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The next superpower of manufacturing economy
Over a period of many years, China has held its position as the world superpower of the manufacturing in the general merchandise sector. This is due to the rapid and dynamic growth in its economy, building focus in the world demand for manufacturing products and services. The country’s population, political stability and consumer interest and pattern can be explain its position as the world superpower of manufacturing in general merchandize. The country is however experiencing stiff competition from India, one of the world’s rapidly growing country economies.
India has in the past twenty years rapidly increased its share in the manufacturing industry. The country has recorded positive improvement in its gross domestic product (GDP). India just like China records one of the highest populations in the world (Ghemawat & Hout, 2016, p. 86). This offers a vast market for consumers and traders in the region. The country has taken advantage of its growing population to invest in merchandise market development. This has posed a significant threat to China’s position as the world superpower in the manufacturing industry.
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Subsequently, it can be argued that India is rapidly rising into the next superpower after China through their shift in development of technology (Gupta & Wang, 2009, p.25). The country is facing a drastic change in the industrial revolution through adopting a modern forms of technology applied in the manufacturing industry. This has increased their overall business performance.
India has tightened its grip in both the private and public sector, embraced trade liberalization and increased their involvement in foreign direct investment (Xingxing 2015, p. 685). This has primarily improved the manufacturing industry of India, making it a viable candidate as the next superpower after China.
Furthermore, the rapid expansion of information technology in India has accounted for the growth of commerce, business services, and banking. Moreover, India has gained an international reputation as an IT enabled center of the world. This has increased its global position in the e-commerce sector, improving its strength in the manufacturing industry globally.
In addition, India is experiencing growing investment rate, with an average of thirty-two percent compared to that of China at thirty-five percent (Mahtaney, 2007, p. 2455). This rate is set to project in the next year and India could surpass China’s the rate, making it the world superpower in the manufacturing industry.
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China is facing a significant challenge in their population, as a large percentage of the population is set to experience old age in the future years. This is bound to affect its general labor output, unlike that of India which is strengthening. India has a demographic surplus of younger generation increasing their task force in the manufacturing sector (Takeuchi, Chen & Lam, 2009, 86). The growing generation is also experiencing the best form of education, expanding their expertise in the sector. Based on these projections, it is predicted that India may overtake China as the current superpower in the manufacturing industry.
Reference List
Ghemawat, P, & Hout, T 2016, ‘Can China’s Companies Conquer the World?‘, Foreign Affairs, 95, 2, pp. 86-98, Academic Search Premier, EBSCOhost, viewed 30 March 2016./
Gupta, A, & Wang, H 2009, Getting China And India Right: Strategies For Leveraging The World’s Fastest-Growing Economies For Global Advantage, San Francisco: Jossey-Bass, eBook Collection (EBSCOhost), EBSCOhost
Mahtaney, P 2007, India, China, And Globalization: The Emerging Superpowers And The Future Of Economic Development, Basingstoke [England]: Palgrave Macmillan, eBook Collection (EBSCOhost), EBSCOhost
Takeuchi, N, Chen, Z, & Lam, W 2009, ‘Coping with an emerging market competition through strategy-human resource alignment: a case study evidence from five leading Japanese manufacturers in the People’s Republic of China’, International Journal of Human Resource Management, vol. 20, no. 12, pp. 2454-2470. Available from: 10.1080/09585190903363763.
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Comedy of Euros
This article reflects the falling out of Britain with other members in the European Union. The depth of this crisis is explained. Various strategies of mending the solutions are proposed. Achievements of the Brussels summit are addressed and its failure to draw a plan for saving the Euro.
Why is this newsworthy?
Comedy of Euros
The European Union is a key economic pillar and represents the economy of many nations .A crisis in this union is bound to affect the people as the economy will suffer. For this reason this story has a huge impact on the financial backgrounds of citizens in the member nation’s .It is therefore important to follow the preceding of the story in order for the readers to make any preparation to protect their financial assets
Current financial information is newsworthy as it impacts business and people’s daily way of life. It is therefore important to keep abreast with business information across the globe by reading this financial news. The information is provide in a summarized nature helping to inform readers who do not have a significant background in business related topics.
The European union have a major impact on the economy of the globe and any news that describes changes taking place in the business environment are beneficial to different stakeholders across the global .Through these news major decisions are made that impact the economy of different countries .The story contains a detailed analysis of new ranging from economic, financial, business news across the globe .These news analyze the market trends across the globe and the drivers of these trends (economist , pg1).
This article discusses the various prices of commodities .Investor options are also evaluated in this article .A comparison of prices of gold and rare earth metals is made. An interview with industry players is also contained in the article.
How might readers use this information? Comedy of Euros
Business news contained in these financial magazines is vital as affects the decisions made by leaders from the various governments and businesses .Readers can therefore use the information acquired in various ways aimed at improving their economic status. The magazines contain news of models used by businessmen and governments across the globe in reduction of operation costs methods that the readers can use in their businesses (Wsj, pg1).
