Expansion of Multination Corporation

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Table of Contents

Introduction. 2

Discussion. 2

Location Advantages. 5

International Uniformity. 7

Attracting Foreign Direct Investment 9

Conclusion. 11

REFERENCES. 13

Introduction

A company, that operates in simultaneously in the domestic and the internal levels is known as a multinational company. A company goes international when they are seeking an opportunity to go beyond their domestic market. In the initiative of expanding their market share, the companies establish their operation overseas. Internationalisation of an organisation is occurs as a result of the mission to utilise the resources, conditions and opportunities that are provided by nations other than the domestic country where the country is operating in (Akehurst and Alexander 2013). It is evident that the companies who want to go international have to adapt with the local rules and regulations of the state that they are expanding to. Other than the regulations of the state, the other factor that is crucial for establishment of a company to a foreign nation is adaptation to the culture that is existent in the nation. The aim of the paper is to critically evaluate the differences in the culture which can be utilised by the companies while they seek to explore markets overseas. The paper will also critically evaluate the conditions that have to present in the host countries in order to bolster the amount of foreign direct investment in a country along with the policies which the companies can incorporate in order to incorporate uniformity across all the countries where branches of the company are established in.

Discussion

It can be said that a company has gained multinational stature, if they have been successful in establishing themselves in the domestic and foreign nations, they have been successful in gaining international of multinational stature (Csomós and Derudder 2014). Companies, such as Vodafone, Unilever and Nestle are the examples of the companies who have been able in gaining the stature of multinational companies (Abugre, Gasor and Sarwar 2013). In order to gain such a stature, a company has to ensure, that they incorporate policies through which they can maintain uniformity in operation across the nations that they are operating in. Furthermore, the organisations would have to ensure, that they incorporate the operations of their functional division according to the policies and regulations that are implemented by the regulatory bodies and the government of the foreign nations or states that they are established in. It has been found out that expansion of the countries into foreign states results in increase of the amount of foreign direct investment the country (Wei et al. 2014). This bolsters the economy of the country and contributes to the economic development of the country. Following are the factors that affect the efficacy of operations of a multinational company;

1. Culture: Culture is one of the most important factors that determine the sustainability of a company in the long run (Inglehart 2018). In order to be successful in a state or country, the company has to make sure, that they implement policies and operate according to the cultural implications that are present within the organisation. Culture is the assimilation of the etiquettes and values of the people of a state or country (Mukherjee and Salazar 2014). The operations of the company should be aligned the culture of the people according to which they should implement policies in the organisation. The companies should pay due attention to the culture of the nation that they are moving into. The companies should make sure that they take care of the multicultural considerations that are present within the value system of a country (Clarke and Georges 2014).
2. Rules and regulations: The rules and regulations of a company are different in different countries. There are various tariffs, import and export duties that exist in different countries (Kennan and Riezman 2013). Furthermore, there are various regulations of employee and labour regulation laws that exist in a country. The tax laws are one of the most important regulations that affect the viability of a multinational company in a country.
3. Valuation of the currencies: With the change of nationality of the base of operation of a country, the valuations of the currencies, is subject to change. A rate of currency that might be valuable at one state or nation, might not be valuable in the other country (Abdoh et al. 2016). Furthermore, the currencies of the countries keep on fluctuating (Runo 2013). This results in increasing difficulties that can be faced by the companies. Thus, while seeking the opportunity to present itself in a different country, the multinational company should pay close attention to the value of the currency that exists in the state where they aim to move.  
4. Location: Just as every other implication that affect the sustainability of an organisation in the long run, the location of the organisation is important when it comes to the establishment of a business in the foreign nations (Nasri and Zarai 2013). The geographical location of a country determines the nature of the climate that could affect the production of raw materials that can be used by the company. Furthermore, the location determines, the workforce that is available for utilisation of the companies (Herd et al. 2017). Thus, location is crucial for the viability of an organisation in a foreign country in the long run.
5. Accounting standards: The accounting standards that are established in different countries, might not be similar. There are accounting standards that are established in to maintain uniformity of operations. Such a regulation is known as GAAP or Generally Accepted Accounting Principles (Glover 2014). Hence, before commencement of operations, a company that is seeking to go multinational should carry out research regarding whether, the accounting standards present in the countries that they are operating in, are accepted in the global levels (Poulis, Poulis and Plakoyiannaki 2013). This would help the company in maintaining uniformity of operations.

