Essentials of Business Environment - Case Study Example

HOW FAR IS THE WORLD STILL NOT HOMOGENOUS? HOW DOES THIS INFLUENCE THE DECISIONS MADE BY MULTINATIONAL COMPANIES? Name Course Tutor Date Introduction Globalization of economies have resulted in the increase of the openness of the markets bringing in a whole new era of business. Multinational corporations, otherwise abbreviated as MNCs have had a fair share of the globalized markets, using this as an opportunity to enter into new areas that were previously not open for entry. Despite the chance of entry into new markets, there exist s plethora of challenges that are brought in by the heterogeneous nature of the world especially with regard to the business environment (Saleem, 2010). It is obvious that the strategic decisions of the MNCs are based on the factors of the society that if were homogeneous, could have made the planning process easier (Sedoglavich, Hill and Field, 2008). However, the decision making process is hampered by factors that experience differences across the world making it more heterogeneous than homogeneous (Sedoglavich, Hill and Field, 2008). These factors include political factors, economic factors, legal factors, technological factors, cultural factors and even environmental factors, which are dynamic and different from one region to the other (Sedoglavich, Hill and Field, 2008). This paper focuses on the factors that make the world more heterogeneous than homogeneous and then explores how the same factors confer a significant impact on the strategic decisions that are made by the MNCs, which have dominated the competitive international market. The Extent to which the World is still Homogeneous There are different factors that are not in tandem worldwide, making the world more of a chaotic place and not heterogeneous at all. These factors include the cultural aspects, the legal systems and environments, the political environments and the economical environments (Aswathappa, 2009). Together, these are coupled and make the world become more heterogeneous. With reference to the political aspects, different countries have variations in the forms of regime charged with the governance of the whole country. There are some areas that by nature of their geographical position and political systems are more prone to attacks and are therefore more politically unstable compared to others (Elango and R. Wieland, 2014). Aswathappa (2009) asserts that the difference in political systems equally contribute to the existence of a varying degree of laws that govern how the countries operate as well as how the individual citizens relate to each other in many matters, business being one of them. The political systems of a given country shape the employment laws that form the economic core of a country (Elango and R. Wieland, 2014). Additionally, there are some distinct differences in countries some being referred to as developed nations, some developing nations and some yet as the third world country (Aswathappa, 2009). This is mainly based on the open policies that are drafted by the countries and the development that is pushed by different political regimes that take the wheel of governance (Elango and R. Wieland, 2014). According to Aswathappa (2009) there are countries which by the mere fact that they are politically unstable, they become marked as high political risk nations and therefore face some sanctions compared to the politically stable regions. There are countries that have had dark pats based on political instability levels (Sedoglavich, Hill and Field, 2008). Such countries like Sri Lanka and Thailand were previously faced with civil war (Aswathappa, 2009). The political systems also determine whether or not a country is a member of a trade block (Sedoglavich, Hill and Field, 2008). The mere existence of different trade blocks and different trade barriers further support the point of the existence of high levels of heterogeneity in the world. The second factor that makes the world not homogeneous is the existence of different legal factors due to different geographical areas and political regimes as well (Elango and R. Wieland, 2014). Different laws define how people operate while within the borders of different country (Saleem, 2010). Some practices are permissible in some areas on earth while banned in others. Different states or nations have different laws that guard the human resource and the human rights as well (Elango and R. Wieland, 2014). There are different taxation laws cross the whole world. The US is stricter on taxes and continues to look at the loopholes in the tax laws leading to evasions while some countries have relaxed tax laws (Sedoglavich, Hill and Field, 2008). Similarly, different countries have different human right laws as well as laws that govern child labour (Elango and R. Wieland, 2014). There are different laws that are meant to fight corruption in the whole world, this again depends on the corruption perceptions index (Aswathappa, 2009). Additionally, there are different laws that control trade in some regions, countries and states al together. These laws govern how much goods can be imported and exported as well as how policies are set to attract foreign direct investments. This is further testimony of the level to which the world is still homogeneous. The other indicator of heterogeneity in the world is economic inequality (Aswathappa, 2009). As