Readers are able to acquire information about the pricing of different shares and other financial instruments across the globe .They can therefore use the information acquired in making business decisions on whether to invest or divest their funds .This is usually easy as the magazines include a detailed analysis with various share price options from which the readers can make their decisions.
Readers can use the information acquired from these business magazines to make a decision on the performance of their leaders. The magazines contain various decisions that governments have implemented to growth their economies and the impact of these decisions. From this information the readers can judge on whether their leaders are implementing policies that have a positive effect on the economy and make decisions on whether to re elect them for office again (Wsj, pg1).
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Readers can use this information in making decisions on whether it is viable to invest in other countries .The magazines provide information of different markets across the globe. Readers can therefore use this information to tap on cheap production costs and availability of natural resources in the different countries .The readers can therefore follow business happening across the globe waiting for positive changes that may affect their business and capitalize on them .
A visual comparison of rare-earth metal prices vs. gold Comedy of Euros
A Rare Apple Compromise
Apple has been faced by tough competition. The company is softening its advertising strategies due to the rising competition .The article describe the strategies put in place by management to survive. Conversation with employees is also included.
What management decisions are involved?
Due to challenges faced in advertising Apple Inc has been forced to make management decisions aimed at ensuring the company is able to compete effectively. The management introduced the selling of advertisements within mobile applications. This has been a major decision aimed at increasing its income through advertising .The strategy was developed to compete with Google’s Admob service .This has been however difficult due to the pricing of the products as apple has introduced the product at a very high prices as compared to its competitors (Wsj, pg 5).
To counter changes in advertising the management has developed a strategy aimed at introducing flexibility in the prices of its products .This strategy will help increase Apple’s market share thereby driving its revenue upwards. The change in price represents the management bargain in compromising its business decisions by adjusting its prices to the match with the current market changes.
Management decisions have the effect of growing or destroying an organization. It is therefore important for managers to make decisions that are timely and accurate. These decisions can only be made where information is provided timely and is accurate.
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Management is involved in implementing key strategies as well developing concepts that will steer the company towards achievement of its goals and objectives.
A visual showing Apple’s positioning the market Comedy of Euros
Best Buy’s Profit Tumbles
Best buy is a leading electronics dealer .With immerses competition the company has been forced to make different strategies to survive. The article describes the strategies put in place and the financial results for the company .The impact of results may have different repercussions depending on their nature.
How might this affect stock prices?
Any information that is made available to the public domain whether positive or negative has an effect on the share price of stocks of a company. Negative information like decline of its profits may result to shareholders going into a panic and selling their shares. Negative information is associated with a declining value thus when a company posts negative results the news are bound to cause fluctuations in the stock market.
Company results are announced in their annual general meting with a report from the management explaining the reasons behind a company’s performance .Readers of the magazine are going to be influenced in making decisions regarding the shares of the company. Some readers may be tempted to purchase shares for speculative purposes where the will be aiming to make a profit should the price of the shares increase in the future .
Current share holders may dispose of their shares after reading this article in an attempt to minimize further loss in their investment in the stock market. The new may resulted to increase trading of the shares in the market as the demand from speculators is satisfied by suppliers who want to minimize their risks (Wsj, pg1).
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It is therefore evident that news of a decline or rise of a company’s profits has an effect on its share prices .Readers should therefore seek regular accurate information on company’s that they have an interest or are interested in to ensure they take full benefit of any information regarding the company .
A visual showing changes in share prices
Explaining high oil prices
Oil is a key driver of the economy in the world. The rapid rises in prices of oil has had major impact on different industries .It is therefore important to analyze the reasons behind prices increases. This article helps in explaining the key factors that have resulted in high prices
What are the risks and rewards involved?
The oil is a very risky industry due to the commodity involved .An accident arising in the oil industry may have hazardous effects and therefore the industry players must put in place measures to ensure there is minimal expose to risks .This will be achieved by the method used in handling oil and its related products .The methods used must ensure easy reconciliation of inventory .Oil leakage equipment must be set up to ensure the staff involved as well as other equipment are not damaged(Wsj, pg1).
High prices in oil will result in an increase in prices of other commodities .This will strain economies of countries across the globe as they depend on the oil industry to drive other industries .It is therefore important to make a detailed analysis on factors affecting the prices of oil. Political factors are the most causes of increase in the price of oil and their impact should be regulated to ensure they do not adversely affect economy of major countries across the globe.
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The rewards associated wit monitoring the price of oil is an increase in the growth and development of economies across the globe .Fair oil prices result in countries being able to develop their economy through increased investment in various industries.
A visual showing oil prices
Capping microfinance interest rates will hurt the poor. There are better ways to regulate the industry
This is a microfinance article on interest rates. Various ways of regulating the industry are explained .Microfinance in different areas is explained .The reasons behind the rapid development of the micro credit industry are explained
How does a visual improve understanding of the content?
