Emerging Multinationals in Emerging Markets - Case Study Example

INTERNATIONAL BUSINESS. by Course Professor Institution City and state International Business Introduction The increase of multinational corporations from emerging markets is one of the key developments in the world today. Over the past decade, majority of multinational corporations have been majorly from the developed world – a trend that has changed over time as the market has experienced a shift with the introduction of multinational corporations from emerging markets. Inarguably, multinational corporations play a major role in shaping the global market. Before the emergence of this new crop of corporations from emerging markets, the global companies from developed countries had the autonomy in not only shaping the market but also in creating new opportunities, expansion of investments in developing markets, direct investment in these markets, and making major acquisitions. In recent times, there has been a transformation in the context of the market with the rise of corporations from speedily developing countries and as such, these new crop of multinational corporations have become key players in the global arena (Wood and Demirbag, 2012). Using an example of a multinational corporation from an emerging market, it is possible to present an analysis of opportunities and threats that globalization creates for decision-makers and the main lessons international business managers can learn about the interaction between home and host country differences in achieving success. An MNC from an emerging market: CEMEX CEMEX is one of the major players in the global market. This Mexican company is a multinational corporation that is placed seventh in the world among the largest manufacturers of cement and has operations in more than fifty countries. The company is known for its rapid growth and relentless acquisitions of global competitors in the industry. All through the company’s history, they have acquired other domestic companies in the Mexican market and rapidly advanced to the international scene. The company has continuously made efforts to expand in the world market by employing strategies such as mergers and acquisitions that are aimed at benefitting the company and increasing its operations globally. Such strategies have enabled the company to compete with chief global players in the industry competently and effectively. Today, more than fifty-five percent of CEMEX’s operations are outside the home country. The company has major operations in Central and South America, Egypt and Asia. They have also recently acquired resources in Czech Republic, a move that will work to improve the company’s portfolio in Europe (Cemex.com. 2016). Analysis of Opportunities and Threats Created By Globalization Globalization and Emerging Market MNCs In analyzing the opportunities and threats that globalization creates for decision-makers, it is important to first understand the concept of globalization. Globalization is a process that is based on the incorporation and interaction among people, corporations, and authorities of various countries. International trade and investment majorly motivate the process of globalization, which is supported by information technology. Globalization in this respect has major implications on major global factors, which include political systems, the environment, and economic development among other factors. The concept of globalization is not new since for the longest time people and businesses have always engaged in cross border ventures; buying and selling items in vast distance regions. For instance during the middle ages the silk trade that resulted in the Silk Road traversing Central Asia and connected Asia to Europe. Similarly, for ages, people and businesses have invested in ventures in other countries. However, technological developments and policies of recent times have stimulated increase in international trade, investment and migration to such a large degree that the world has become one global village in a new phase of economic development. With the rise of multinational corporations in emerging markets, globalization plays a major role in advancing the growth of such corporations. However, the process also presents various opportunities and threats for decision-makers in such corporations. Multinational corporations such as CEMEX are faced with opportunities and threats that develop as a constituent of the globalization process. Emerging market corporations are becoming forces to contend with in addition to being agents of change in the global market. According to Cavusgil et al. (2014), developments in foreign direct investment movements are a clear indication of the shift in role and position of such corporations. For the past decade, corporations based in emerging economies have engaged in international investment through mergers and acquisitions deals that account for four percent of the total value of global mergers and acquisition investments. Since the beginning of the millennium, an approximate of five thousand companies based in emerging markets have established world presence through investments that make up a large part of the global economy. CEMEX as one of these corporations, in its oversea ventures and through its activities strives to pursue assets that will help them to accomplish growth diversification, exploitation of development opportunities that are not available in the domestic Mexican economy and a bigger share of the global market among other goals. In this pursuit of opportunities for growth abroad, Corporations such as CEMEX play an increasingly vital role in global trade. This role is supported by opportunities and threats that globalization creates for the decision-makers in such