aforementioned, countries are divided based on their levels of development. There are many factors that collectively determine the economical level of a given country (Elango and R. Wieland, 2014). Economic equality is determined by the differences in populations or individuals in different countries based on wealth, income and assets combined together to give GDP values (Thite, Wilkinson and Shah, 2012). Based on per capita income the world has developed and developing nations (Aswathappa, 2009). The developed nations as the name states are more developed and have higher per capita income levels (Thite, Wilkinson and Shah, 2012). The populations in the developed nations are generally stable and the rate of growth. The rate of consumption of natural consumption in developed nations is higher as well. The developed nations include USA, China, Japan, Israel and Scandinavia among others. On the other hand, the developing nations have lower per capita income levels. Still in this category there are less developed and moderately developed nations (Aswathappa, 2009). The moderately developing nations fall in between the developed and developing nations. Moderately developed nations include Mexico, Jordan, Thailand and others while the less developed nations include India and many countries in central and eastern Africa (Saleem, 2010). The other economic factors of great importance is the difference in currency worldwide with the exchange rates varying from one geographical location to the other. On this basis, the world is made of different categories of countries that form a business environment that is heterogeneous in nature. The other aspect of great importance and has received much scholarly attention is the cultural aspects of different areas across the world. Culture refers to how a society conducts itself. Put simply, it refers to the lifestyles of a given group of people within a society. The concept of culture is so pervasive and complex to define yet so easy to spot (Fung, Liu and Swenson, 2014). With culture comes different values and beliefs that are confined within a group of people or nations. There are different languages that have risen following different types of culture (Aswathappa, 2009). The difference in language is evidence enough that the world is not homogeneous. In some countries such as Saudi Arabia and Qatar, the mobility of women in public is not permissible. This is because of different cultures that have resulted from different religious beliefs. Culture can be looked at from the point of view of Hofstede. In this case there are various dimensions that also appear to be different from one nation to another. These dimensions have a profound effect on the organizational and the relationships between employees and the management (Lind, 2012). There are countries that have higher power distance compared to others. This include Sri Lanka where there is much inequality among the population (Lind, 2012). Some countries also have low individualism while some have large individualism (Saleem, 2010). In this case there develops communism and individualistic decision making approaches in a given nation. Lind (2012) opines that uncertainty avoidance is also another dimension that defines how people in different nations resist change (Saleem, 2010). Soma nations have linguistic pluralism where there are many languages and ethnicities within the same country. However, a common national language that differs with that of other nations is still eminent (Fung, Liu and Swenson, 2014). Therefore, the world is still not homogeneous based on the cultural, economic, geographical, political and legal variations observed. How the Decisions of Multinational Corporations are affected by the Factors that Contribute to the World not being Heterogeneous Multinational corporations are faced with a range of factors especially when making decisions of entry into new markets or countries either through subsidiaries of a parent company that is located overseas (Ekerete, 2015). These factors include legal and political factors, sociocultural factors, economic factors, cultural factors and political factors (Heinecke, 2011). The first factor is the political factors including the different government policies, administrative stands and laws and regulations in a given country (Ekerete, 2015). MNCs must be able to make decisions that are in line with the above political parameters (Cray and Goehle, 2013; Ekerete, 2015). Where the markets are regulated, MNCs must decide on the entry criteria as well as the likely legal or political barriers that might hamper its success (Meyer, 2004). For instance, the EU guarantees preferential trade area for its member countries (Meyer, 2004). Where there is political instability, MNCs in such areas have to make decisions either to exit or close for a while before resuming to duty (Cray and Goehle, 2013). There are firm level advantages that are conferred with favourable legislations. MNCs must leverage on these advantages especially when expanding (Heinecke, 2011). The decisions of MNCs are also largely shaped by close proximity to markets so s to cut down on the costs of distributing the goods (Fung, Liu and Swenson, 2014). Favourable locations become prime and preferred for investments (Fung, Liu and Swenson, 2014). The rate of exchange in different countries define the conditions of the markets and the associated consumer