The visual helps the reader to relate to the content of the article. The visual in this article showing currency notes .This will help identify the content of the article. The visual clearly depicts a financial content .Microfinance is mostly related to the poor communities and capping interest rates would affect their economic empowerment
The bank notes help the reader in analyzing the content provided in the article. These visual involve a mixture of different colors helping the reader to distinguish the difference in different data that is contained in the article. This helps them in analyzing what each color has been used to depict in the visual (Wsj, pg2).
Visuals help give content to the article in the magazines by providing readers with an outlook of all the key data that has been included. These helps the readers in understanding the articles through the summary presented in the visuals and help them in making informed decisions derived from a thorough analysis of the visuals
The visual must be placed in an appropriate area of the article where it stands out in making a detailed summary of every data that is in the article. It is therefore important for business related magazines to consider using a visual in their articles to help the readers in understanding the articles fully. The visual should therefore be as detailed as possible but should not include irrelevant information.
Visuals must be clear and price in order for it to achieve its intended objects .it must also be bold and colored so as to attract a reader’s attention. (Lam, pg5). Visual is important as it helps in summarizing the key data provided in the information .This visual is provided in form of tables and graphs and contains trends that the reader can easily relate to .The visuals are presented in a manner that helps attract the reader’s attention helping them to get the clear meaning of the articles.
A visual on the article
References
Lam, J .Enterprise Risk Management: From Incentives to Controls. Hoboken, New Jersey: Wiley. 2003, Pg 1-5
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Company Acquisitions
Issue and Case Analysis: Company Acquisitions
Question 1: Merge the acquired company into your company. The result of this strategy will be one company containing the elements of both companies.
Since 1990s, there has been an accelerated pace of global mergers and company acquisitions as companies use them as a tool for competitiveness and to expand to global markets. A strategic manager must carefully look into both the pre-acquisition phase and the post-acquisition phase to execute a successful acquisition (Lasserre, 2003).
When the value of operational synergies of the companies operating in similar business contexts is expected, the absorption mode is appropriate. This enables necessary consolidation and rationalization necessary, to occur in the soonest time possible. The company is able to evaluate the best business practices to be adopted and find sources of savings by absorbing the competencies and competitive products of the other company (David, 2012).
The challenge in absorption occurs when there’s rationalization by the company being acquired hindering the process due to resistance to change and difference in culture. A SWOT analysis of the new merger would help to identify the areas to strengthen and areas of potential threats that may hinder successful acquisition (Lasserre, 2003).
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Question 2: Operate the acquired company as a separate business entity. The result of this strategy will be two separate companies under one senior management “umbrella” (the senior management team that is responsible for running both companies).
Where the company is allowed to operate as a separate business entity, Preservation Mode, is when very few operational synergies can be gained. This is important when large autonomy of decision making in the acquired business is required. The existing management is kept in place while the parent company learns the ‘rules of the game’ of the new business. The benefits accrued include enlargement of products and markets and also the transfer of new competencies or resources.
The disadvantage is the acquired company could behave opportunistically by ‘siphoning off’ resources of acquirer if there’s ‘weak’ management (Hitt, Ireland & Hoskisson, 2011). A balanced scorecard could be used to measure the acquisition in terms of customers’ opinions and views, financial position and advantages, improvement and value creation through growth and learning among others.
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According to David (2012), research shows twenty percent of all mergers and acquisitions are successful, approximately sixty percent produce disappointing results, and the last twenty percent are clear failures. Continuous evaluation and correction after acquisition is a critical factor to avoid the pitfalls that result in failure of acquisition (Lasserre, 2003).
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INTERNATIONAL RETAIL MARKETING
International Retail Marketing
Critically evaluate different concepts and theories relating to the marketing mix. Explain the role that the marketing mix plays in the formation of a marketing strategy for a retail organisation today. Discuss key factors that may cause the international retail marketing mix to differ from the retailer’s domestic marketing mix, and how these might be implemented.
And
Critically examine the retail marketing mix of your chosen retailer for their current domestic market, and, in the context of the issues discussed above, justify what modifications you consider may be necessary in order to internationalise their mix for a specific foreign destination country
INTRODUCTION
The aim of any company that is in business is to grow and expand in terms of market share and product range. Many companies usually employ various optimal techniques towards these objectives and the choice of the concepts and theories to use is very important. There are various ways in which the company can achieve these desired results and one of them is through the use of the marketing mix strategies that target the key elements involved in market analysis. These key elements are the product itself, the price of that product, its placement and also the promotion modes employed to ensure the customer accesses the product.
PART (A)
In this part we are going to explore the various theories and concepts that pertain to marketing mix and the role they play in the designing of a marketing strategy for a retail organization. We shall also look at the main differences between an international retailer marketing mix and a domestic retail marketing mix.
MARKETING MIX THEORIES AND CONCEPTS
In seeking to understand the optimal utilization of a company’s resources to enhance product penetration and affordability there is the 4Ps concept (Luan, 2010). It focuses on the product, price, place and promotion.
