How International Business Achieve Its Internationalisation Objectives - Coursework Example

International Business Name Institution Course Lecturer Date How international business achieve its internationalisation objectives A multinational corporation (MNC) refers to an entity whose business operations are carried out in more than one country. In most cases the corporation choses one country among the foreign nations in which it operates a business and establishes its headquarters there. Moreover, before the corporation choses to be established in a given country so that it can start its business in that particular country, several issues are considered. For example, the line of operation for the MNC is very important in that the countries in which the corporation will chose to be operating in they have to possess the necessary resources that will support the MNC’s business. In addition the member countries ought to have a potential market for the products that the MNC produces. MNCs help in internationalising and globalising of businesses thus making the whole world appear as a single market where goods and services can be exchanged from one nation to the other. MNCs also help in expanding the market for originally local firms or businesses by making them international businesses. Volkswagen as a multi-national corporation (MNC) Volkswagen is a German automobile manufacturer that was established in the 1930s whose headquarter is in Wolfsburg, Germany. There are three phases of the internationalization process of the Volkswagen. (Koplin, Seuring & Mesterharm, 2007) From the 1940s to the 1960s, Volkswagen had a centre-periphery pattern in its corporate governance, production systems, profit strategies, marketing strategies and product structure. It was distribution oriented and relied on import partners or its subsidiaries in Canada, France and the United States of America. Production facilities and assembly lines were set-up in Australia, Brazil, South Africa and Mexico because they had restrictive trade regulations that prevented free market entry. The major strategic goals were to gain entry to potentially larger markets and take advantage of the readily available cheap labour in the labour-intensive automobile industry. There was an elaborate technological hierarchy of resources and specialization that was established for the major plants at the centre and the peripheral overseas subsidiaries. (Beske, Koplin & Seuring, 2008) From the 1970s to the 1980s, the internationalization of Volkswagen can be described as production-cantered. Corporate governance was steady and took a centre periphery pattern. Profit strategies were steady with a centre periphery pattern but they had an inclination toward centralization. Production systems were being made global as identical cars were assembled in various plants that were spread globally. Old products were in the peripheral subsidiaries of Volkswagen while the new products were at the core plants. However, there was global specialization in the production of all company parts. A robust chain of command existed between the core plants and the peripheral plants in terms of products and the production technology. Factor such as economies of scale and the production ability were imperative in the growth of the amount of auto parts produced. For example, the plant in Mexico produced body parts that were transported to Germany and other Volkswagen plants in other countries. The global production network helped Volkswagen to be efficient and effective in production. From the 1990s Volkswagen turned into a global company through the integration of other firms and brands. It changed its corporate governance and began to look for the best locations for the best practices. It discarded the policy of hierarchy of products, fixed production process as well as the fixed product structure and fixed market strategies. Major strategic functions are at the centre but can diffuse to peripheral plants. Volkswagen Group released an elaborate strategy in 2007 that offered a blueprint to attaining the global market leader status in the automobile industry by 2018. Internationalisation process of MMG in Lao The internationalisation of a company is a process that beginsfrom the domestic country and then extends to the neighbouringcountries. Most of the local business operators look forward to internationalising or globalising their businesses in order to increase their market share as well as spread their risks all over. Once a business has become multinational it then looks for more strategies that can make it remain globalised. Multinational corporations differ a lot in terms of strategies as far as globalisation or internationalisation is concerned. In total there are about five tiers of globalisation that represents the various ways in which a business can be extended into other foreign countries either that neighbours her mother country or further away. These entail foreign sales offices, licensing, global production, foreign direct investment and export sales. These factors enable the growth and expansion of MNCs which is a dream for any local company, to become global in its operations. According to the recent report by the United Nations, there are about 77,000 MNCs today which have approximately 770,000 foreign affiliates. The operations of these MNCs have rapidly grown over the last two decades. This is according to the FDI measure of companies that has been carried out.