corporations. Opportunities The process of globalization has presented decision-makers in multinational corporations in emerging markets with the unique opportunity of easy access and entry into new international markets. Globalization has seen to the significant decline of trade barriers that would make it difficult for companies like CEMEX to enter the global scene. With globalization, there have been sequential series of global trade negotiations that have made it easy for multinational corporations to become a part of the major players in the global market. Such opportunities come in various forms; for instance over the past century, the average levels of tariff on products that have been imported have significantly dropped from an average of forty to only six percent in the United States and industrialized nations. In addition, Cavusgil et al. (2014) notes that obstacles to trade in services have also experienced a cut that makes the global market open for multinational corporations in emerging markets. Owing to such conditions, decision-makers in a corporation such as CEMEX have been able to take advantage of the situation and advance in the global scene. CEMEX has been able grab a big part of the global cement industry through mergers and acquisitions in various countries due to the significant decline in trade barriers in today’s global environment. Globalization has necessitated the decline of such trade barriers to create a friendly and mutually beneficial international business environment. Global efforts aimed at minimizing trade barriers has thus enabled CEMEX and other such corporations through their decision-makers to not only enter the global market but to do so in a manner that is advantageous in terms of costs and entry barriers thus saving on time and resources. Technological advancements also make the list of opportunities created by globalization for decision-makers in multinational corporations of emerging markets. Ramamurti and Singh (2009), note that the process of globalization has contributed majorly to the advancement of technology, which is a key feature in international business. In this respect, technology has changed the dimension of the world to a village through the introduction of factors like the internet. Technology as an opportunity has managed to break time and distance barriers thus making it possible and easy for decision-makers of Multinational Corporation in emerging markets to access the global market. In addition, technology has also presented decision-makers with an opportunity to simplify their business processes and procedures to suit various markets within the global market. CEMEX through technology has the opportunity to gain exposure and communicate to the world. CEMEX is a good example of a multinational corporation from an emerging market that has taken advantage of technology as an opportunity. The company’s term “the CEMEX WAY” is a strategy in which the company has internalized electronic business or e-business within all its operations from sales, production, distribution to mergers and acquisitions for efficiency. Globalization has allowed for the dispersal of technology and associated knowledge thus presenting such corporations and decision-makers the rare opportunity to take advantage of processes that may enhance their growth initiatives and presence in the international scene. The company is a good example of a corporation that has pursued technology and innovation to aid its growth and expansion in the global arena. Globalization has also helped in the establishment of transnational regulatory frameworks, which pose an opportunity to corporations like CEMEX. In the past, Mexico was a closed economy which means that the a lot of constraints were enforced on trade policies and international or foreign investments. However, globalization eventually forced the country and the government to alter policies consequently liberating the economy and permitting free-trade agreements with other nations in the world. In this respect, the global network takes on increased control as countries have less hold over their industries and economies. This aspect of globalization creates a favorable atmosphere through which multinational corporations from emerging markets can take advantage. CEMEX took advantage of the new state of affair in Mexico and rapidly embarked on globalizing the company and making a mark in the international market. Additionally, globalization has also ensured the development of an aspect of global socialism through the establishment of transnational regulatory frameworks. In this way, when an economy is destabilized or heavily indebted, global institutions such as the IMF can come in as a lender and restore the country’s economy. In the absence of the process of globalization a country such as Mexico would drown and a corporation like CEMEX would have no footing that would enable it to sustain domestic growth let alone international growth prospects. Decision-makers of multinational corporations from emerging markets can take advantage of such cushioning and expand internationally with some guarantee of stability (Aulakh, 2007). With globalization, there is increased competition between countries and governments in efforts to appeal to multinational corporations. The competition is fuelled by expectations of higher tax revenues, increased employment rates and overall economic development and growth. In this way, most countries have instituted structures that would give them favorable competitive rights in the global economic environment. Political units may thus offer multinational corporations incentives to make the country more attractive. Such incentives include tax breaks, being assured of government help or support, relaxed environmental