Government intervention in the market economy
An MNC is a business that either owns or controls subsidiaries in more than one country,
Diversity among MNCs -
- Size (i.e. - hybrid form of business organisation etc)
- The nature of business - (i.e. - cover various business spectrums etc)
- Production locations - (i.e. - either wide or narrow range of countries etc)
- Ownership patterns (i.e. - joint ventures, shared ownership etc)
Business Strategy in a global economy:
The global marketplace can provide massive opportunities for firms to expand and access new markets and customers etc.
Types of multinational expansion -
Businesses can look to expand either internally or externally..
- A horizontally integrated multinational - (Same product in different countries)
- A vertically integrated multinational - (Various stages of production take place in different countries)
- A conglomerate multinational - (Different products in differnet countries)
Going global to reduce costs -
- The costs & availability of labour and other resources
- The quality of inputs
- Entreprenurial and managerial skills
- Cost reductions through 'learning by doing'
- Economies of scale
- Reducing transaction costs
- Transport costs
- Government policies
In highly competitive global markets, even small cost saving could mean the difference between success and failure. This in turn highlights the importance of minimising costs.
Going global to access new markets -
Markets would be particularly attractive to businesses where domestic growth opportunities are limited.
Expanding into new markets offers the following advantages..
- Spreaking risks
Falling sales in one region could be effectively offset by increased sales elsewhere.
- Exploiting competitive advantages in new markets
MNC's could use their superior technology and products to their advantage.
- Learning from experience in diverse markets
Successful businesses will learn from their global operations, and treat each country differently.
Problems facing multinationals:
MNC's may face a number of problems resulting from their global expansion..
- Language Barriers
- Selling and marketing in foreign markets (i.e. - cultural differences)
- Attitudes of host governments (tight rules and regulations etc)
- Communication and coordination between subsidiaries (i.e. diseconomies of scale)
The global strategy trade-off -
The trade-off between the cost reduction and local responsiveness can be a key strategic consideration for a firm to take into account when selling or producing overseas.
Multinationals & the host state:
Host governements may choose to offer incentives to MNC's, as they can bring various benefits to an economy..
- Employment - (i.e. - new factory)
- The balance of payments - (i.e. direct flow of capital)
- Technology transfer - (i.e. demonstration effect)
- Taxation - (i.e. - contribute to public finances)
MNC's could have both short and long-term disadvantages..
- Uncertainty - (i.e. - MNC's are often 'footloose')
- Control - (i.e. - threats to withdraw)
- Transfer pricing - (i.e. - manipulating internal pricing system)