Outline the reasons why companies chose to become multinational in scope. Illustrate your answers with examples.
There is an increasing drive for global profits. The transnationalization of a firm's operations may be motivated by either raising the revenue of selling its products or reducing cost of producing its goods or services. The process is a totally logical extension of the firm's 'normal' mode of expansion: from local, to regional, to national and then to global scales of operation.
Two key features of today's world are: first, competition is increasingly global in its extent and, second, such competition is extremely volatile. This creates an environment of hypercompetition - an environment in which advantages are rapidly created and eroded. Firms are no longer competing largely with national rivals but with firms from across the world.
Motivations for going multinational
3 broad categories why companies become multinational in scope:
commodities (e.g. oil reserves, gold, cocoa, coffee beans, tobacco)
labour (variations in knowledge and skills, in wage costs, in labour productivity)
Percentage Labour Cost / Total Cost: clothing and footwear - 33%, automotive - 10-15%, chemicals - 8%, TV - 5%
Labour Productivity as percentage of US 2001 (GDP per hour worked):
Brazil - 25%
Poland - 33%
UK - 85%
Norway - 117%
market size (consumers willingness to buy products/services and their ability to buy (disposable income))
structure of demand (e.g. greater demand for cigarettes in LEDCs)
access and combine knowledge
exploit geographical differences in production factors (e.g. raw materials, labour, finance, state policies (taxation, subsidies, trade barriers))
shift production and resources between territories on a global scale
to minimise risk (e.g. Nestlé: slow in MEDCs but offset in other regions)
Summarise Dunning's 'eclectic paradigm'. How useful is it as a theory of why companies chose to become multinational? What are its main strengths and weaknesses?
According to Dunning, a firm will engage in international production when all of the following three conditions are present.
A firm must possess certain ownership-specific advantages not possessed by competing firms of other nationalities.
These are assets internal to a firm, e.g. knowledge, organization, human skills, legally protected right, commercial monopoly and related to...