Multinational Enterprises and the International Market - Essay Example

Multi-national Enterprises and an Integrated Global Strategy College Multi-national Enterprises and an Integrated Global Strategy Introduction In the 21st century, Multinational companies have accepted the rapid shift in the market characteristics due to the random market dynamics. One of the most significant changes the world has experienced is the shift in the economic power as the developed countries become saturated markets while the developing countries become more potential markets. The challenge that Multinationals face is to develop a global strategy that would help them to take advantage of the new markets to remain profitable in the long term. A controversy has evolved on the way that MNEs can approach the international market and the best strategic approaches that such organizations can apply to achieve maximum competition. While some authors agree that applying an integrated strategy that can be used in all countries is more reasonable, others perceive the idea that countries present unique market characteristics that can only be satisfied by using different strategies. From a critical perspective, it is evident a total global strategy is much more cost efficient and has many benefits for an organization that uses this approach. However, in the practical sense, product specialization has become paramount in capturing markets due to the diversity of market characteristics in the global business arena. On this note, an integrated global strategy is important but organizations cannot afford to ignore product specialization. The Global Dynamics The 21st century has been era of rapid change in the business market characteristics, resulting into new opportunities and challenges for investors. Peng (2014) notes that the market characteristics are changing so fast that organization are left behind to keep up with this pace. One inevitable change in this era is the proliferation of business technology and its infusion in the business activities. Computer and internet technology have become key drivers of business efficiency making it a challenge for every organization to streamline its business operations. While technology is an opportunity that drives businesses to higher profit, it has posed challenges for organizations to implement due to its complexity and cost factors that come into play during implementation. However, these are changes that MNEs cannot ignore if they have to remain profitable both in the short and long-term. Of more significance in the business environment is the shift of economic power from the developed countries to the developing countries. Evidently, majority of the MNEs originate from developed countries such as US and Europe. Previously, such organizations have limited their business to the domestic market where the potential has always been large and the demand for many products has grown over the past years. However, market shift has seen a number of changes that have rendered domestic markets unfriendly business niches leading to change in the investment strategy. One inevitable change in the domestic market is that competition has grown considerably in recent past. As more domestic investors arise, the competition is bound to rise, hence pushing the profit margins much lower. Therefore, it becomes unprofitable for the Multinational companies to operate within such markets. The result of competition is that the consumer bargaining power increases while the investor’s bargaining power reduces (Alkanaani, 2013). Therefore, operating in competitive and saturated domestic markets has become unrewarding for such organizations. On this ground, internationalisation has become a necessary strategy for MNEs. Notably, the developing countries have become a point of focus for international organizations. OECD analysis shows that developing countries have become potential markets in the recent past. Countries such as China are developing very fast and giving them a much higher economic power than developed countries. Technological development in China in the last decade has seen an increase in the employment rate, GDP growth and development of new business opportunities. As the employment rate increase in such countries, the purchasing power increases making it a potential market for MNEs. This explains the reason why many countries are now shifting towards these emerging markets to implement sustainable investment that will guarantee them survival in the harsh market times (Ioana-Cristina & Gheorghe, 2014). Shambaugh (2006) states that as developing countries such as Asia and China become regions potential economic markets, MNEs have to use international strategies to win big in these markets. However, it remains a big question on the best approaches that organizations can use to take advantage of the global market and to satisfy them in the best way possible. Integrated Global Strategy Integrated global strategy or total global strategy refers to a business approach where MNE use the same strategy to win markets for their products in different countries. In this approach, an organization formulates a basis for entering the international market by designing products that satisfy as many markets as possible. Frear, Metcalf and Alguire (1992) note that global interconnection has led to the ability of multinationals to adopt similar marketing techniques to attract customers from different countries to purchase their products. The idea of these