Product
This refers to a good or service that is the end result of a process initiated either by the company, subsidiary or trading partner. It is what the company offers to its customers.
The producer must ensure that the product will satisfy the customers need adequately. It must be of the required quality standards and before production starts the company must carry out surveys on the exact requirements by the consumers. The company should be able to offer assurances on the safety of use of the product through warranties and safe packaging. This will ensure brand loyalty from the consumers which will lead to higher sales volumes and it will increase the market share of the product.
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Price
This is the value attached to a product or service and it must be paid in monetary terms to the producer.
The company must know how much the target customers are willing to pay and also their ability to pay for the product (Pitsaki, 2011). This will have a direct effect on their demand for the product. Therefore the product must be priced competitively to ensure affordability and also profitability on the part of the producer or company.
Place
This is the venue where the buyer of the product expects to find it and all relevant information that pertain to the product.
The consumer should know where to find the product easily at any time and at the right quantities. This will call on the sellers to devise clear places where the information on the product can be accessed easily. They can use the internet and even mobile phones because majority of the people have access to them.
Promotion
This is the process of reaching out to current and prospective customers to ensure the product has a wide customer base.
This calls for the stakeholders to come up with ways to inform the consumers of the presence of the organization and also its products. They must advertise their products through aggressive techniques (Peter, 2007) like sales promotions and also conduct public relations campaigns to make sure the company’s presence in the market is known by many.
PRICE
PRODUCT PLACE
PROMOTION
The 4Ps model clearly indicates that the marketing mix is surrounded by the four elements which must be carefully determined to enhance success in the market.
Growth strategy mix
This concept focuses on the use of the internet to ensure product penetration in the market (Yanan , 2000).
Market Development Strategies
The company can adopt the use of the internet to penetrate international markets. They can start advertising their products early in the potential market to make sure when they finally enter that particular region there products will already be known in various segments of the markets.
Market Penetration
The marketing team will be required to devise the strategies to be used to increase the market share of the products. They must increase their presence online to target new customers. This will also improve the loyalty of the existing customers because they will be able to engage more with the company.
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Diversification
The internet will be used to ensure that the company engages fully with its suppliers and intermediaries. This will make them identify potential target areas and also whether they can develop other products to compete with those that are already in the market.
Development of the product
Through the use of the internet the firm will know the strategies to use in the development of their products. They will be able to know how to add value to existing products, how to improve efficiency in the subscription procedures and also how to increase the product range so that to bring on board more e-retailers as possible. They must seek good service providers who are reliable in the market and who will offer competitive prices.
The 4 C’s Model
The customers being the target of many marketing initiatives take the centre stage in this model. The model focuses mainly on the pull marketing strategy as opposed to the push strategy adopted by the other models.
Customers: Their needs must be fully satisfied by the products in the market.
Cost: The cost of the product to the consumer should be analyzed to enhance affordability.
Convenience: The product should be readily available to the consumer anytime and anywhere.
Communication: There should be more interaction between the sellers of the product and the customers. This will ensure customer satisfaction
CUSTOMERWhat do they need? How do they need it?
COSTHow affordable is the product?
CONVINIENCEWhere are they getting the product and how much is it costing them to reach the venue?
COMMUNICATIONAre they aware the product is available?
ROLE OF THE MARKETING MIX
The role the marketing mix plays in the formation of a marketing strategy for a retail business will determine the suitability of the strategy and definitely the success of the business (Albers, 2010).
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The marketing mix will ensure the product chosen for sale by the retailer is suitable and fit for the particular market. This is because the success of the business will be determined by how good or bad the product is. The suitability of the product in the market will be determined by several factors which will revolve around the geographical area, the income levels of the consumers since it will affect their purchasing power and also their consumption and buying habits. The retailer will decide the units or packages of the product that best suit that market to ensure there are sales volumes and also customer satisfaction.
The marketing mix will also help the retailer in knowing the pricing modes he is going to adopt for his products. If he prices his commodities very highly they will not get customers and again if he prices them low he won’t meet set revenue targets. The retailer will therefore be required to analyze all the factors that will influence his product prices such as supplier prices, price of substitutes, competing retailers’ prices and transportation costs. This will ensure the retailer does not lose customers and he gets the expected profits from his business. The company will also be able to meet its obligations like payment of taxes, rents and rates.
Also the marketing mix will make the retailer know how his product will have wider reach to its customers. This can be done through opening more retail stores in different localities to enhance wide coverage. He will also be able to evaluate the additional costs that will result from such expansion such as increased rental bills, more wages because of the additional employees hired and even more utility bills.
The retailer will decide whether he will advertise his business. This may not be feasible because majority of the commodities he could be dealing with are normally advertised by the producer. The only advertising he can do is to inform the prospective customers of the location of his business.
