The Eminence and the Ways to Become a Multinational

THE EMINENCE AND THE WAYS TO BECOME A MULTINATIONAL.

With the growing concept of the world being a global village, many new transitions have been taking place in the world market. Exchanging the accessibility of resources of one's own country with other countries in order to augment common growth has been a major turning point. The above turnaround has led to the development of many new business forms and reforms, also giving a way to the concept of multinational enterprises. A multinational is thus, an enterprise that has its business spread over more than one country, through subsidiaries or affiliates, having headquarters mostly, in the home country but owned by more than one national. A firm goes multinational through a number of ways but generally, the major portion of management control is in the hands of the headquarters. It may chose to operate is a number of ways, either by way of manufacturing and selling the same product line in all the countries or by having different operations in foreign countries according to cost effective resource availability. (Freeman 1981) Among the countless number of multinationals, the best examples may be General Electric, Toyota Motors, Royal Dutch Shell and so on. (Forbes 2008, online). (Needle 2004)

An enterprise operating within domestic limits, earning good profits for its owners normally goes through 3 main stages in its life cycle i. e., birth, growth, maturity and saturation, this happens because once a particular level of success has been achieved by an enterprise, it starts getting stagnant in terms of growth rather than having incremental growth over time. This is because eventually, in the domestic market, resources start getting duplicated and repeated thereby, leaving lesser and lesser opportunity of growing further. Moreover, not only resources, the market of a domestic country in terms of customers, suppliers etc also starts to shrink as the size of the company grows. Thus, in order to give itself new dimensions of growth, combat domestic problems and to have more opportunity for profit maximization, through low cost resources and exposure to innovative ideas, enterprises move to different nations. For e g: IBM tries to recruit employees from across the border in the belief that bringing people from different regions drives innovation. (IBM website). More broadly, a multinational becomes more efficient than the one within limits as the strategy of such companies incorporate the company's best interest rather than limiting itself to its home countries interests. Going multinational is a solution to a number to problems faced by a geographically restricted company. Many importing countries enforce protective laws and quotas on the import of goods from their country in order to safeguard domestic firms, thus, to combat such issues enterprises go multinational by opening subsidiaries in such countries, thereby, enabling hassle free transfer of resources, raw materials, technology, products and so on to other parts of the world by being a part of both home as well as the host country. The recent imposition of tariffs on Vietnamese goods by the European Union is a good example. (BBC news). High transportation cost is another major reason why companies go multinational. Transport of resources in order to produce goods on the international ground or transport of goods in order to sell them in the international market involves high costs, which in turn increase the retail selling price of the ultimate goods. Thus, companies nowadays try to produce their goods in the vicinity of input sources; many car manufacturing companies avoid major transportation costs through this. Operating in various countries through affiliations and subsidiaries also helps companies avoid foreign exchange fluctuations, especially while trading between developed and developing countries, where there is a huge difference in the currency rates. Most of the big companies tend to go international in order to avoid competition. (Dossing 2010). Acquiring foreign businesses helps a company grow geographically and avoid future prospective competition. The acquisition of General Motor's Opel by Magna in 2009, indicates that Magna bought one of its major competitors; (Bloomberg online, 2009). Developed countries often come up with new and improved technology, the acquisition of which becomes luring for home country companies in order to improve efficiency, capacity and reduce per unit costs, hence provoking internationalisation. Risk, uncertainties and pressures in the legal, political and economic climate including factors like tax reforms, inflation rates, monetary policy measures, recession, changes in governing bodies etc, in the domestic countries also provokes them to grow into a multinational, in order to make itself capable of somewhat controlling such aspects. Major attractions still being new markets, new customers and reduced costs, growing into a multinational also provides recognition, fame and goodwill to the company, thereby making it a more competitive and sustainable business. (Needle 2004). (Dossing 2010)

Operating multinational is a very sensitive and conscious decision taken by the management and needs a lot of research and scanning of the countries, one chooses to operate in. There are a number of ways through which a company can go multinational depending upon the nature and requirements of the company, economic feasibility of the home country as well as the overall viability of the host country. An enterprise may normally enter a foreign market by making a direct investment in the foreign country. It may choose to open directly owned subsidiaries in the country it intends to operate in, thereby placing itself closer to input resources and reducing costs, this type of expansion generally helps firms that shift their manufacturing and operation units to host countries.