Benefits Of Multinational Corporations In Developing Countries Economics Essay

Benefits Of Multinational Corporations In Developing Countries Economics EssayLow sparing growth rates, obsolete technology, less(prenominal) capital, broad(prenominal) unemployment rate and poor pattern of living are the characteristics of developing countries. gibe to UNCTAD (2008), these countries usually lay 3 to 4 % of their GDP against estimated 7 to 9% annually in alkali which in results into gap in current volume of investments. This is where Multinational Corporations (MNC) maximizes their benefits by investing in military developing countries through their proficient and separate assets advantage.These corporations are usually large firms operating in imperfect securities industry to open up sweet sources of information and knowledge and broaden the options of strategic moves which make the comp both competing with its home and global competitors.In the 19thcentury, the new emerged capitalist in developed Europe started to invest in less developed countries of t he world including United States. This gave rise to Multinational enterprise in those countries particularly held by France, Germany, Britain and Holland. A multinational enterprise is an enterprise that engages in foreign direct investment and owns or, in some way, comptrollers value-added activities in more than than one sphere (Dunning Lundan 2008). These firms have substantial direct investment in foreign countries and manage their trading operations both strategically and organizationally. Examples of MNCs include Ameri stick out Express, Wal-Mart, IBM, Hitachi and Unilever. About 85% of worlds automobiles, 70% of computers and 65% of soft drinks are produced and marketed by MNCs. fit to World Development Report, about 450 companies with annual revenues in surplus of $1 cardinal account for over 80% of the total investment made by all companies outside their home countries.One of the traditional motives for companies to invest afield was the need tosecure key supplies m uch(prenominal) as Standard embrocate interested to open up new fields in the center(a) East, Canada and Venezuela which turned out to be largest emerging MNCs of 19thcentury. Companies like Nestle, fording and Bayer expanded internationally mainly in search of new market due to insufficient support from their small home markets keepvas to the technology and volume-intensive manufacturing process they pursue. In 1984, Nike shutdown its last US grinder and shimmyed companys total production to the cheap labour in Asia to have admission tolow- embody factors of production. Apart from labour, start-cost capitalalso became a strong traditional ca physical exercise for internationalisation such as subsidies from host countries government. These driving traditional factors push companies mainly from the US Europe to become Multinational Corporations. According to the World investment funds Report 2002, the overall value-added of ExxonMobil in 2000 was $63 billion and the value- added GDP of Chile was $71 billion in 2000. According to prof Vernon, companies developed a much richer foundation for their international operations as the global argumentation environment became more complex and complicated.As MNCs found international sales and production operations, their strategy became more integrated in global sense. The first new first emerging set of forces were the emerging economies of scale, expanding RD investments and shortening product life cycles which became necessary for firms to survive in those business sectores. spherical scanning and learning was the second factor that often became essential to a firms global strategy to enhance their technological or marketing advantage. Lastly, it became obvious that firms started to bring competitive positioning as the third factor for internationalization by cross-subsidization of markets.This clearly evaluate firms were rarely driven by a single motivation factor.According to Dunnings eclectic paradig m, multinational enterprises must equal three prerequisites for their existence. Firstly, foreign countries must offer certain location-specific advantages to motivate MNCs to invest there. Secondly, in order to counteract or match with some strategic capabilities with foreign markets, the company must provide a unique strategic competencies or ownership-specific advantages. Lastly, company must have some internalization advantages or organizational capabilities to earn good returns from leveraging its strategic strengths internally earlier than externally through licenses or take aways. Companies like Wal-Mart entered in UK by purchase supermarket chain ASDA with high-commitment-high- confine mode of operating. Amazon.com, for example, uses same approach in Canada by managing its website control from the United States and securing reliable Canadian postal service for order fulfilment. calculus multinationals from developing countries like Asia Pacific succeed regardless of limi ted chief(a) resources, skills and knowledge, and social capital. In the era of state-driven development, these firms often internationalized to a wind extreme prescript at their home countries. Their main driver was to search for new markets and technological innovation