Growth of Asian-Pacific Multinational Companies - Essay Example

Growth of Asian-Pacific MNCs Inserts His/Her Inserts Inserts Introduction Economist believe that in the coming few years, India and China are set to disrupt markets, industries, workforces and companies in ways that have never been witnessed before. Multinational companies from the Asia-Pacific region have been gaining a larger share of the global market as was witnessed in the 2009 Fortune 500 global list which included 145 Asia Pacific companies representing 29% of the total (Yang & Huang, 2011). This growth in the market share of Asian Pacific companies has been driven by an open minded consumer base that is concerned more concerned about quality, high domestic saving ratings, government support, and the willingness of these corporations to make large acquisitions and develop high-profile partnerships. Domestic Markets For many corporations, the Asia Pacific is not considered as a production site but rather a large and growing market. Chinese Multinational has access to a large market that provides a sound foundation that allows for growth into the global markets. With over 1.35 billion people, China offers manyChinese companies a source of capital to expand and grow. Most of the Chinese multinational began by capturing a large percentage of their domestic market before moving to the global economy. Multinationals from China still maintain their home operations and ensure their main strategy is to maintain their domestic market (Noland & Pack, 2003). Lenovo Company, one of the largest electronic companies was founded in 1984 in Beijing, China as Legend. The company was initially designated as “guoyou minying” literally translated as state-owned, people-managed company (Ahrens & Zhou, 2013). The company’s first innovation was in the ICT field and by the early 1990s it had attained a 50% market share in its technology. The company was traded in the stock exchange in 1994 where it raised over US$30 million (Suzuki, Tanimoto, & Kokko, 2009). Lenovo’s success began when it developed a microchip that allowed IBM computers to process Chinese characters. This drive to integrate the Chinese population in its activities allowed the company to gain the largest market share in technology. In 2002, the company had enough capital to expand out of China and into the global economy. The success of Lenovo highlights the manner in which most companies from Asia-Pacific access the world market. They do so by utilizing and maintaining their domestic market and thus having a foundation with which to spread. Government support Companies from the Asia-Pacific receive a lot of help from their respective governments in their quests to penetrate the world market. The Chinese government for instance has increased its support to many Chinese companies that are emerging in the world economy (Buckley, 2007). During the period after 2000, the Chinese government supported many construction companies that were penetrating the African market (Cui & Murtaza, 2007). This allowed these companies to raise enough capital to undertake large and complex project that many African companies were unable to do. Looking at the case of Lenovo, we can see that the Chinese government owns about 36% through the Chinese Academy of Sciences. The government provides opportunities for the company to flourish and grow both in the domestic market and in the international market (Ahrens & Zhou, 2013). The Chinese government has also enacted policies that favour international trade. Since the government is a major shareholder in most of the multinational companies from China, it has developed an economic system that favours the entry of these companies in the global economy (Ulgado, Yu,& Negandhi, 1994). Competitive Political Advantage Chinese multinational companies are willing to work with any state, without regards to their international standing. These multinationals operate on the basis of the Chinese foreign policy of non-interference in the domestic affairs of other states (Hussain & Jian, 1999). This strategy has especially worked well in those multinational companies that are entering in the markets of developing countries especially in Africa. The Chinese construction giant China State Construction Engineering Corporation has penetrated the African market without any regards to the international standing of these countries. The company has entered markets in which most western companies avoid such as Somalia and Sudan (Hillman & Wan, 2005). This allows these companies to gain fresh markets with very little competition and thus creating a means to attain capital that will be used to enter other markets. Acquisitions, Partnerships and Joint Ventures Cooperating with existing firms, both local and international, are an increasing strategy in Chinese corporate strategy. Chinese companies usually form joint ventures and partnership with companies that have a market share and knowledge of the industry before investing in a country of interest (Hoskisson, Eden, Lau & Wright, 2000). The Chinese company offer capital and labour while this companies offer skills and a means to penetrate a given economy. Joint venture also allows Chinese multinationals to enter a new industry with little skills on their part. They then develop their own professionals and thus forming a stronghold in that particular industry. Chinese companies have also shown a preference in acquiring international companies especially western companies. With a stable capital base and a large domestic market, Chinese companies havethe capability to acquire and maintain other companies thus gaining an existing market (Goldstein et al., 2006). In 2005, Lenovo acquired IBM at US$1.25 million. In doing this, the company acquired all the businesses of the company and its international resources. By acquiring IBM, Lenovo became the third largest PC producer by volume and in 2013, it became the largest personal computer vendor by unit sales (Ahrens & Zhou, 2013). Lenovo has also developed various joint partnerships over the past few years. In china, the company has made several joint ventures in the smartphone industry and by 2012 Lenovo had the largest market share of smartphones in China. It has also set up a Joint Venture with NEC, a Japanese electronics firm. This has allowed the company to penetrate the Japanese market as well as have access to resources available to NEC (Ahrens & Zhou, 2013). Organization Structure Asian-Pacific multinational companies use an organization structure that is flexible and can adapt easily to the global market (Child& Rodrigues, 2005). This adaptability has allowed multinationals from the Asian-Pacific region to move from place to place without being captive to a particular location. In China for instance, Companies have shifted from the hierarchical organization structure to a regional system in which authority and power does not necessarily exist in the parent companies in China. This in turn allows these multinational companies to recruit talent as need be, instead of being restricted by the regional office. Chinese multi-national companies demonstrate their flexibility byshedding and adding their functions (Berger, 2006). This is particularly true in companies that have penetrated third world countries especially in Africa. Construction companies in Africa are able to adapt to the requirements of these countries and can add functions as need be such as a construction company adding telecommunication services to its functions (Kelly & Olds, 1999). Comparative Economic Advantage Chinese multinational corporations utilize a low bidding strategy that is centred on low managerial costs and low skilled labour. The use of Chinese labour in the majority of their projects is one of the key distinctions from traditional Western MNC strategy (Danchi & Mahoney, 2007). Chinese companies are able to make low bids in various projects in foreign country through the use of in-house cheap labour.While these companies usually employ skilled labour from countries in which they are penetrating, they usually utilized cheap low skilled labour taken from their home country. In Africa, the availability of low skill labour is high and as such, they can maximise their profits thus furthering their expansion projects. Conclusion Multinational companies from Asia-Pacific are posed to reinvent the global economy. Over the past few decades, companies from the Asian-Pacific have been commanding a larger market share in the global economy. This has mainly been due to certain strategies that have allowed for expansion and growth. One of the main reasons for this has been support from Chinese government. The Chinese government has developed policies and strategies that allow MNCs to strive and grow. The government is also a major partner in these companies providing capital and a means to move labour to other countries. The organizational structure of these companies also allows expansion as they are flexible to allow for any changes that may take place. Finally, Chinese MNCs are driven to form joint ventures, partnership and acquisitions that allow them to penetrate a given market. Acquisitions and joint ventures also provide these companies with access to skilled labour. 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