Over the past few years, multinational corporations (MNCs) have emerged and have business presence in vast geographical locations in on the globe. Numerous businesses involved in consumer products and services, in particular financial and management services, have taken advantage of globalization and innovation in information technology to build huge business empires. China and the other emerging Asian ‘tiger’ economies present excellent business location for manufacturing based MNCs. The Middle East is taking the bunch of financial services multinational companies so as to facilitate trade between the East and the . Oil firms are investing in remote locations both on land and in sea as oil exploration leads the oil industry to such extreme locations. This massive globalization of business is not without its share of hurdles. Several factors such as political influences, government regulation, stiff competition, incoherent consumer behavior, different marketing strategies, differentiated human resource management strategies and culture are examples of few factors that affect international businesses. This research paper evaluates several aspects in multinational investments. The first part evaluates the various methods and modes used by international firms in entry into new markets. The second part evaluates the operations of international businesses. The third part examines specific issues about foreign direct investment in five countries. The fourth part will appraise promotion and marketing strategies employed by MNCs. Finally the research will review two brands and the branding methods employed by different multinationals.
Part 1: Contractual and Investment Entry Modes used by MNCs
MNCs have to make a decision on the country and location for a new expansion venture. However, once such a decision has been made the company has to decide on the best mode of entry into the new market. According to Eifert (2007), the mode of entry can be divided into two broad categories. These are equity and non-equity modes.
Equity modes of entry are those that require direct investment by the MNC in the new country. Such equity modes include joint ventures and independent ventures. A joint venture is type investment in which the multinational company involves itself with strategic partners with similar interest. In this mode, the multinational firm usually seeks a local firm in order to have a strategic advantage since one of the partners originates from the target market. A second kind of equity mode of entry is the independent venture, commonly referred to as wholly-owned subsidiaries. In this mode of entry, the parent international corporation decides to have a subsidiary of the business in which it fully owns the entire operation. Such independent venture may be done either by acquiring an existing business or by a new venture commonly referred to as Greenfield venture .
The other classification of entry modes referred to as non-equity modes include direct export and contractual agreements. In the direct export mode, the parent multinational company produces the product from the home country and markets the product overseas. Direct export methods mean that the parent company does not use intermediaries or agents. Agents and distributors are concerned with marketing in the new markets. Indirect exports means the parent multinational company involves an intermediary company to handle distribution and marketing of the product.
A second form of non-equity entry mode is contractual agreements. In this mode, the multinational company does have to invest any equity, in that the MNC simply agrees with a legal entity or company in the target market to produce the product on their behalf. An example of such a contractual agreement is franchising. In this kind of agreement, the multinational firm allows another company to use its brand name in the overseas operation. Another form of contractual agreement is licensing where the multinational company transfers technology, knowledge and patent to an overseas firm to produce the product but usually for a limited period of time.
Part 2: Export Credit/Financing/Underwriting Operations of OPIC and Ex-Im Bank
There are several arms of the United States government that are actively involved in assisting investment in overseas by multinational corporations. One such organization is the Export-Import Bank of the United States (Ex-Im Bank), which is the official credit agency in the United States. One of the main missions of Ex-Im back is to facilitate the export of goods and service from the United State to overseas markets. In this sense, all businesses involved in the export business be it small or large are allowed to make use of financing facilities provided to them by the Export-Import bank. To do this, the bank has developed several credit facilities that businesses can use.
One such program is the Global Credit Express program. This program is specifically designed to assist small and medium size businesses involved in export business to access short term loans directly. However, these businesses have to prove to be creditworthy. In the program, eligible companies are able to access a continuous circle of line of credit for more than six months and less than twelve months. With access to credits facilities amounting to nearly $500,000, business are assured of liquidity in running the export businesses.
The Global Credit Express Program is said to have many benefits. The most important benefit that this program provides is the working capital for business looking to market their products overseas. The second advantage it offers is streamlined processes of accessing credit at a much shorter turn-around time as compared to commercial banks. Additionally, the bank ensures that these businesses have access to credit at very low interest rates as compared to other sources of financing.
Moreover, the bank also has an insurance program that allows business to increases sales on their products in oversea markets but with minimal risks. The insurance program provides insurance against the risk of nonpayment by the buyers. This covers risks such as bankruptcy by the buyer or simply defaults by the buyer to honor agreement due to unforeseen circumstances such as political unrests. The insurance then allows the international corporation to actively participate in their field of business without the risk of being losing investment overseas.
A similar institution that has been created by the government to assist in expansion of businesses into international markets is the Overseas Private Investment Corporation (OPIC). Established in 1971, OPIC mobilizes private capital into international markets and in so doing are able to assist American businesses penetrate international markets . OPIC has assisted thousands of businesses set up operation in about 250 countries creating about 275,000 jobs and are looking to expand their operations even further.
Part 3: World Bank’s 2011 Doing Business Report
The World Bank publishes regular reports called ‘Doing Business’ that investigates the regulations and efforts taken by countries towards improving the business environment in the country. This annual report is used by many potential investors in reviewing the investment options in deciding international investments alternatives. This report reviewed 180 countries spanning all the continents and regional blocks in the world. Different countries where found to adopt different policies and regulation in order to improve business performance.
According to this report, China has been found to be absorbing foreign direct investment (FDI) at an increasing rate. Over the past few years, China has taken deliberate measures to reduce the protocols and procedures for FDI and also reduced energy costs and labor costs. For this reason, several multinational firms have set up shop in China due to its low energy and labor costs.
