In the early 1990`s most Global Multinational Enterprises within Europe, North America, and Asia set up their operations in Mexico. It had been identified as a good market place due to the trade benefits it posted. There was an imminent possibility of generating enormous revenues within the economy, and, therefore, these companies made effort to enter this market. The country was developing, and most of the local businesses within it had not taken advantage of the presented opportunities. The large multinationals have an aggressive tendency to capture any emerging market that presents the possibility of substantial income.
The proximity of the Mexican market to the world largest economy gave it a strategic advantage. The market-opening policies further enhanced that the government had implemented. There was easy access to the market, and the barriers to trade between the two countries had reduced significantly. Changing times have made the trade more difficult due to new policies. The stability of Mexico`s economy is a challenge that has made the investors seek alternatives, such as China.
Most of the MNEs have taken a shift to China economy. China has been an attractive destination for foreign investments. The country has a well-developed infrastructure that allows for natural processes in business activities. There is a broad resource base in the form of physical resources and labor. The companies can profit from this availability through incurring minimal costs in all the implementation processes. Roads, railways, and other forms of physical infrastructure attract massive investments. To further the economic advantage, China has a vast population of over 600 million (Quora, n.d.). The market is thus significant, and the MNEs have a broad range of customers to tap in.
There are obstacles that institutions such as the MNEs face from the emerging markets when they wish to make foreign investments. Despite the apparent opportunities that exist, success in these new ventures is not assured. The companies have to understand the issues present in the emerging market before making any economic move that would prove disastrous. One of the biggest risks in the emerging markets is the volatile and immature political systems (Quora, n.d.). There is always a possibility that host governments may implement measures that counter the efforts made by the foreign investors. Cases of government seizing assets of foreign owners have been seen in some emerging markets. Such governments may discriminatorily change the laws and regulations. They may fail to execute contracts that regard the investments made by the foreign companies. The multinational companies can overcome this obstacle by ensuring they form contracts with the host governments. This would protect them from policies that occur in future which would deter their businesses. Further, the companies should ensure they take a comprehensive cover that will facilitate continuation in business in case of failures.
Entering a foreign market poses ethical issues amongst the multinational corporations. They will forgo investing the company`s capital in the country for the sake of the newly identified locations (Disadvantages of Foreign Direct Investment, n.d.). The companies face the challenge of determining whether to maintain their focus on their country of origin or keep seeking new opportunities. When they invest in a new country, they mobilize their resources into that place. This would have been used within their country to create further new employment opportunities. Their country of origin, therefore, loses on the economic contribution that the companies would have made. As an MNE executive, I would advise the company to make thorough consideration of the investment decision. For those new market locations that do not significantly increase the revenue generation ability of the enterprise, they should avoid them. Instead, the company can focus on identifying local markets that will provide a cheaper means of doing business. The fact that the people will associate with the firm`s success within the host country will significantly increase their productivity. I recommend that the labor union leaders should work on mechanisms that will lure local investments from these companies. They should provide policies that will help the companies achieve the desired output at a substantially lower cost (Dumon, n.d.). Labor forces will assure the companies of high-quality work from its members in a bid to secure the best amount of productivity. The host countries officials should work on policies that attract the investments due to the significant benefits they pose to the country. It is a competition where the country with a better competitive strategy will win the company`s wish to invest. Home country officials will implement policies that will secure the profitability of the companies within the local business grounds.
The Indian retail industry is very inviting because of the large density and numbers of outlets present. It forms a huge portion of the country`s economy and has many of the citizens working within this industry (Dumon, n.d.). The industry thus poses a huge business opportunity for any investor wishing to capitalize. Wal-Mart may have failed in some of the countries it has ventured into, but it still has a high probability of succeeding in India. This is because there is an imminent need of its services from statistic that shows 40% of their produce goes to waste. The retail company has an ability to reduce this percentage as it has done in China. Wal-Mart will form an alternative strategy that will focus on exporting the excess produce. As a CEO of a major retailer, I would prefer foreign direct market entry into India. The government restrictions imposed would limit this form of entry; forming strategic partnerships would form the best alternative.
References
Disadvantages of Foreign Direct Investment | Economy Watch.(n.d.). Retrieved July 23, 2015, from http://www.economywatch.com/foreign-direct-investment/disadvantages.html
IBEF. (n.d.). Retail Industry in India, Retail Sector In India, Indian Retail Industry. Retrieved July 24, 2015, from http://www.ibef.org/industry/retail-india.aspx
Marv Dumon. (n.d.).Factors That Drive Investment in China. Retrieved July 24, 2015, from http://www.investopedia.com/articles/economics/09/factors-drive-investment-in-china.asp
Quora. (n.d.). Is this new trend of multinational companies moving from China to Mexico sustainable? - Quora. Retrieved July 24, 2015, from http://www.quora.com/Is-this-new-trend-of-multinational-companies-moving-from-China-to-Mexico-sustainable