scholars is that different countries have similar market characteristics that investors can consider while designing products in these markets. However, this idea has ignited a lot of controversy as many scholars agree that different business markets have different market characteristics that influence the nature of products demanded in these regions. In the recent past, there has been a controversy on the way in which organizations can leverage total global strategy to win different target market segments. To do this, MNEs collect information from different countries to ensure that they can design products that satisfy as many countries as possible to ensure that they can reach out to a wide range of target market. McDonald & Dunbar (2012) state that market segmentation is an important factor that cannot be downplayed if MNEs have to take advantage of the global market. Notably diversities such as religion, culture and traditional beliefs affect the consumption of products within different countries. For instance, the consumption of beef in India is minimal while in Africa the consumption is high. Therefore, McDonald & Dunbar (2012) bear the idea that the use of similar marketing strategies is still a myth that companies still have to consider while launching their international strategies. PESTEL Analysis of the Global Market PESTEL analysis is an important tool that scholars designed to help understand then business environment better before considering launching business strategies in any target market. Understanding the nature of market and the prevailing market characteristics is an important stage at the initial process of product development. Products are developed in such a way that they suit the market characteristics and they satisfy the customer tastes and preferences. Notably, the political, economic, technological and social factors influence the applicability of a global international strategy and the way it will contribute to profitability within an organization. The PEST model will assist to identify various factors that will influence the way a total global strategy will affect marketing and sales within the global market. Political Factors The political factors within the international market influence the way products sell at the specific market. From a global perspective, political factors vary from country to country and this may influence the entry of organizations into these markets. For instance, China has strict laws for foreign investors and applies barriers to new market entrants. On the other hand, African markets are easier to enter due to the political friendliness. The variation in political factors may impact global strategies that MNEs use. For instance, where the tax revenues is high, organizations may be forced to use different pricing models for different countries, hence leading to market specialization and use of different strategies for different markets (Filipescu, Prashantham, Rialp & Rialp, 2013). Besides, Legal laws vary from country to country and it is crucial for organizations to consider these factors while developing their products. Within the last decade, developing countries have become more conscious of the negative impacts of industrialization such as pollution and are thus designing a new law that protects their environment (Barrett, 2014). On this note, the diversity of the political factors is a hindrance to the application of total global strategies. Economic Factors The Economic aspect of any market is an important factor for any investors as this determines the ability of the customers to afford the company products. The economic abilities of the populations have a direct impact on the volume of sales and hence the amount of profit that a company accrues from this country. From a close observation, different countries are at different economic levels and this affects the way they are perceived as market destinations (Pan Pylas, 2014). For instance, while Middle East Countries are experiencing rapid economic development, the developing African countries are experiencing slow economic growth. From this perspective, it is impossible to develop products that can get into the market simultaneously due to lack of economic convergence. Countries with low economic abilities prefer low-priced products while those with higher purchasing power may opt for quality high priced products (Barrett, 2014). This aspect poses a big challenge for managers who intend to roll out products that can satisfy different countries. Social Factors Social characteristics are important element in the global market as they influence the attitudes that customers hold for the available products. In the global arena, it is important to appreciate that social relations vary widely not only in different countries but also in different regions of the world. One crucial social factor is cultural attitude and the way this influence the purchase of products. Notably, there is great distinction on the cultural attitudes not only in different countries but also within a country. For instance, the population in Middle East is still tied to the traditional culture of dressing and hence they are bound to remain this way for a long time (Kaya, 2014). Therefore, despite a rise in their purchasing power, it is impossible to change their mode of dressing. Secondly, religion in Middle East influences the way people eat and hence MNEs must consider these aspects while developing their products. On the other hand, African has their