Multinational Firms Essay Example

can negatively impact the labor situation, as their international presence can lead to job losses. This trend is evident in both the Indian and Chinese economies. In 1990 alone, a total of 200 million people were lifted out of poverty in India and China. These two markets are the fastest growing economies globally, surpassing even the US, European, and Japanese economies. Therefore, India and China are preferred options for MNEs looking to expand their profits and scale. (Source: [Forbes' Robyn Meredith: Hong Kong central in the new supply](hypertext transfer protocol: //hk.video.yahoo.com/video/video.html?id=377384 ;p= ??)).The text highlights the significance and influence of multinational enterprises (MNEs) on people's lives worldwide. It emphasizes that as consumers, we unknowingly consume goods and services produced by MNEs. Each MNE operates differently, and organizations have various reasons for going global. Some seek to secure key resources, ensuring long-term operational stability. Others aim to increase sales and expand their market reach, thereby achieving higher profits and a competitive advantage. Cost reduction is also a common motivation for firms to expand globally, attracting them to countries with cheaper factors of production. Additionally, MNEs often take advantage of grants offered by host governments when expanding internationally.State authorities provide grants to multinational enterprises (MNEs) because they create jobs and efficiently utilize low-rated land. The presence of MNEs in an economy reflects the opportunities available in the country, attracting other large players and raising the standard of living. Therefore, host governments encourage the arrival of these global giants. To remain competitive, MNEs must have a forward-thinking approach, being aware of their surroundings and adapting to changes. To meet these requirements, multinational corporations (MNCs) venture into various economies

to observe and incorporate new developments into their work culture. Additionally, MNEs have a strong desire to learn and stay updated, which further motivates them to expand across national boundaries. It is important to note that organizations do not directly enter a foreign market as MNEs. There are several procedural steps with variations followed by different organizations before becoming a MNE. Investing directly in a foreign country involves significant costs, making it the final step for organizations to go international.Organizations initially opt to expand globally through the process of exports. By exporting goods, the company can meet the demand in other parts of the world without leaving its original state. This allows the organizations to have a global presence with low levels of risk. Exporting offers the advantage of accessing international markets without the need to establish operations abroad.

Another strategy used by corporations to go global is licensing and franchising. Licensing involves one organization (licensor) allowing another organization (licensee) to sell its goods in exchange for monetary compensation. Franchising, on the other hand, grants the franchisee the right to use the name, technology, and expertise developed by the franchiser company, all in return for a specified fee. These methods involve relatively low costs but come with significant risks. The unique selling proposition (USP) of the franchiser may be diluted as control over the USP is distributed among all the subsidiaries.

Some companies also prefer a simple distribution approach by utilizing distributors in their home country. This convenient method, which remains popular in global expansion efforts, ensures that distributors have no involvement in the company's operations; they are solely compensated through commission payments.Commission wage can be

defined as the distributor's income for their efforts in distributing merchandise. A commonly used method for global expansion is joint venture, which is a collaboration between unrelated parties to combine resources. In simple terms, it is an agreement between companies to share profits and utilize each other's assets, names, and technology to achieve global success. Once a company completes the necessary steps for global expansion and survives, it may choose to invest in establishing a fully owned subsidiary abroad. This final step is crucial but expensive and irreversible without significant loss. Therefore, it is clear that different organizations have different motives and follow different paths to become a multinational enterprise (MNE).