habits (Cray and Goehle, 2013). When developing operations and activities in countries it is essential of the MNCs to determine the level of economic development of a country (Meyer, 2004). As such countries with the best economic growth and those that already are economically stable form the prime markets to enter (Cray and Goehle, 2013). Still on the same, when the resources are available in a country, MNCs have to make decisions based on the availability of labour to extract the resources compared to import of the resources for production (Dam, Scholtens and Sterken, 2007). The development of a country also determines the consumer behaviour (Dam, Scholtens and Sterken, 2007). MNCs with products that target the high income population will invest in developed and moderately developed nations. Contractor (2012) posits that when making investment decisions MNCs also look at the environmental factors and regulations so as to determine whether or not to engage corporate social responsibility. This generally means looking at the community itself and the extent of its needs. MNCs also look at the availability of technological infrastructure in the host communities (Contractor, 2012). This is because of the high costs of importing technical capacities and technological infrastructure as well (Ekerete, 2015). This makes most MNCs make decisions that favour the countries that are technologically developed compared to those that are least developed (Dam, Scholtens and Sterken, 2007). Lastly, the demographic factors also have an impact on the decisions that are made by an MNC (Contractor, 2012). For example language and religion have some impacts on the way people purchase goods and relate. This will make MNCs to focus more on the lingual pluralist countries and factor in the cultural dimensions when deciding on the sourcing for labour (Thite, Wilkinson and Shah, 2012). MNCs must also make decisions after considering how the marketing strategies will be incorporated in the different cultures so as to get a good consumer base (Contractor, 2012). Culture is also essential when choosing the form of leadership in the subsidiaries. Some communities will have a higher power index and thus respect to the management than others. The MNCs have to factor in all these problems in decision making so as to have a good workforce and less resistance. Conclusion The world is heterogeneous and not homogeneous as would probably imagine. Globalization has led to the interconnection of national markets to each other forming an international market. Despite the uniting of many nations through various forces of globalization, there still stands out some differences worldwide. Different locations have different political systems that define how interactions take place in their jurisdictions. In similar way, there are various levels of economic development further making the world chaotic in nature. This is visible in the classifications of nation under developing and developed nations. The economic factors further confer different exchange rates in different countries. In a nutshell the factors that make the world not homogeneous include culture, economical factors, political, factors, diverse legal systems, and environmental regulations among others. The decisions to invest as well as strategic decisions of MNCs is determined by these factors combined. Therefore, any MNC that seeks to expand or enter a new market should invest in a good PESTEL analysis of the anticipated host country prior to investing to be assured of success. Bibliography Aswathappa, K. (2009). Essentials of business environment. Mumbai [India]: Himalaya Pub. House. Contractor, F. (2012). Why Do Multinational Firms Exist? A Theory Note about the Effect of Multinational Expansion on Performance and Recent Methodological Critiques. Global Strategy Journal, 2(4), 318-331. Cray, D. and Goehle, D. (2013). Decision Making in Multinational Corporations. Administrative Science Quarterly, 28(2), 325. Dam, L., Scholtens, B. and Sterken, E. (2007). Corporate Governance and International Location Decisions of Multinational Enterprises. Corporate Governance: An International Review, 15(6), 1330-1347. Ekerete, P. (2015). The Effect of Culture on Marketing Strategies of Multinational Firms: A Survey of Selected Multinational Corporations in Nigeria. African Study Monographs, 22(2), 93-101. Elango, B. and R. Wieland, J. (2014). How much does region affect performance? Multinational Business Review, 22(1), 4-14. Fung, L., Liu, J. and Swenson, D. (2014). Multinational Location Decisions and the Access to Imported Inputs. Japanese Economic Review, 65(2), 218-237. Heinecke, P. (2011). Success factors of regional strategies for multinational corporations. Berlin: Physica-Verlag. Lind, P. (2012). Small business management in cross-cultural environments. New York: Routledge. Meyer, K. (2004). Perspectives on multinational enterprises in emerging economies. Journal of International Business Studies, 35(4), 259-276. Saleem, S. (2010). Business environment. Delhi: Pearson. Sedoglavich, V., Hill, C. and Field, B. (2008). The international business environment. North Ryde, N.S.W.: McGraw-Hill Custom Publishing. Thite, M., Wilkinson, A. and Shah, D. (2012). Internationalization and HRM strategies across subsidiaries in multinational corporations from emerging economies—A conceptual framework. Journal of World Business, 47(2), 251-258. Read More