traditional cultures which are much more flexible and may be subject to change of overtime (Wamae, 2009). From a critical perspective, the use of an integrated global strategy downplays the diversity of cultural attitudes and how this is likely to affect the purchasing patterns in different countries. This has made this approach a subject of criticism as smart organizations focus on market segmentation and different targeting approaches to win different markets. Technology In the current century, technology has become a significant ingredient of the business environment. From a keen look, technology has changed considerably bringing about new market approaches that can appeal to a wider market (Rebić & Šarenac, 2014). Technology provides MNEs with an opportunity to globalise their business much easily and with higher efficiency. The evolution of the internet has paved way for the development for online business, which is the new way of business in the contemporary business market (Dobbs, Remes & Schaer, 2012). Technology is one of the opportunities that have opened a path for integrated marketing approaches that companies can use sell the same products to different countries. As people become well connected over the internet, they become part of a global village with much similar characteristics (Macher & Boerner, 2012). Therefore, they demand similar products and hence companies can use this approach to sell their products. For instance, companies such as Samsung sell their products on e-bay by developing products that satisfy most of the needs of their global customers (Bowhill, 2008). Secondly, MNEs can form a strong online presence by leveraging on social media to market their products to the global market. From this point of view, globalisation has become much easier for MNEs and gives them an upper hand as they engage in integrated global business strategies. Environmental factors The environmental factor refers to the weather or environment related laws that exist within the immediate business environment. In the contemporary global environment there is evidence that the governments are struggling to impose new regulations that protect the world environment. Notably, every country designs laws that are relevant to its environment and depending on the elements that they intend to protect. On this note, the environmental factors are unique for every country and companies have to satisfy these regulations if they have to operate within the legal framework (Macher & Boerner, 2012). Lastly, unique environmental factors such as weather may affect the types of products that an organization will sell. Integrated Global Strategy versus Market Targeting The idea that organizations can use an integrated global business strategy has become an issue of interest for many scholars. Majorly, organizations prefer this approach because it is less intensive and it is cost effective. The Multi-National companies need not produce different goods for different markets (Carlisle, 2014). Resultantly, such organizations design products that satisfy the needs of people in different countries. A good example of such a company is Samsung that develops mobile devices that satisfy the demands of different markets (Gnosa, 2011). Other companies such as Coca Cola and Microsoft Office have developed products that simultaneously satisfy the demand of different countries. As a result, such companies have maintained a competitive position within the international market. However, the proponents of market differentiation have sharply criticized integrated global strategy citing inefficiency in appealing to customer tastes and preferences. Marketing segmentation refers to the grouping of a broad business markets into smaller subsets markets comprising of consumers with similar tastes and preferences, a strategy used to ensure that a company optimizes its performance. Hunt (2010), in his marketing theory, states that market segments are groups of unique customer tastes that an organization must strive to satisfy. In the food and beverages industry, Starbucks have used different products to target different customer segments. For instance, the “skinny” line of drinks developed in 2008 was a superior strategy that ensured that those who were conscious of sugary foods could enjoy a cup of low sugar drinks with a Starbucks store (Hooley, Piercy & Nicoulaud, 2008). Notably, many more companies have used market differentiation to win the global market. Therefore, companies that use a general market strategy to sell in different countries are perceived as traditional MNEs that still ignore the value customer diversity. From a critical point of view, integrated global strategy may apply for some products but cannot apply for others. For instance, it works well for products that are less influenced by culture and traditions. For instance, mobile gadgets are least influenced by diverse population characteristics. However, there are certain products where specialization is crucial for business success. For instance, the restaurant MNEs have to consider the cultural tastes of the customers if they have to sell their foods (Ferrarini, 2012). For instance, while demand for spiced food may be high in the Middle East countries, it may be quite different in the African region. The same way, the fashion entrepreneurs have to consider local dressing modes so that they can design clothes that satisfy the customer preferences (Shafiulla & Babu, 2014). Ignoring the customer tastes will