Opportunities and Challenges Facing Advanced MNEs Entering the Emerging Markets - Research Paper Example

Research proposal: Opportunities and challenges facing advanced MNEs entering the emerging markets Table of Contents Table of Contents 2 INTRODUCTION 4 Background of the study 4 RESEARCH HYPOTHESIS 6 RESEARCH QUESTION 6 RESEARCH RATIONALE 6 THEORY 7 OBJECTIVES 8 LITERATURE REVIEW 8 RESEARCH PROCESS 13 RESEARCH METHODOLOGY 13 Positivistic philosophy 14 Deductive Research Approach 14 METHODS OF DATA COLLECTION 15 Case studies 15 Interviews 15 DATA INTERPRETATION 17 DATA ANALYSIS 17 Validity 17 Reliability 18 Generalizability 18 POTENTIAL DIFFICULTIES AND SOLUTIONS 18 References 20 INTRODUCTION Over long time, flows of foreign direct investments (FDIs) focused around the Western allies. Desires to be near natural resources and foreign markets encouraged the Western-allied companies to start operations in other countries. This move has since worked to encourage reforms of economic policies, education curricular to focus on elements of globalization, and reviews of foreign relations. Countries like Mexico, Russia, India, Indonesia, Egypt, South Africa, Vietnam, China, Brazil and other East Asian and Latin American countries moved steadfastly to align their business environments to attract foreign direct investments. Ever since, the countries have managed to receive many investors from the Western allies who have managed to transform the economic conditions of the hosts. Among the notable transformations have been high tech education, advanced technology, increased employment rates, increased products and generally increased GDP and GNP. Currently, the listed countries enjoy classification as emerging markets that are responsible a significant proportion of global production and FDI flows. The countries are emerging or transiting because they depict characteristics of developed economies but have not met the standards fully. Advanced multinational corporation (MNCs) otherwise called multinational enterprises (MNEs) of the Western origin and scrambling for business spaces in the emerging economies. As the movement continues, there are opportunities and challenges awaiting the advanced MNEs entering the emerging markets. Background of the study In the recent years, discussions about as well as focus on multinational and transnational corporations have intensified. The reason has been the spread of desire for economic advancement among many countries. Globalization that has facilitated movement and interaction of people alongside promoting trade has been the main stimulant for the growing desires among countries to grow their economies. In the early years, focus about industrialization concentrated on America and European Union, and their close allies like Japan and South Korea. Big technological companies concerned with manufacturing of high tech equipment and products narrowed their operations in the mentioned countries, and could only export finished goods to other countries (Cheng, Maitland & Nicholas, 2009). The aspect of globalization encouraged and improved education in the other countries of Africa, Asia, and South America, and triggered the need for economic dependence. Eventually, countries that initially acted as sources of raw materials used by the advanced countries to produce global goods started reviewing international and economic policies (Hurwitz & Budhwar, 2015). Most of the policies discouraged exportation of local natural resources to the foreign countries. Further reforms in economic policies would encourage training of local citizens to compete with standards of the advanced countries. Additional reforms advocated for promotion of foreign direct investment (FDI) that saw many companies and businesses in the high-end economies flow to conduct their operations in the opening countries. Countries currently called emerging markets moved quick to make attractive economic policies that the companies in the first world countries could not resist. Lower taxes, cheap resources, cheaper labor, low cost of land and relaxed business environment were among the important economic policies established to attract foreign investment (Cheng, Maitland & Nicholas, 2009). In definition, emerging markets are countries whose economic statuses near but not equal to those of the first world countries, Characteristics of emerging markets are rapidly growing middle class, rapid industrialization, high quality education, higher per capita income and lower unemployment rates. Many countries qualify to be emerging markets but BRICS members are the most cognized. The advanced multinational enterprises moving to the emerging markets have exposure to opportunities and challenges that need careful consideration. The opportunities for the advanced multinational corporations in the emerging markets include cheap and quality labor, low tax rates, reduced cost of energy, relaxed investment laws, favorable exchange rates, competitive currencies and easy access to resource among others (HENDRIKS-GUŚĆ, 2007). Challenges faced by advanced MNCs when entering the emerging markets include but not limited to political changes, rapidly changing global economic environments and environmental pollution. RESEARCH HYPOTHESIS The advanced multinational enterprises (MNEs) entering the emerging markets faces both opportunities and challenges that can enhance growth or decline. RESEARCH QUESTION The question for this research is: What opportunities and challenges that advanced MNEs entering the emerging markets are likely to face? RESEARCH RATIONALE