regulations, slackened labor regulations and subsidized infrastructure among other incentives (Econ.worldbank.org. 2016). Through globalization, this is an opportunities created for multinational corporations in emerging markets that make it easy for them to grow and expand their ventures globally. Decision-makers in CEMEX have utilized this opportunity and engaged in mergers and acquisition deals that have garnered a large part of the global market share in the cement industry. Cost cutting is also another opportunity for multinational corporations that arise from the process of globalization. Globalization has established economic globalization whereby there is an increase in economic interdependency among countries and economies all over the world (Narula and Dunning, 2000). The interdependence of economies worldwide has been advanced by a rising escalation of cross-border movement of services, capital, labor, technology, and goods. In this respect, multinational corporations from emerging markets have been able to establish operations in developing nations where they can access labor and raw materials more inexpensively. The products are then transported back to more developed regions that have a consumer market. This is a major cost-cutting measure that companies like CEMEX have used to create an advantage in their entry into the global market. Threats Globalization also creates some threats for decision-makers in multinational corporations in emerging markets. Mathews (2006) posits that multinational corporations have a major influence on governments and as such, policies created are often favorable to businesses at the expense of protecting people’s rights and the local population. Economic globalization can thus result in the exploitation of the local labor and directing domestic resources away from a host country into foreign exports, which would increase the general dependency of the developing country on wealthier nations. Multinational corporations in emerging markets are at a disadvantage in this aspect since they inexplicably play a role in having negative consequences in their country. Decision-makers face the threat of failing to contribute to the protection and development of their country as they chase the global market. The process of globalization is not limited to global trade as it also comes with other consequences such as population migrations. Globalization has resulted in increased mobility of not only goods and services but people as well in addition to capital and ideas. In this way, multinational corporations in emerging markets face the threat posed by increased mobility. Majority of able-bodied people who may form the labor force needed to make the corporation a success may migrate to more developed countries leading to a deficiency in the labor market of the home country. Such migrations would mean an increase in job opportunities in other countries and a depreciating labor force in the home country (Meyer, 2004). With the rapid increase of multinational organizations in emerging markets, governments have been forced to change various structures in a bid to protect the people. Such changes include but are not limited to an increase in minimum wages and a change in labor regulations. This may force a multinational corporation such CEMEX to have difficulties in meeting the obligations of a host country. Bonaglia et al. (2007) observe that such regulations are a threat to entrance into some regions meaning that corporations such as CEMEX may have to refrain from large scale expansion and growth in the global market. Inconsistency in the needs of consumers is also a threat to decision-makers. The consumers in one region may have a preference that varies from those from a different region. In a bid to establish a presence in the global market, a corporation may be forced to customize their products to the specification of the consumer base of a country which ultimately drives up the cost of production. Decision-makers are thus faced with the dilemma of deciding if the market is lucrative enough for changes to be made or if the company should move out of the region. This can be termed as product market threat. Globalization has enabled developing countries to open up their market, however, a multinational corporation from an emerging market may struggle to get consistent information on consumers particularly the low income category. Advertising and market research are still in their developmental stages and as such, it is tedious and costly to find information on consumer patterns and preferences that would allow a company like CEMEX to segment consumers in markets that are more developed. Competition brought about by the process of development has seen to it that multinational corporations such as CEMEX are pitted against more established corporations that have the financial clout to compete in the global market (Sauvant, 2009). Such corporations as CEMEX may have the advantage of lower wages and overhead costs price wars are still a threat. Such corporations face stiffer competition as they advance and expand into the international market where the need for low prices minimizes the profitability aspect. Lessons for International Business Managers International business managers can learn various lessons from the interplay between home and host country differences in achieving success. As multinational corporation from an emerging market, CEMEX in relation to the decisions and strategies they employ for success both in home and host countries can offer valuable lessons for international business managers that can be emulated for growth and expansion efforts. In the international business realm, Yiu et al. (2007) stresses the fact that managers need to cultivate strategies aimed at appealing