have serious consequences in a competitive business market. Therefore, as much as MNEs may prefer to apply integrated global strategies, it is clear that this is a subject of controversy as unique market characteristics drive consumer behavior. Conclusion In brief, the idea that MNEs can use integrated business strategies has drawn a wide range of controversies in the global arena. While it is evident that globalization has taken shape and companies have to design products that fit the international market, it is clear that each market segment has its own characteristics. It is indisputable that the 21st century marked a period of shift in economic power from developed to developing countries. A PESTEL analysis illustrates that the global market is more complex and is characterized by different market characteristics that MNEs must satisfy if they have to remain profitable. Total global strategy is an easier and cheaper approach to internationalize business scope but has its own limitations. While development in technology is an opportunity for a more integrative global strategy, it is a challenge for organizations to apply this strategy in a similar approach. Cultural, social and religious attitudes influence the purchasing pattern and may require product differentiation. Besides, political factors such as tax system influence the price of products and the cost of operation. These differences within different countries render the total global approach inefficient and demand that companies differentiate their products to target different market segments. Appendix: GDP Growth in Potential Markets Bibliography Alkanaani, KI 2013, Marketing strategies and global logistics under globalisation, Operations Management (1755-1501), 39, 4, pp. 1-4, Business Source Complete, EBSCOhost, viewed 5 January 2015. Barrett, S 2014, Smarter communications: global strategies, fueled by compelling content and integrated offerings helped many agencies successfully navigate a tricky 2013, PR Week (US), 5, Business Insights: Essentials, EBSCOhost, viewed 5 January 2015. Bowhill, B. 2008, Business planning and control: Integrating accounting, strategy, and people. Chichester: John Wiley & Sons. Carlisle, KM 2014, The Large Marine Ecosystem approach: Application of an integrated, modular strategy in projects supported by the Global Environment Facility, Environmental Development, 11, pp. 19-42, ScienceDirect, EBSCOhost, viewed 5 January 2015. Dobbs, R, Remes, J, & Schaer, F 2012, Unlocking the potential of emerging-market cities. (cover story), Mckinsey Quarterly, 4, pp. 41-45, Business Source Complete, EBSCOhost, viewed 5 January 2015. Ferrarini, B 2012, International trade, domestic market potential and income in developing Asia, Journal Of The Asia Pacific Economy, 17, 1, pp. 127-137, Business Source Complete, EBSCOhost, viewed 5 January 2015. Filipescu, D, Prashantham, S, Rialp, A, & Rialp, J 2013, Technological Innovation and Exports: Unpacking Their Reciprocal Causality, Journal Of International Marketing, 21, 1, pp. 23-38, Business Source Complete, EBSCOhost, viewed 5 January 2015. Gnosa, S. M. 2011, Global Business Strategy: Strategy for the Base of the Pyramid (BoP). München: GRIN Verlag GmbH. Hooley, G. J., Piercy, N., & Nicoulaud, B. 2008, Marketing strategy and competitive positioning. Harlow, England: FT Prentice Hall. Hunt, S. D. 2010, Marketing theory: Foundations, controversy, strategy, resource-advantage theory. Armonk, N.Y: M.E. Sharpe. Ioana-Cristina, S, & Gheorghe, C 2014, Characteristics of the Emerging Market Economies - Brics, From The Perspective Of Stock Exchange Markets, Annals Of The University Of Oradea, Economic Science Series, 23, 1, pp. 40-49, Business Source Complete, EBSCOhost, viewed 5 January 2015. Kaya, H 2014, Strategic motives of Turkish foreign direct investment firms: An empirical study on manufacturing sector, Istanbul University Journal Of The School Of Business Administration, 43, 2, pp. 368-390, Business Source Complete, EBSCOhost, viewed 5 January 2015. Macher, J, & Boerner, C 2012, Technological development at the boundaries of the firm: a knowledge-based examination in drug development, Strategic Management Journal, 33, 9, pp. 1016-1036, Business Source Complete, EBSCOhost, viewed 5 January 2015. McDonald, M., & Dunbar, I. 2012, Market Segmentation: How to Do It and How to Profit from It. Chichester: John Wiley & Sons. Pan Pylas - AP Business, W 2014, Markets lackluster as global unease remains, AP Top News Package, Newswires, EBSCOhost, viewed 5 January 2015. Peng, M. W. 2014, Global strategy. Mason, Ohio: South-Western. Rebić, M, & Šarenac, N 2014, Technological Progress as a Generator of Economic Growth and Development, Journal Of Economic & Social Studies (JECOSS), 4, 2, pp. 73-99, Business Source Complete, EBSCOhost, viewed 5 January 2015. Shambaugh, D., & Conference "China and Asia: Towards a New Regional Order". (2006). Power shift: China and Asias new dynamics. Berkeley [u.a.: Univ.y of California Press. Shafiulla, B, & Babu, P 2014, Innovative Integrated Marketing Communication Strategies Used to Market Ra.One: A Critical Analysis, IUP Journal Of Marketing Management, 13, 2, pp. 19-39, Business Source Complete, EBSCOhost, viewed 5 January 2015. Wamae, W 2009, Enhancing the role of knowledge and innovation for development, International Journal Of Technology Management & Sustainable Development, 8, 3, pp. 199-220, Business Source Complete, EBSCOhost, viewed 5 January 2015. Top of Form Bottom of Form Read More