Globalization is generally a concern for every person in the world. As it spreads, the phenomenon presents opportunities for general growth and challenges that shake certain spheres of human life. MNEs are among the agents of globalization as they pursue trade and business opportunities. Their arrivals in the destination economies present opportunities and challenges. In just the same ways, the MNEs encounter opportunities for growth and expansion as well as challenges that often shake their operations. Emerging markets have gained great international focus owing to their rapid economic growth and their seemingly dominance in the global economy. The shifting of global economic wheel to the emerging markets is something that attracts concern from people in various global sectors. Since it is the first time that such transition is happening in the world, there is great interest to observe and understand the dynamics. Understanding of the dynamics is important considering the wide spread struggles in the developing economies to reform institutional policies to open up for economic prosperity similar to the transitional economies. It is noteworthy that much of the growths witnessed in the emerging markets have been due to the advanced MNEs that have offered employment opportunities and revenues required by the governments to develop infrastructures and improve institutional efficiencies. Due to the vitality of the MNEs, it becomes important to understand the opportunities and challenges that these agents of globalization face in the emerging markets. Such understandings are crucial in helping the developing nations that are ready to enter the transition path in shaping their forces and institutions correctly to support actual growth and development. Students, politicians, economists, sociologists, non-governmental organizations, technocrats, and the wider field of academia cherish and understand the value of such a research. THEORY The research will apply globalization theory and the PESTEL theory in reviewing the literature. PESTEL is a business analysis tool that investigates the impacts of politics (P), society (S), technology (T), environment (E) and laws (L) on a business. The PESTLE theory is important in this research considering that it investigates external and internal issues that affect business. This theory will help in clear understanding of opportunities and challenges that the different elements of PESTEL present to the MNEs entering the emerging markets. OBJECTIVES The research has three main objectives that include: 1) Guide into the understanding of concepts of emerging markets and multinational enterprises (MNEs) also known as multinational corporations (MNCs). 2) Investigate and provide understanding about the opportunities faced by the advanced MNEs entering the emerging markets. 3) Explore and enable understanding of the challenges faced by the MNEs entering the emerging markets. LITERATURE REVIEW Many developed economies have saturation of multinational companies. This saturation has limited room for expansion and growth of the companies and necessitating advanced companies to move to the emerging markets. The saturations of MNEs in the developed countries have also heightened competition levels that have seen some companies lose impact in the markets. The emerging markets depict populations that are nearly similar to those of the developed countries that can offer market for the goods and services developed. The emerging markets that seem very close to the developed status are India, china, Mexico, Indonesia and Brazil. The countries characterize with large number of middle class citizens that are a promising future market. Earlier target of the markets is a conscious strategy to have grip of the consumers at an early time (Khanna, Palepu & Bullock, 2010). Most of the MNEs have spotted the high number of wealthy people whom are target. The MNEs have entered the markets and used the opportunity to sell their products in the same manner as they do in the developed economies. According to Luo (2002), multinational enterprises (MNEs) entering the emerging markets stand good chance to enjoy longer and bigger impact on firm evolution and profitability. The view is due to fact that market demands in the emerging markets have been subject to control and planning systems set by the government. Even as the governments have relaxed their control to open up the economies, the existing suppliers in the many sectors cannot satisfy the huge demand. In normal economic perspective, liberalization of industries leads to emergence of a sustained increase in market demand. Increasing the purchasing power of the consumers through creation of employment opportunities works further to sustain the opportunities (Luo, 2002). It is from the described economic eye that mots MNEs targeting the emerging economies pursue long-term economic benefits. The MNEs have managed to counter the usually stiff competition by committing unique resources that competitors lack to establish impeccable competitive advantage. The advanced MNEs have a unique and complex position in the web or organizations established in different countries. This element gives the MNEs some form of protection, independence and sometimes resistant from institutional pressures in the target market. This positioning gives the advanced MNEs opportunity to prove their legitimacy usually manifesting through the ability to take self-interested and self-determined actions. Verbeke and Merchant (2012) discuss that the emerging economies also consider MNEs as having good managerial