapt to the changes of environment so that they don’t lag behind but they have to maintain their basic strategies so that they don’t go astray of the track they were mentioning in their mission statement. Conclusion The multinational companies are working day and night ot prosper in the international arena and for that they would get anything to be done. They want results that cater to their long set goals and the tactics they adopt to fulfill these strategies must comply with the organizational policies. Not only this but they also need to keep in mind the requirements of the international environment and the needs and wants of the customers which the ground basis for their business to provide them strength in the long run. The power and fuel of these multinational corporations is the trust and believe in their own capabilities and in their allies. References Suma Athreye, Sandeep Kapur. “Introduction: The Internationalization of Chinese and Indian Firms- Trends, Motivation and Strategy” (2009), http://icc.oxfordjournals.org/cgi/content/full/dtp007 Jiang Jingjing. “Tesco makes foray into China market” (2004). http://www.runsky.com/homepage/english/special/2004/software/whatison/userobject1ai464980.html Choi’s seminar at University of Paris I- Pantheon- Sorbonne. “Multinational Corporations”. http://econ2.econ.iastate.edu/classes/econ355/choi/mul.htm Pankaj Ghemawat, Thomas Hout. “Tomorrow’s Global Giant? Not the usual suspects” (November 2008). http://hbr.org/2008/11/tomorrows-global-giants-not-the-usual-suspects/ar/1 Tarun Khanna, Krishna G. Palepu, Jayant Sinha. “Strategies That Fit Emerging Markets” (June 2005). http://hbr.org/2005/06/strategies-that-fit-emerging-markets/ar/1 Bruce A. Blonigen. “Foreign Direct Investment Behavior of Multinational Corporations” (2006). http://www.nber.org/reporter/winter06/blonigen.html Read More