Location Advantages

The advantages that a company are subject to when they opt to stick to the location of a certain advantages are known as the location advantages (Dunning 2015). The location advantages are the reasons behind selection of a certain location rather than the other are due to the advantages that the former provides, that the latter does not provide. Thus, location advantages, determine, the efficacy of the operations of national branch of a multinational company. In order to be deemed by multinational companies as a favourable location, the destination country must provide certain advantages (Verbeke 2013). Foreign direct investment sis valued by countries as they bolster the economy of a country. Increase in foreign direct investment, results in the increase of the standard of living and infrastructure of a country. Thus, countries around the word aim to increase the amount of inward investment that goes into the economy of a country.  Following are certain advantages that can be provided by the destination nations in order to boost the amount of foreign direct investment towards the country,

1. Economic Development: One of the major factors that determines the amount of the foreign direct investment that a country offers to potential investors is the economic development of the country (Soumaré and Tchana 2015). The presence of favourable economic condition in a country attracts the potential investors and the companies who could potentially invest in a country (Guimón and Filippov 2017). Thus, in order to attract foreign direct investment, the government and regulatory bodies should pay close importance to the development of the economic standards of the country.
2. Efficacy of international trade: In order to attract potential investors, the regulatory bodies of a country should incorporate favourable relations with other countries. The latter must pay specific attention to the trade relations that exist within the country and other countries. A country that has favourable trade relations with other countries attract increased good amount of foreign direct investment. Thus, countries should try to incorporate favourable relations with nations who possess the propensity to invest in a country.
3. Human Capital Resources: Form the early 1800s, European countries have been colonising various third world countries. This can be termed as early stages of internationalisation. Countries such as South Africa, Brazil and India have been some of the major targets of the countries as a result of the cheap and skilled labour available in the country (Buckley, Doh and Benischke 2017). Just is in those days, the availability of skilled and abundant labour is one the major factors that determine the motive of a country to invest in a country. Thus, the availability of human capital is one of the major contributors to the viability of the location advantage that it has.
4. Tax Incentives: Foreign direct investment results in the incidence of various taxation advantages that the investing company may be subject to. Tax incentives ensure increase the likeliness of investment (Abeler and Jäger 2015). The tax incentive schemes are decided by the government or the regulatory bodies of the host country, which makes the latter favourable for investment. A company might be subject to perks such as complementary technology, expertise and products or services as a result of the investment that the company made in the country. Accordingly, availability of tax incentives makes multinational companies invest in that country rather than in a different country (Abeler and Jäger 2015). Furthermore, it improves the amount of investment that the companies are likely to make in the countries.
5. Favourable regulations: Regulations include trade practices, the import and export rates the economic tax-free zones and other favourable policies that favour the operation of a multinational company, urge the latter to invest in a country. The latter, backed up by support from the government results in favourable working conditions for the foreign investors. It further incorporates smooth functioning of operations of the multinational company that has contributed to the economy of the host nation by investing. Thus, the availability of such favourable laws and regulations promote direct investment in a country. Hence, the host nations that provide such regulations and laws make investment a favourable and healthy practice.

International Uniformity

In the motive of going international, it is the aim of the multinational corporations to establish the uniform policies by the help of which they can establish uniformity in operation of every branch of the organisation that is operating at international level (Baran et al. 2015). The organisations can maintain uniformity in their policies while operating at domestic levels by abiding by the motive of glocalisation. Glocalisation is a belief where international organisations “Think globally, Act locally” (Fujita and Thisse 2013). It is a practice in which the MNCs maintain international stature, while operating as domestic bodies within the foreign countries that they are established in. The motive of the companies abiding by this belief is to stick to the locally aligned operations in the foreign country or countries that they are established in.

The companies operate in a domestic level and implement strategic goals and policies through which they can attain competitive advantage in the local markets. When they are able to achieve competitive advantage in the locally in the countries they are established in, it can be said that they can achieve competitive advantage as a whole or in the international level. The same can be explained by the help of the following example. McDonalds have been established a successful multinational company for decade (Nandini 2014). The main product that the company deals in is hamburger. The prime ingredient to make the patties is beef and pork. Thus, in their motive to move to Indian they had to modify their products according to the consumer behaviour in the country. Most of the population of the country is vegetarian. Thus, the beef and pork patties would not be consumed by majority of the population. The initiative of McDonalds in India would have failed if they had not modified their products according to the behaviour of the Indian consumers. Furthermore, there exists various religious taboos against the consumption of beef and pork in India. Accordingly, the company created Burgers with chicken based patties for the first time (Nandini 2014). Chicken is a form of meat that is common for consumption of the non-vegetarians in the country. Moreover, they devised potato based patties and called it the “Alo Tikki Burger” (Nandini 2014). They were successful in maintaining parity with the behaviour of the locals of the country and thus the move became a huge success in the country. At that point, the company was one of the first fast food multinational organisation to establish themselves in the India. This is one of the many examples that justify the power of glocalisation and maintaining uniformity in operations of companies across different countries. Hence, different organisational policies help in attaining the favourable nature of operation of the company that helps them in gaining competitive advantage in the international as well as the domestic markets of the countries that they are established in.