to a global market that has various and stiff competition. In adopting strategies and values that advance and maintain competitive advantage, managers are able to propel their ventures to greater heights while acquiring a considerable market share of the global market in their respective industries. Due to the fact that methods and strategies of conducting business vary across different regions in the world, managers should learn and understand not only the financial aspect of the global market but also endeavor to comprehend cultural, political, legal and language barriers that may have an impact on their business. In addition to this, they should endeavor to familiarize themselves with the various complexities that underlie international trade if the venture is to compete successfully in the international market. With globalization there is an increase in the prominence of nations and business ventures in the emerging market need to be ready to compete with more established corporations that have the financial and strategic upper hand. The opening of new markets and the availability of various corporations in any given industry necessitates a change in the manner managers make decisions regarding international business. Looking at the success methods and the interplay of these methods in both home and host countries in relation to CEMEX as a multinational corporation in an emerging market, managers can learn the significance of industry based approaches to management. The given conditions within an industry have a major impact on strategy as employed by managers to ensure success. Integrating an industry based approach with institution and resource based methods in home and host country ensure that a business venture can achieve successful growth and expansion in the global market; a strategy that CEMEX has adopted with considerable success (Khanna et al., 2005). Like in the case of CEMEX, international business managers need to adopt and institute technological developments as part of their practices in both host and home countries. This ensures there is ease in global transportation, connection, and communication, which are vital for the success of any international venture. The central winning strategy that CEMEX has adopted in its global endeavors includes the integration of innovation and technology as a major part of their strategy. Through e-business, they have managed to create functionality and efficiency, which gives the company a favorable competitive advantage in the global market and the industry. Entry strategies are also important for international business managers. Various entry strategies are available and managers need to evaluate the best strategy for different markets in the world. London and Hart (2004) stress the position that developing and customizing a winning entry strategy ensures a smooth operating environment and promotes sustainability. CEMEX has perfected mergers and acquisitions as a working strategy that has enabled the company to expand and grow in the global market. Through mergers and acquisitions, the company has garnered a major share of the global market in the industry. Mangers therefore need to learn and institute entry methods that are favorable to their objectives. The difference in various markets may necessitate more than one strategy in different regions and as such, managers need to know what works for their corporation. Exports may work for one region as an entry strategy, licenses for another and joint ventures for yet another region. Sometimes a combination of these methods may be necessary for success. The relationship between home and host country methods of success as seen in CEMEX may need a combination of methods for success. Conclusion In using CEMEX as an example of a multinational corporation from an emerging market, it is easy to evaluate the opportunities and threats that globalization creates for decision-makers. Globalization presents unique chances for such corporations and enables them to compete in the global market. Among the opportunities created as a result of globalization, the opportunity for easy access and entry into the global market due to a decrease in trade barriers enables corporations such as CEMEX to have a global presence. Advancements in technology, access to a cheaper labor force, competition and lower costs of production are some of the opportunities created for decision makers of multinational corporations from emerging markets. However, threats are also part of the globalization process and as such, decision-makers are faced with issues such as increased mobility, exploitation, unfavorable regulations, competition and inconsistency among factors that pose dilemmas to decision-makers of multinational corporations from emerging markets. In the evaluation of all these, managers in international ventures can learn lessons aimed at ensuring, they can achieve success by considering the interplay of success methods for home and host countries. In this respect, managers can learn the international business scene, strategies to employ, aspects to internalize and entry strategies among others. Looking at CEMEX as a successful multinational corporation from an emerging market makes it easy to comprehend the aspect of international business. References Aulakh, PS 2007, “Emerging multinationals from developing economies: Motivations, paths and performance.” Journal of international management,13(3), pp.235-240. 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Edward Elgar Publishing. Yiu, DW., Lau, C., Bruton, GD 2007, “International venturing by emerging economy firms: The effects of firm capabilities, home country networks, and corporate entrepreneurship.” Journal of International Business Studies, 38(4), pp.519-540. Read More