(Lundvall, 2010) There are a number of methods that can be employed to measure the multinationality of a business, for example the calculation of the company’s transnationality index or checking the level of foreign direct investment of the country. Transnationality index is the average of three ratios, namely; foreign sales to total sales, foreign assets to total assets, and foreign employment to total employment. The test using the FDI shows the amount of funds that are invested by a company that is starting, acquiring, or expanding its business to another nation. Domestic business firms involve themselves in foreign direct investments in order to expand their markets as well as lower their production costs by creating cross-border value chains. According to studies on MNCs, it has been noted that most of the MNCs make their foreign direct investments in the developed countries. However, less developed countries are the best for foreign direct investments since they can have a great impact on the local economies, therefore the chances of the company growing are quite high. (Van& Marsman, 2008) MMG is an example of an MNC that has expanded gradually from a locally domestic company into an international business is the above discussed. This MNC has employed various internationalisation theories in the process of becoming international businesses. MMG in Laos Minerals and Metals Group (MMG) limited is a multinational corporation with global resources and has its headquarter in Melbourne in Australia. MMG was formed in June 2009 after the acquisition of the OZ minerals’ assets through china Minmetals Corporation’s (CMC) subsidiary China Minmetals Nonferrous Metals Co. Ltd (CMN). The company is mainly involved in exploring, developing and mining base metal deposits all over the world (Cromie, 2010). MMG limited company owns and also operates the Century, Golden Grove and Roseberry mines in Australia, Kinsevere mine in the democratic republic of Congo, the Dugald River (Queensland) and Izok Corridor (Canada) development projects as well as many other exploration tenements in the world(Lundvall, 2010). In Laos the company owns and operates the LXML Sepon mine in collaboration with the government of Lao. According to the recent studies MMG has been found to be the largest producer of zinc in the World as well as a substantial amount of silver, gold, copper and lead. LXML Sepon in Laos was established in 2005 just like any other local company in the country. However, over the time the company continuously gained global advancement as it continued to carry out its operations in the country (Stuart et al., 2011). Initially it was only owned by the Laos government and was the main copper, gold, lead and other metals main extractor in the country. For instance early 2011 the company lifted a copper expansion project that led to an increase in copper cathode production of about 65,000 tonnes to 80,000 tonnes per annum of the copper cathode. On the other hand gold production doubled its capacity of production by 2005.(Lundvall, 2010) To enable the expansion of the company to other parts of the world MMG bought the highest number of shares and thus took over the ownership from the Laos Government. Research shows that Laos Government owns only 10% of the company while 90% of LXML Sepon is owned by MMG. This globalisation of LXML has not only helped in the expansion of the company but also the country has acquired uncountable benefits from the same. For instance the social responsibility of MMG has been of great importance to Lao country. (Lundvall, 2010) About Lao The country is found in Southeast Asia bordering Burma and China. The country is rich in minerals, petroleum and gas. It has a number of industries that have been established as a result of the resources available in the country. MMG through LXML has continuously been contributing greatly to the Lao’s economy. From the recent report the company has brought a substantialincrement to the country’s revenue. It has also helped in jobs creation, development of skills to the Lao’s citizens and improved the living standards of many in the country among other positive actions. The company has also resulted into a modernised infrastructure and helped in increasing the country’s gross domestic product by more than US $50 per capita.(Kyophilavong et al., 2013)  The company has also partnered with various authorities in order to improve the country’s environment, health as well as education standards. Theories of internationalisation As discussed earlier, internationalisation of firms is based on five major tiers; the foreign sales offices, licensing, global production, foreign direct investment and export sales. Depending on the above factors, various approaches that pertainto making an MNC internationalised have been put forward to explain the origin of internationalisation of businesses(Terjesen & Elam, 2009).In this section we will discuss these approaches in form of theories as they have been pointed out in international business literature. Internalisation theory/approach This theory is constructed on the basis that every firm looks forward to come up with their own internal markets where transactions can be carried out within the company itself at the minimum cost possible. The company therefore ensures that such internal transactions are not tampered with by the impacts of internalisations(Terjesen & Elam, 2009). Thismeans that the benefits of internationalisation should outdo the costs of internationalising the company.This theory points out that a firm can be able to develop or evolve from a simple firm into a more complex internalised firm. This is attained by allowing the firm maintain the process of sharing its available resources and knowledge and expanding gradually till it becomes an international entity. (Gabrielsson et al., 2008) It concludes that a firm is able to extend abroad once it has been able to internalize all its transactions beyond national borders. For a company to be able to internalize its transactions various factors are involved that helps it to be competence even outside its local dimensions. For instances technological advances as well as ability to keep up with upcoming business trends are put into consideration so that once the company has started to serve globally it will be able to compete effectively in the global market. Moreover, the company will have to be in a position to guard itself from opportunist who would want to take advantage through partnerships. In bid to internalise the business’ transaction the company may want to do that through vertical integration and thus take over another company operating in a business thatit is closely related to. During such a process some partners may take advantage thus resulting into the company’s failure in attaining the internationalisation agenda.