            The regulations that are present in and the countries that the company are present in determine the nature of operations that are carried out or implemented by the companies. The regulations are important factors that have to be considered by the companies before incorporating their objectives that they have established in a particular country. The mission of the MNCs are to maintain uniformity in their mission. The aim to maintain the main goals that is gaining competitive advantage and being successful at establishing corporate governance while maintaining their profitability at the same time. While policies and strategies that are used to the aforementioned factors might be different for the different countries, it is the company as a global unit who would be affected as a whole by the favourable activities that are being carried out by the company in a multinational level. The ultimate goal of the company is to satisfy their stakeholders, thus, glocalisation is a policy which helps the companies in satisfying the stakeholder of the company and achieve corporate governance as a result of the same. Hence, it can be said that the operations of a company might be different in different countries, however, they should be perfectly aligned with the needs and behaviour of the people of the country that the company is operating in.

Attracting Foreign Direct Investment

Foreign Direct Investment in a country contributes to the economic development of a country. Thus, it should be the aim of government of countries to boost the amount of foreign direct investment that flow inward to the country as it helps in developing the economic condition of a country. Encouraging the amount of foreign direct investment showcase the social responsibility that the governments have for the people of the countries (Kastrati 2013). This is more applicable for the government and regulatory bodies of developing and underdeveloped countries as foreign direct investment would help in bolstering the economic conditions of the country. Following are the reasons why foreign direct investment should be encouraged by the governments of developing and under developed countries:

1. Employment opportunities: The incidence of the former implies that there will be incidence of opportunities that will be available for the employable population of the country. Employment is an issue in developing countries and foreign direct investment helps in creation of opportunities that help in advancement of the people of the community.
2. Improves the skills of the workforce: People of a country who are employed in MNCs come in contact with their foreign peers and thus they can learn skills and tricks that they were not aware of. The company who are investing in the country van also benefit from the same as they can learn skills and improve on the same that they already possessed.
3. Healthy competition: As a result of the foreign direct investment in the country, new standard benchmarks would be established in the country. Thus, the locally established firms would aim to gain party with their international competitors. Healthy competition would lead to improvement of services that the companies provide to the people of the country. Thus, this would help in boosting the quality of life of the people of the country.

There are various strategies that should be adopted by the regulatory authorities of country or the government bodies. These strategies help in boosting the amount of foreign direct investment in the country. Following are the strategies that can be used by the governments and regulatory authorities to encourage the inflow of foreign direct investment in their country.

1. Mobilise FDI: By incorporating favourable regulations towards the investment of FDI, the countries can ensure that they maximise the inflow of investment in their country. Governments who aim to increase the amount of FDI inflow should make sure that they revoke or remove impositions and restriction on FDI (Tingley et al. 2015). This would encourage FDI inwards.
2. Establishment of IPA: IPA is the short form of investment promotion agencies. The main purpose of creation of such agencies is to highlight the industries in a country which would result in high amount of profitability for the investors (Antonopoulos and Bachtler 2015). It is a body that is used to create a link between the foreign investors and the economy of the country.
3. Infrastructure: Favourable infrastructure attracts potential investors to a country. The availability of operations such as turnkey project and others, attract potential investors who want to save their time, maximise their profitability and associate themselves with a country that offers favourable infrastructure.
4. Location of the target industry: The government should be able to locate the industry in which FDI is needed. The industries that are considered bolstering on the country do not require foreign direct investment. However, the industries that are lagging behind could use foreign direct investment that could boost the competency of the industry. Thus, location of the target industry is of key consideration.

Conclusion

On a concluding note it can be said that FDI helps in improvement and development of the economy of the country that is aiming to attract the investment. The culture of a nation, rules and regulations, locations and accounting standards that are resent within a country help in turning out to be a favourable destination for foreign direct investment. The economic development of a country, the availability of skilled workforce, tax benefits and the infrastructure of a country contribute to the location advantages of a country in attracting foreign direct investment. The government of countries should incorporate methods in which they can attract FDI. It can be carried out by mobilising restrictions to FDI, by establishing IPA, by establishing favourable infrastructure and by locating the target industries that need improvement. Carrying out the latter will ensure that the country is able to attract FDI and bolster the economy of the nation.

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