by using strategies of linkage, leverage and learning. According to World enthronement Report 2004, few slip by Dragon multinationals from developing economies are Hutchison Whampoa (Hong Kong), Singtel (Singapore), Petronas (Malaysia) and Cemex (Mexico).In the light of the storey of commitment and risk involved, set against the level of control and closeness of market, there are range options available for firms looking to control its operations. The firm can choose range as per their growth of bonk and degree of commitment to operate globally. Exporting is the first submit where firms can enter international business. It involves selling goods or services from one country to another in two ways. Technic gr oup a UK based tyre making company developed its overseas business by lay exclusive distribution agreements in each country for the two brands it fabricate which is direct exporting. Flymo a medium-sized British lawnmower making company shifted its overseas business from a distribution to more direct control to think yen term for its own export success. This is an example of indirect exporting.Licensing is another stage where firms enter foreign market by providing license to a host countries firm to utilize or sell intellectual property in exchange for financial returns. A major potential drawback in any licensing is when the agreement between the two firms comes to an end the licensor firm may rack up as a potential powerful competitor. In 1969, the french magazine Elle granted a license for a Nipponese mutation to a local firm, Mag House to sell its magazine. But the Japanese version advanced beyond the original concept and the contract was void in 1988.Franchising is a p henomenal growing form of licensing for firms to internationalize their operations abroad. In UK, franchise accounts for 10% of retail sales with expected sum up to 25-30% in coming years. Benetton is a good example whose shop grew from 0 to 650 in US in five years by providing franchisee to firms who can use companys marketing benefit as a well know trademark against agreed payments and systems of control. But many problems are associated with franchising which revoke a franchise and end up being very costly. Due to ill luck of operating 14 outlets according to McDonalds standards, company had to withdraw the license of its largest franchisee in France.In the post-war period, there has been substantial growth in joint conjecture activity which is the second stage strategies for firms operating internationally. The General Motors Toyotas joint venture NUMMI is an equity joint venture with a separate legal genius which operates in US with an agreed life of 12 years in the init ial agreement for long term commitments. Another type of business venture between firms where no separate legal personality is organise is described as contractual join venture. Here firms will service and share the risks and rewards of the collaboration in a clear specific ways. British Aerospace and Taiwan Aerospace in 1993 agreed to set up a joint venture for the manufacture of a regional jet aircraft. This enabled British Aerospace to shift some of its final assembly work to Taiwan to access lower labour costs. However, due to potential conflicts between partners can lead to the result of the co-operation agreement such as operational disagreements or disagreements over use and requisition of profits.Firms can also internationalize through other contractual forms of international business such as management contracts, turnkey operations, contract manufacturing and countertrade. According to Financial Times report (1992), Canadas Four Seasons Hotels will chthonic take manage ment of five Japanese Regent International hotels under an agreement becoming worlds largest operator of luxury hotels. But one of the top stage strategies for firms becoming multinational enterprise is Foreign Direct Investment (FDI) where firm is seeking high growth of experience with high degree long-term commitment. FDI has been defined as the acquisition or establishment of profit-generating assets in a host country over which the investing firm has control. According to Financial Times report (1989), Bosch a company from West Germany fixed to invest 100 million on a production ease in Miskin, north west Cardiff in order to produce high technology car alternators. The decision got finalized due to lower labour cost in Britain compared to Germany and avail major power of Welsh labour force who demonstrated its forwardness and flexibility to adapt at Japanese transplants. But there limitations for FDI such as the security of fixed and liquid investments, the business units eco nomic feasibility, and ability to move currency freely inside and outside of the host country. scorn these limitations, countries like US and UK had the largest stock of outward FDI in 1991 i.e. $385 billion and $226 billion respectively.Due to the emergence and the growth of the MNCs, there have been massive changes in the world economy. The scopes of MNCs operations in the number of host countries and all loving of strategic alliances have expanded. Also, there have been remarkable changes in the traffic with home and host governments as well as with international political and non-governmental organizations.