There are various factors that may cause the international retail marketing mix to differ from the domestic retailer’s marketing mix. These include;
The international retailer will be expected to heavily advertise his products in the new market as opposed to the domestic retailer who expects the advertisements for the products to be done by the producer. This means the international retailer will incur heavy advertisement costs which in the initial stages may eat into his profits. This implies that profits may not be realized in the short run for the international retailer as opposed to the domestic retailer. The product may therefore take long to penetrate the international market due to these initial costs. The domestic retailer is already established in the market and his product enjoys loyalty from his customers and is already in profitability.
The international retailer will have no control of the prices that are in the market. The prices will already have been set by the local operators in that market (Rossi, 2000).The international retailer will be forced to take the prices as they are in that market to ensure that there are sales volumes. This is despite the many expenses he has incurred at the set up stage which if taken to account will mean his product price should be higher, but because the international retailer wants to enhance competitiveness he will take the market prices so that he can compete adequately with the rival products.
The international retailer will be supposed to carry out very intense promotional campaigns for his products. This is as opposed to the domestic retailer whose promotions are minimal since his goods which are mostly locally produced are mainly advertised by the producers. The domestic retailers can devise to block the international retailer by adopting low price strategies (Harald, 2008). This will mean the international retailer will take a long time to attain a considerable market share in the foreign market for his products. The international retailer will be forced to seek favorable distribution channels for his products to ensure they reach the target consumer.
The domestic retailers will be on the look out to dominate the places the international retailer may choose to advertise his products. They will adopt defensive techniques to guard against their market share which is under threat from the international retailer. The international retailer will therefore be expected to identify areas where those in the domestic market have no full control over. Such areas may include the internet and other social sites frequented by many people.
PART (B)
Inthis part we are going to review the retail marketing mix for Superdrug Company and what they are supposed to do so as to internationalize their marketing mix when they venture in Australasia.
The Superdrug Company will have to study the marketing mix in the foreign market carefully to enable it come up with a good strategy to enter that market.
Product
The market mix for Superdrug is very strong in the UK which is their home market (Meyer, n.d). They are major players in the beauty and cosmetics industry and their products enjoy wide appeal. The products are of high quality and the company enjoys sizable market share. This is because the products have fully penetrated the market. However the beauty and cosmetic industry in Australasia is saturated with many players.
The company must maintain the same quality for the products to ensure customer satisfaction. Product quality as seen in the 4Ps model is very important as it will determine the customer satisfaction levels. The satisfaction derived from the product will guarantee the sales volumes the company will achieve and the market penetration levels.
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Price
Superdrug will be forced to adopt a price reduction strategy for their products to realize sales volumes. There are many substitutes for their products in that foreign market and each of the domestic players will be seeking to guard their market share. Reducing prices will increase the preference of their products to many consumers and this will enhance market penetration (Edwin, 2007).
However this can only be done in the short run when the products are still in the initial introduction stages. The company after securing a sizable market share should revert to applicable prices in order to realize profits.
Promotion
The company being a foreign entrant will be expected to heavily promote its products among the consumers. This will make the majority to be aware of their presence. They will conduct sales promotions in the key areas they will identify. They should convince the consumers why they should stop using their current products and adopt theirs. This means the advertising budget will be huge because the local companies will also be guarding against their market share.
Place
Superdrug on evaluating the market will be required to identify the most convenient places to place their advertisements to ensure wide accessibility. They should consult with the major advertising consultants in the new market and seek their advice. Interaction with the consumer will be very crucial (John, n.d) because this is what will determine the demand for their products.
The company should also adopt the use of the internet to alert customers of their entrance to this new market. Loyal customers like the tourists will be happy to know their favorite products from the company are also available.
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CONCLUSION
The role played by the marketing mix in the formulation of marketing strategy to be adopted by companies is very important. It is used to identify key variables that determine the suitability of a particular product being in the market. This is because many industries today are dominated by players who will not give in easily to their market share. The local players want to maintain their profit margins and when any foreign entrant attempts to venture in to their market they will employ defensive tactics to ensure they preserve their market share.
To overcome all these obstacles a company should fully understand the market in which they are operating because the information gathered in local markets may also be important in the foreign markets. Failure to do this will place firms at a disadvantage whenever they seek expansion and it will be very harming to the business and to the industry as a whole.
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References
Albers, M (2010) Marketing Demand. London. Penguin Books, P. 9
Edwin, S (2007) Product Management. Bristol. Ace Publishers Ltd, P.23
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Foreign direct liability
Critically analyse what you understand by foreign direct liability
And
Critically evaluate the legal obstacles in regulating the activities of multinational companies.
An analysis of Multinational corporation operations and foreign direct liability.
Foreign direct liability
Introduction
Over time, parent companies mostly in developed countries have set their sights on foreign markets. This has led to an increased number of multinational companies. Multinational companies (MNCs) are defined as enterprises that have production and delivery services in more than one country.[1] Thus, the location of the company’s headquarters is referred to as the home country while the host countries are the other countries that it has invested in.
This has been facilitated by increased competition and globalization. Driven by the motivation to maximize profits, these companies have extended their boundaries all over the world. Most of them have even penetrated what would be termed as high risk areas. These are mostly war torn countries or those that have poor governance relating to dictatorial leadership.