techniques, technical knowledge and efficient business processes. These aspects collectively foster the legitimacy and acceptability of the MNEs among the locals. For instance, subsidiaries of Western MNEs play critical roles in China by strengthening environmental regulations and participating in advisory boards relevant to the chemical industry. As demonstrated by Al-hakim and Jin (2014), advanced MNEs entering the emerging markets are making mistakes of ignoring low-income populations whose annual purchasing power parity is below $1600. This income base is the largest in the emerging markets and is a potential for future market through which the MNEs can proper. The population of low-income group in the emerging markets exceeds four billion. The problem that is limiting exploitation of this market pyramid relates to lack of proper strategies by the MNEs. The MNEs are familiar with strategies that focus on overcoming limitations in business environments to penetrate the high-income markets prepared to rise to the global capitalism (Sauvant, Mcallister & Maschek, 2010). Despite of the challenges, some MNEs have begun to penetrate the emerging markets fully though with unspecific strategies. In actuality, there are no theories to guide strategies with which the advanced MNEs can penetrate the lower-income class of the emerging markets. Nonetheless, many MNC are on course to explore the great economic opportunities existing at the lower economic pyramid of the emerging markets. Companies like the Hewlett-Packard and Unilever have declared their willingness to generate s good portion of revenues from the low markets. The reality about the low-income earners in the emerging markets is that most operate in large but hidden and information economies unrecorded in the official purchasing power parity (PPP) statistics and formal Gross National Product (GNP). The global survey of the economic potential of the informal and unregistered sectors associates the sectors with over $9 trillion (Chrysostome & Molz, 2014). The value exists in the form of unregistered assets, which exceed the total value of firms listed on the stock exchange of the 20 most developed countries. In addition, the amount of economic exchanges and transactions in the lower-income markets may equal or even surpass the value of formal economic institutions in the developing countries. A good example is Mexico where the informal businesses accounted for about 30% to 40% of the general economic process in the late 1980s, and continues to grow at a rapid rate (Christiansen, 2012). In summary, lower-market economies have fast growing economic networks characterized with sustainable livelihood operations, thriving small enterprises, unregistered assets and subsistence farming. With this great economic capability, consumers in the market receive poor services from low quality vendors and succumb to repeated exploitation by suppliers. Entering into such a huge market of four billion consumers can work out as a great growth opportunity for MNEs (Demirbag & Yarpak, 2015). The Multinational Enterprises entering the emerging markets face a number of challenges. One of the challenges emerged during the World Summit on sustainable Developed held in Johannesburg. The summit discussed the growing anti-globalization protests that highlighted the need to address the discontent among the world’s poor. The meeting admonished global companies and institutions to consider environmental and societal impacts they have on the emerging economies. The MNEs have the task of developing empowering the poor and championing political and economic freedom. This approach towards economic development and poverty eradication is particular practical in the lower-income market because the social, economic and environmental issues are related concerns. It is for the reasons that MNEs intending to venture in the emerging markets must be able to appreciate and establish social value in within the lower-market to overcome foreignness liability. Most of the advanced Multinational Corporations (MNCs) have their origination in the Western countries and familiar with the Western systems of business (Freeman, 2003). The Western business environment is strict about ethical practices and enforces what to the transition and developing economies are stringent laws. Such laws and ethics enable firms to protect their patent rights and other internal resources from competitors. These laws are either lacking or relaxed in the emerging markets. The emerging markets lack proper laws of property rights that promote exclusivity, title quality and transferability. As a result, the MNCs have feared the risk of losing their competitive advantage, as the local firms may create counterfeits and sell at cheaper prices than foreigners would sell genuine products. According to Khan (2015), another challenge faced by the multinational enterprises (MNEs) seeking to enter the emerging markets relates to the problem of managing the protectionist strategies in some sectors. Protectionist strategies by the economic environment of the emerging markets have concentrated great pressure on the MNEs intend to expand operations. Protectionism is widespread in strategic sectors like the energy where many governments have invested and have stakes to protect. Despite knowing the advantages and benefits of economic globalization, the investors in the critical industries within the emerging markets continue to indicate sign of further protectionism. Most advanced MNEs face the challenge of regulation by local institutions, which are a