The Multinational Company: Emergence and Significance - Dunning's Eclectic Paradigm

Essay by WitekUniversity, Bachelor's November 2004

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a)         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:

        asset-oriented production

o         commodities (e.g.

oil reserves, gold, cocoa, coffee beans, tobacco)

o         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-oriented production

o         market size (consumers willingness to buy products/services and their ability to buy (disposable income))

o         structure of demand (e.g. greater demand for cigarettes in LEDCs)

        strategic advantages

o         access and combine knowledge

o         exploit geographical differences in production factors (e.g. raw materials, labour, finance, state policies (taxation, subsidies, trade barriers))

o         shift production and resources between territories on a global scale

o         to minimise risk (e.g. Nestlé: slow in MEDCs but offset in other regions)

b)         Summarise Dunning's 'eclectic paradigm'. How useful...