In their quest to set base in foreign markets, these companies have to interact with the locals. Foreign direct Investment has experienced exponential growth in developing countries. World trade has exceeded $15 trillion over the last three decades. In the 1990s, a large portion of external finance in developing countries was attributed to foreign direct investment.[2]Their presence in these markets has led to great benefits.
Not only do the people benefit from employment, but impartation of new skills. Moreover, the multinational companies introduce new technology and knowledge[3]. In addition to this, the entry of multinational companies into these markets has put the developing nations on the trade map. Their entry has also contributed to the utilization of a country’s resources.[4]
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In order for these companies to establish themselves, they consider certain factors. These are known as the push and pull factors. The push factors force the companies from their home countries whereas pull factors lure them to new locations. Market based factors consider labor costs, information skills, investment incentives and management prowess. Efficiency based factors include common governance, economy of scope, production incentives and product specialization.
Strategic based factors on the other hand consider market access, distribution of the product, customer access and performance and input quality protection. Lastly, resource based factors are another key consideration. These include availability of capital and natural resources, supply stability and market controls.
In choosing to establish themselves in host countries, the MNCs are forced to adapt to the standards set by the jurisdiction they’ve chosen to operate in. Hence they align their production processes to the demands of the host country. With regards to labor costs, MNCs trend over the years is to pay the workers in the developing countries low wages.
It should be noted that once MNCs establish enter foreign markets, they become vulnerable to arbitrary government actions such as sudden contract renegotiations, being forced to but licenses or arbitrary withdrawal of the same or in some instances, expropriation.
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Nevertheless, MNCs play a major role in any market they enter. They impact government policy significantly. They influence how the government formulates policies regarding the country’s economy. Where the policy does not favor the multinational corporations, they threaten to withdraw from the market.[5] This is especially common with MNCs that have monopoly in a particular sector. Countries like the United States however, have managed to curb this through the presence of domestic market competitors.
Another avenue provided for MNCs to influence government decision is through lobbying. In the United States, an individual or group’s ability to lobby is enshrined in the right of petition contained in the Amendment to the United States Constitution.[6] Lobbying in the United Kingdom is considered as a way of promoting democracy. A statutory register for lobbying and lobbyists was recommended by the House of Commons Public Administration Select Committee.[7]
In the European Union, lobbying is done with the aim of influencing the European Parliament, the Council and the Commission.[8] Multinational corporations lobbying is directed at a range of issues such as the tariff structures and environmental regulations. Their purpose for lobbying on some of these issues is to filter out competitors. For instance, if a multinational company pushes for stringent standards on environmental safety, any other competitor that is unable to meet the requirements is automatically locked out.
Wal-Mart, a multinational corporation in the USA benefited from the zoning laws that created barrier to entry for other companies.[9] The zoning laws spelled out the areas that could be developed and for what purpose, regulating building heights, lot coverage and other aspects pertaining to land use.[10]
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In maintaining monopoly in a given sector, these corporations acquire patents. For instance, Adidas, renowned shoe manufactures, holds a patent to protect its shoe designs whereas Microsoft holds a software patent.[11]
International law and treaties.
Besides the individual national laws that govern sovereign states, the public international law was instituted to govern the relationship among sovereign states.[12] Hence, multinational corporations are affected by the international law. Increased global trade, environmental degradation and human rights violations have increased the importance of international law which is used to govern these issues.
In addition to this, international law is used to solve disputes that arise from the interpretation of and implantation of national laws.[13] The sources of international law are customs and treaties. Treaties result from consent to follow them by a number of countries while customary international law emerge from practices carried out by nations that believe they ought to be part of international law.[14]
Customary law has been used by environmentalists to affirm the need for countries and corporations to take care of the environment. This is clearly outlined in Principle 21 of the Stockholm Declaration and Principle 2 of the Rio Declaration.[15] These principles give the countries the right to exploit their resources but not to the extent of damaging the environment of areas beyond their jurisdiction.
Several treaties have also been established in relation to environmental protection. For instance, 2001 Stockholm Convention on Persistent Organic Pollutants prohibits the use of certain chemicals while putting restrictions on the use of others.[16] Nuclear and air pollution is also regulated by the International Convention on Oil Pollution Preparedness. Voluntary Corporate Codes of Conduct have also been established. The ISO 14000 established by the International Organization for Standardization is a set of environmental management standards that corporations voluntarily adopt to prevent pollution.[17]
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Foreign Direct Liability.
The negative impacts of multinational companies have led to the emergence of the foreign direct liability concept. The negative impacts have driven the locals to seek legal action against the multinational companies in their home countries.[18] The claims often relate to negative environmental and health impacts on the locals caused by a company’s operations in the area. For instance, in the US, cases have been brought forth against Union Carbide, Texaco, Unocal and Freeport McMoRan.
