a) ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ 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:
ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ asset-oriented production
o ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ commodities (e.g.
oil reserves, gold, cocoa, coffee beans, tobacco)
o ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ labour (variations in knowledge and skills, in wage costs, in labour productivity)
ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ Percentage Labour Cost / Total Cost: clothing and footwear - 33%, automotive - 10-15%, chemicals - 8%, TV - 5%
ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ Labour Productivity as percentage of US 2001 (GDP per hour worked):
ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ Brazil - 25%
ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ Poland - 33%
ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ UK - 85%
ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ Norway - 117%
ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ market-oriented production
o ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ market size (consumers willingness to buy products/services and their ability to buy (disposable income))
o ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ structure of demand (e.g. greater demand for cigarettes in LEDCs)
ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ strategic advantages
o ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ access and combine knowledge
o ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ exploit geographical differences in production factors (e.g. raw materials, labour, finance, state policies (taxation, subsidies, trade barriers))
o ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ shift production and resources between territories on a global scale
o ÃÂà ÃÂà ÃÂà ÃÂà ÃÂà ÃÂà ÃÂà ÃÂà to minimise risk (e.g. Nestlé: slow in MEDCs but offset in other regions)
b) ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ ÃÂÃ Summarise Dunning's 'eclectic paradigm'. How useful...