characteristic of many emerging markets (Tihanyi, Devinney & Pedersen, 2012). Some of the local regulations tend to hinder marketing that eventually compromises performance of the firms. Local regulations may also be in the form of social norms that only favor consumption of local products. With the regulations in place, the MNEs find it difficult to adapt in the market and prove their legitimacy to the host public. However, MNEs can use the local social institutions and non-governmental organizations to penetrate the regulated market. RESEARCH PROCESS The process of this research will conform to the provisions of the research onion developed by Saunders. The design and structure will align with outward-inward arrangement of the steps in the research onion. RESEARCH METHODOLOGY The method of conducting this research will base on deductive approach and positivism philosophy. Positivistic philosophy This research will also base on positivistic philosophy that considers business and human researches as similar to the researcher on natural science. The philosophy boasts of scientific orientation and objectiveness. Reality under positivistic philosophy does not limit at the views of the researcher (Smith, 1999). Researchers in positivistic philosophy have to be objective in their analysis and allow room for other views (Heshuish & Anglin, 1996). Positivists hold that knowledge is a product of human experiences. As per positivists, anything that varies, does so to a given extent or degree that is measurable. The philosophy encourages identification of causal relationships between variable by way of manipulating some while keeping other constant. This leads to the experimental aspect of the positivist ideology that emphasizes its scientific centrality. The philosophy also concentrates on facts and relies on quantifiable data. This research philosophy is useful in this research considering its advocacy for facts retrieved through scientific research techniques. Consistently, this research plans to use observations, case studies, surveys and interviews to collect valid, reliable and generalizable results. Positivism ideology evaluates researches based on validity of the results. The positivism approach also considers reliability as an important aspect of its doctrine. Furthermore, positivism also focuses at tries the possibility of generalization of particular results in other fields other than the area of research. Deductive Research Approach Deductive research approach is an efficient research technique that entails the researcher developing a hypothesis with consideration to the existing theory, and later testing the hypothesis through various research strategies (Denicolo & Becker, 2012). The deductive approach is useful for this research as it enables working from the known to unknown. Deductive research approach believes that a researcher must have a preliminary knowledge of the reasons for research and available conclusions (Denscombe, 2012). Using deductive approach is an appreciation that this research is not the first to investigate the topic of opportunities and challenges that MNEs face when entering the emerging markets. There are vast researches and reports, articles, conferences and publications regarding the topic of discussion. The purpose of this research is just to test, prove and perhaps expound on the existing conclusions about the topic. The deductive research approach starts with theorization, then analysis of data and lastly testing of hypothesis. METHODS OF DATA COLLECTION Data collection is an important process in conducting research that will produce evidence to prove verifiability of data. This research will employ the following techniques of data collection: 1) Case study 2) Interviews 3) Documents are recordings Case studies A case study is an analysis of a subject to identify the underlying characteristics of certain hypothesis. This research will use case study because it provides a holistic view and realization of details about a subject. Case studies narrow focus and foster concentration on particular subjects to enable identification of even the smallest facts (Lyon, Mollerings & Saunders, 2011). This research will conduct a case study on Brazil considering that it is among the biggest known emerging markets. Interviews The researcher will travel to some of the emerging markets and home countries of MNEs and interview managers of the companies. As discussed by Anderson (2004), interviews with the managers are important for they provide first-hand information based on their expansive experiences in the international business. The researcher will also interview officers in the economic institutions such as Departments of Trade and Industrialization in both the emerging markets and some of the countries sourcing MNEs. Documents and recordings The research will also consider use of documents and recordings having information about dynamics of international trade and particularly the flow of MNEs to the emerging markets (Murray-Webster & Williams, 2010). Reports of the United Nations Conference on Trade and Development (UNCTAD) are important documents and recordings for the purpose of this research. Academic journals and books will also constitute the documents and recordings to consider during the research. The reason for preference of documents and recordings is that they provide already analyzed information that can give a researcher easy way of understanding the concepts. TYPES OF DATA This research will focus on qualitative data, as it is the most convenient form of data to work with. This means that