Union Carbide, a US based corporation invested in India. On December 3, 1984, the plant experienced a gas leak that killed 3,787 people and another 8000 that died from gas related diseases. [19] Immediately after the catastrophe, the company, Indian and U.S governments embarked on legal proceedings. The CEO of Union Carbide, Warren Anderson was summoned to the US Congress.
Not satisfied, in March 1985, the Indian government formulated the Bhopal Gas Leak Act that mandated it to be the legal representative of the victims.[20] The case was later transferred to India for hearing. This was challenged by Union Carbide management but was not supported by the US courts. In June 2010, 7 of the former UCC employees were convicted for negligence that caused the deaths.
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This is just one of the cases where foreign citizens have sought litigation in the home countries. As seen in the Bhopal case, due to failure to determine under which law the case was to be heard, there was a lot of back and forth between the Indian and the US government. Consequently, those responsible for the 1984 disaster were convicted sixteen years later. This clearly outlines the need to harmonize the legal systems between the home and host countries. Whenever a multinational company invests in another country, there should be clear guidelines on how cases involving the locals will be handled.
Foreign direct liability may have an impact on corporate performance.[21] Since the litigation process is an expensive course and in the event that the corporation losses against the plaintiffs and are forced to compensate them, then this is a factor that would cause the corporations to rethink their actions in the host country. Therefore, foreign direct liability may push them towards implementing risk management strategies.
In addition to this, the home countries can however play a role in regulating the influence of multinational corporations in the host countries in terms of the foreign direct investment.[22] The home country governments can limit the amount of investments an MNC can have. This will help to reduce their monopoly in foreign markets.
However, the MNCs have devised other means of avoiding foreign direct liability.[23] Among the measures they use is contracting what they view as the risky parts of their activities to subcontractors. Secondly, they insulate the parent company from any claims by separating the day to day management of the parent company from those of its subsidiaries.
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Another factor to be considered is the involvement of the local government in the corporations’ activities. They take part as business partners or beneficiaries. Hence, the host governments are likely to turn a blind eye on the MNCs activities.[24] This makes the victims’ quest for justice a big challenge. Worse yet is that even if the victims win and are to be compensated, the local subsidiaries may not be in a position financially to fulfill their obligations.
When analyzed from a corporate social responsibility (CSR) point of view, it ought to be the responsibility of these corporations to ensure that their workers have favorable working conditions.[25] By this, they should apply the same standards they apply at home in the host country. The issue of different standards at home and abroad should not arise. Hence, the best environmental and health standards should be applied wherever they choose to invest.
On the other hand, foreign direct liability opens up the host country to impositions by the home country.[26] The home country courts are likely to demand to have their way with regards to the host government’s choices. They may demand very high standards that the host government may not be in a position to meet based on the developing countries’ status. In the event that a disaster occurs, then the company together with the home government absolve themselves from any responsibility laying the blame on the host government for failure to implement their recommendations.
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Political, legal and social risks.
Besides this, multinational corporations face a lot of risks in their foreign operations. They are forced to deal with additional costs arising from their unfamiliarity with the foreign market, discrimination from the customers, suppliers or government entities[27]. Moreover, other costs are associated with international operations.
Multinationals also stand the risk posed by political decisions arrived at by a country’s governance.[28] Political changes that alter the expected outcome of a given economic action determine the probability of a company’s prosperity in the given country. These risks may be classified as micro-level political risks and macro-level political risks.
Macro-level political risks do not only refer to country level political risks, rather it is a coupling of local, national and regional political events. These risks may result in confiscation or seizure of a businesses’ property. Micro-level political risks on the other hand may be termed as project-specific risks. These risks tend to favor the local industries compared to multinational companies.
Micro risks arise from prejudicial actions or corruption. A good example of how companies can suffer from political risks is illustrated by Cuba. Following Fidel Castro’s takeover of Cuba in 1959, American owned assets and companies were expropriated as explained by Simon.[29] These companies incurred losses to the tune of hundreds of millions of dollars.
Macro level risks can be mitigated by the company understanding the political uncertainties of the host country. At the micro level, political risks can be mitigated through political risk insurance and hedges. Institutions such as Multilateral Investment Guarantee Agency (MIGA) and Overseas Private investment Corporation (OPIC) are just but a few of the public sector insurers that provide project specific political risk insurance.
Through insuring investors, MIGA promotes foreign direct investment in developing countries[30]. OPIC is an American based agency that mobilizes the private sector to invest in new and emerging markets. Portfolio of investments can be covered by private market insurers. Political risk insurance covers a variety of risks that the investor may face. These are currency inconvertibility, expropriation; loss of an investment due to confiscation by the host government; and political violence.
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In addition to this, legal risks are another challenge for MNCs. This results from a lack of clear guideline on the law applicable when a legal matter arises. For instance, the foreign direct liability cases prove to be a challenge as to which law to apply in determining the cases. The difference in the legal cultures of the host and home countries become barriers to the resolving of such cases.