A second country that was mentioned as making strides in improving the business environment is Rwanda. The country developed a strategy that was implemented over five years and the results were quite evident. For instance, in the year 2005, starting a business in Rwanda required about 9 procedures and would cost about 223% of income per capita. Today, these requirements have been reduced to only two procedures and the cost is less the 9% of income per capita . Other legislations that seeks to protect foreign investments were made in the year 2009. The results for these efforts were instant. In the year 2008, about 3000 new enterprises were established in Rwanda with a majority being foreign.
India also implemented 18 new reforms in the business sector. The main target of these reforms was directed towards making the business process in India more electronic. This called for electronic registration of businesses, electronic filling for taxes and electronic collateral registry. Other reforms included online submission custom documents.
Georgia also made similar strides by implementing about 15 reforms in the investment sector. One of the key reforms that the country looked to implement was to have a government body that facilitates foreign direct investment in the country. In this case international businesses would only have to deal with one organ of the government to facilitate full registration. This reduced the procedures for registration from about 12 to just 2.
Finally, Ghana implemented reforms in the real estate business that allowed multinational firms to invest in the country without many hurdles. One such reform was to reduce the period of transfer of property from 24 weeks to 5 weeks. Other reforms include custom reforms and a new one-stop center for business start-up.
Part 4: International Product and Promotional Strategies
Each multinational corporation enters a new market with a particular aim of increasing its revenues and cementing a wider loyal customer base. To do this, different multinational companies develop different marketing strategies that allow them to penetrate new markets as well as maintaining old consumer bases. However, the particular strategy that an international company employs in marketing and promoting its products at the international market is limited by technology, transportation and government regulation.
One of the marketing strategies employed by most MNCs is called Extension. In the extension paradigm of marketing, the multinational corporation simply extends its home product to the international market without any variations. This is common for products that are globally known and have a global reputation. Examples of such products include the soft drinks such as Coca Cola and Pepsi. Once such products have a global consumer base, the product is simply presented to the market and does not need additional promotional and new marketing strategies.
The second strategy employed by MNCs in product promotion and marketing is adaptation. This is similar to extension, but due to the different consumer behavior in the new international market, the MNC has to alter the product in order to meet the needs to the new market. A very frequent case is when a multination company in affluent economies is seeking to expand into developing nation. Usually, consumers in developing nations are not in a position to buy products at the price of developed economies. Thus multinational corporations have to downscale their product in order to sell the product in emerging economies. Other products, such as technology devices, have to be altered in terms of the language in order to have local languages incorporated into the product.
The third strategy that most multinational companies employ in product marketing is Innovation. In this method, a MNC invents a new product that best suites the needs of the consumers in the target country. For instance, developing nations are not very vast with high technology products thus final products have to prefer ease of use over technological features. This strategy may also involve reinventing a product used in the home markets in order to better meet the requirements of the new market.
A final strategy that is commonly employed by several multinational firms is pricing. In this strategy, several multinational firms understand that products retail at different prices depending on the locations. For instance, discounted prices within the United States may be considered expensive in developing nations. Thus MNCs develop products with the price of the target market in mind. This way the MNC will be in a position to compete favorably in the new markets.
Part 5: Branding
Experts argue that brands define the business and thus any business must take concerted effort in improving the value and worth of the brand. However, evaluating the value of a brand is rather complex ideology due to the fact that brand value is a perception of the consumers and thus consumer satisfaction measures such valuation. In the recent brand analysis, Apple was found to be the world most valuable brand . This also indicates the recent surge of brands in the digital world.
Apple was named to be the most valuable brand in the world while Facebook was the most improved brand name in the world. The two companies are quite recent but each of them has taken considerable effort in improving the brand. Apple for instance saw the need by customers to have a single electronic device that would meets all their technological needs.
Apple developed a strategy referred to as collaboration and co-creation. In this strategy Apple incorporated the needs of the customers and providing solution in a package that encompasses the entire product. For instance, Apple understood that customers wanted electronic utility devices that smaller that laptop but were more useful that mobiles forms. For this they presented the ipad which was an instant hit in the market.
In co-creation, Apple provided applications that would be applied by consumers in using their Apple devices. Today, there are more than 350,000 applications in the Apple store that assist consumer in simplifying and organizing their daily lives. With the recent production of iPhone 4 the company secure its consumer preference point and now Apple is the world leading brand.
Similarly, Facebook is in the same trend as Apple. The company having been formed less than a decade ago, its value is now one of the fastest growing in the world. Similar to Apple, Facebook is utilizing a gap in the electronic world to make the most out of it. The company developed a social networking site that would allow users to connect to friends and family in every part of the globe and interact. This idea replaced the use of emails as the only mode of distant communication to make consumers have a social relation outside strict business communication. Facebook has consistently improved its brand by providing several features in the website. It has also customized sites depending on the language and the location of the users. Today, it is the leading social networking site in the world.
Conclusion
The twenty first century has seen massive improvement in information and technology making the world such a small ‘village’. Big multinational corporations have expanded their businesses to diverse geographical locations to improve their balance sheet assets and profits as well. However, such massive expansion has its challenges. MNCs have to consider the different modes of entry into new markets and could rely on several financing facilities provided by the federal government. After identifying the best entry mode, MNCs have to decide on the most optimal location for their businesses. Today brands define businesses and therefore companies have to constantly improve their brand image in the market.
References
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