(Terjesen & Elam, 2009) However, it should be noted that this internalization process becomes more desirable when the firms put in strategies that will enable it to have a tighter control over all the business operations. For this reason, firms should aim at exploiting their competitiveadvantageputting into considerationtechnology and their knowledge base on various business trends. The competitive advantage of a firm can further be exploited through licensing and franchising while the control of the company’s assets and other critical activities remain under the firms central management.(Niosi & Tschang, 2009) The eclectic paradigm This approach seeks to explain various forms of international production and the selection of countries to invest inoverseas. In nutshell the theory is just but an extension of the internalization theory.According to eclectic paradigm theory, there are three determinants for the internationalization of economic activities. These determining factors include; ownership, location and the internalization. (Johanson & Vahlne, 2009) Ownership; a company will invest in global market employing its own competences and strengths as the competitive tool to enable it sail through its competitors. This is referred to as ownership because it is what the company possesses that enables it to internationalize its operations. Location; as the firm makes the decision to internationalize, it chooses the country that has the best market conditions as well as conducive environment that will give room for its expansion. Internalization; a company invests in foreign countries’ resources so as to internalize the operations that were previously performed by the market. This enables the firm to exploit its capability to manage and harmonize its value chain and hence generate moreadded value than the company’s competitors. (Jaw & Lin, 2009) This theory therefore enables the company to enjoy the advantages of internalization by concentrating on its superiority in technology or imperfect market structures existing in the economy. Uppsala theory This internationalization theory purports that globalisation or internationalization is as a result of gradualevolution that is accompanied by a commitment over time. The theory therefore proposes four major steps that guaranteea company’s evolution into a global or international business. The sequential steps flow as below; Stage 1: At this stage there are neither regular activities nor indirect exports. Stage 2: Direct exports are carried out by the use of agents or independent representatives. Stage 3: The Companyestablishes its own subsidiaries in the foreign countries through which it carries out direct exports. Stage 4: The firm establishes a production unit in the foreign country through the foreign direct investment. The theory posits that as the firm follows this sequential process it is able to acquire more information about the country in which it wants to invest in as well as the possible opportunities in that particular country. Each stage enables the firm to overcome any form of uncertainty and build up the company’s confidence to invest. It should also be noted that the firm must not follow the above process as outlined, but if the company acquires the relevant information it can establish its branch in the foreign market without following the four stages.(Williams & Lee, 2009) These theory and others which have not been discussed are just but proposed ways or approaches that enable local firms to become international businesses. Experience/lessons Learned Thispaper provides the knowledge on how a business can expand its market by globalising or internationalising its operations. It discusses various approaches of attaining the internationalisation agenda as well as the advantages of internationalisation. . MNCs help in internationalising and globalising of businesses thus making the whole world appear as a single market where goods and services can be exchanged from one nation to the other. MNCs also help in expanding the market for originally local firms or businesses by making them international businesses. The study also indicates that a firm is able to extend abroad once it has been able to internalize all its transactions beyond national borders. For a company to be able to internalize its transactions various factors are involved that helps it to be competence even outside its local dimensions. For instances technological advances as well as ability to keep up with upcoming business trends are put into consideration so that once the company has started to serve globally it will be able to compete effectively in the global market. From the study that has been conducted on MMG Company in Lao, it is clear that countries benefit from the actions of the MNC as it carries out its internationalisation cores. For instance in observing the MNCs social responsibility, citizens benefit from the company’s such activities in a given country. References Beske, P., Koplin, J., & Seuring, S. (2008). The use of environmental and social standards by German first‐tier suppliers of the Volkswagen AG. 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