I will include forms such as sounds, motion pictures, and texts. Since I will not use observation as a method of data collection, I will use video or motion pictures recorded as documentary. I may also contact television stations like the CNN and the leading stations in the studied countries to provide videos about the development of the countries taking into consideration the infrastructural and institutional developments. Sound data will be emanating from interviews with the officers in the departments of trade and industrialization in the respective countries. Audio data will also come the phone interviews that I will hold with the managers of advanced MNEs that have expanded or intend to expand their operations into the emerging markets. Text data will come from economic documents such books, and business magazines published in the investigated emerging markets. DATA INTERPRETATION Since I will use qualitative data in this research, related interpretation methods will include comparisons, descriptions, and testing. I will describe the details of my findings from the books, conference papers, and video records. During the description, I will consider the finest details about the subject and ensure that audiences receive accurate and verified information. In the description, I will touch on the underlying managerial and organizational behaviors of the MNEs and their influences on the emerging markets. The qualitative data will also support use of tables for performing comparisons responses to interviews. Comparative analysis and evaluation will also encompass books and other documents found useful in the research. I will also compare archival data in the public libraries about the social and economic behaviors of the emerging markets before and after the entrance of the MNEs. DATA ANALYSIS The process of data analysis will focus at evaluation to establish consistency and relationship of data gathered from different emerging markets (Ogden & Goldberg, 2002). The analysis will also determine validity, reliability and generalizability of the data. Validity According to Auerbach and Silverstein (2003), validity refers to the extent to which a measurement process gives a correct or nearly correct answer. In this research, it will be difficult to determine validity of the results and data because of its foundation on objective philosophy. Besides, there is no correct answer about the topic of study to provide a platform for comparison. Reliability The research will test for reliability of the data and results. Reliability refers to the ability of a process to give consistent or similar results whenever conducted. The interviews and observations will take place at different times and in different settings. Since the studied concept does not vary, it is easier to measure reliability of the results obtained from different frameworks. Furthermore, document and recordings, as well as books can produce results to test for reliability. Should there be a big portion of consistency, the results will reliable. Generalizability Generalizability refers to the extent to which the results of a research are usable in the external environments (Lie & Brym, 2006). The findings of tis research are only applicable to the challenges faced by MNEs when entering the emerging markets and the developing economies. One can expect that the developing economies present outcomes that are more concrete tan the emerging markets that seem relatively advanced. POTENTIAL DIFFICULTIES AND SOLUTIONS One of the potential difficulties relates to the accurate mastery of observe features in the countries to visit. It is easier for the researcher to confuse features observed in one country with another and compile wrong facts. To solve this difficulty, the researcher will have to use camera or video recorder to record the observations for use during analysis. Another potential difficulty relates with management of the secondary documents and recordings as well as books focusing on the topic. It appears that it will be challenging to read all the pages of the big documents. Solution of this problem relies on use of chapter topics to identify needed information instead of searching for the required information by reading the entire documents. Verifying the validity and reliability of the data collected is another potential challenge that I will face. This problem will relate to the use of different sources of data such as books and other published documents. To resolve the problem, I will take time to compare the contents of various documents that I will use. Another potential problem relate to the way that I will gather data through interviews. Moving across the emerging markets or the developed countries sourcing MNEs to interview government officials in the departments of trade and industrialization and foreign affairs, and management of the businesses will be hectic. If effected, the movements will escalate even pass the budget dedicated for the research. Solution to this problem will entail conduction of phone interviews with individual that are difficult to reach. References ADAMS, J. R., & BIRN, R. (2004). The international handbook of market research techniques. London, Kogan Page in association with MRS. AL-HAKIM, L., & JIN, C. (2014). Quality innovation: knowledge, theory, and practices. Hershey, PA : Information Science Reference. ANDERSON, V. (2004). Research methods in human resource management. London, Chartered Institute of Personnel and Development. AUERBACH, C. F., & SILVERSTEIN, L. B. (2003). 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