Social risks on the other hand arise from crimes, violence and racial discrimination.[31] Multinational companies tend to be victims of crimes. This may be attributed to lack of confidence by the locals in their operations.[32] To add to this, people’s perception about a company influences the decisions they make. Multinational companies fall prey to this menace especially from customers who may view a company in a particular way. Wrong perception may also arise from lack of information about a company’s operations.[33]
Wal-Mart Company has faced a series of criticism from labor organizations, human rights activists and other entities.[34] This has given their consumers a negative perception about the company. Apart from this, multinational companies face racial discrimination from locals in the host countries. The domestic markets have a higher tendency of favoring the local industries compared to the foreign companies.
One of the ways of mitigating social risks is through corporate social responsibility.[35] Creating programs that help the MNCs keep in touch with the locals serves a good strategy to deal with the perceptions the locals may have about it. Some of these programs include creating social events where both parties can interact such as fun days for the employees. In addition, some MNCs have gone ahead to engage in programs that meet the needs of the locals such as establishing schools, providing water and other social amenities. Moreover, transparency about the companies’ operations also contributes to mitigating social risks.
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Conclusion.
In conclusion, multinational corporations are companies that have extended their operations from the home countries to foreign markets that are referred to as the host countries. These companies take into consideration the viability of the foreign markets before they establish themselves. Their entry into the host country implies involvement of the locals in the company’s operations. In addition to these, international laws have been put in place to govern the management of resources with respect to health and environmental safety.
Multinational countries tend to have different standards in the home and host countries. This gives rise to foreign direct liability. Access to justice is the underlying issue in foreign direct liability. The victims in most instances seek justice in the home country. However, this is still a foreign concept to many countries. As seen, multinational companies face several risks including legal, political and social. All in all, there is a need to develop a strategy where foreign direct liability is handled amicably and justice is served. Moreover, multinational companies need to not only be driven by the desire to make profits but work towards corporate social responsibility.
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BIBLIOGRAPHY
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Luo, Y., “Market-seeking MNEs in an emerging market: how parent-subsidiary links shape overseas success”, Journal of International Business Studies, Vol. 34 No. 3, pp. 290-309, 2003.
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Kierkegaard, Sylvia, How the Cookie (almost crumbled). Computer Law and Security Report Vol.21 Issue 4, 2005.
Kyle, Beth and Ruggie, G. John, “Corporate Social Responsibility as Risk Management” Corporate Social Responsibility Initiatice Working Paper, Cambridge MA: John F. Kennedy School of Government, Harvard University, 2005.
Simon, D.J., “A Theoretical Perspective on Political Risk”,), Journal of International Business Studies, Vol. 15, No. 3,Winter, 1984.
[7]Public Administration Select Committee < http://www.parliament.uk/business/committees/committees-a-z/commons-select/public-administration-select-committee/> (accessed on 30Nov 2011)
[8] Kierkegaard, Sylvia, How the Cookie (almost crumbled). Computer Law and Security Report Vol.21 Issue 4, 2005.
[9] Lefcoe, George, “The Regulation of Superstores: The Legality of Zoning Ordinances Emerging from the Skirmishes between Wal-Mart and the United Food and Commercial Workers Union,” April 2005.
[20]“Chronology”. Bhopal Information Center, UCC. November 2006.
[21] D. Sethi, and S. Guisinger, “Liability of foreignness to competitive advantage: how
multinational enterprises cope with the international business environment”, Journal of
International Management, 2002.
[22] Santoro, M., Should LDCs love MNCs? Foreign Policy, 128, 94-96, 2002.
[23] J.M. Mezias, “Identifying liability of foreignness and strategies to minimize their effects:
the case of labor lawsuit judgments in the United States”, Strategic Management Journal,
Vol. 23, pp. 229-44, 2002.
[24] Liesbeth F.H. Enneking , “Crossing the Atlantic? The political and legal feasibility of European Foreign Direct Liability Cases,” The George Washington International Law Review, 2009, p 903.
[25]Y. Luo, O. Shenkar, and M. Nyaw, “Mitigating liabilities of foreignness: defensive versus
offensive approaches”, Journal of International Management, Vol. 8 No. 3, pp. 283-300. 2002.
[26] Y. Luo,,“Market-seeking MNEs in an emerging market: how parent-subsidiary links
shape overseas success”, Journal of International Business Studies, Vol. 34 No. 3,
pp. 290-309, 2003.
[27] S. Hymer, , The International Operations of National Firms: A Study of Direct Investment,
MIT Press, Cambridge, MA. 1976.
[28] How managing political risk improves global business performance,” PwC Advisory and Eurasia Group, 2006.
[29] D.J.,Simon, “A Theoretical Perspective on Political Risk”, (Winter, 1984), Journal of International Business Studies, Vol. 15, No. 3. (pp. 123–143).
[35] Beth Kyle and John G. Ruggie, “Corporate Social Responsibility as Risk Management” Corporate Social Responsibility Initiatice Working Paper, Cambridge MA: John F. Kennedy School of Government, Harvard University, 2005.
