The Emerging Markets Multinationals Internationalization - Coursework Example

THE EMERGING MARKETS MULTINATIONALS INTERNATIONALIZATION By Student’s Name Code + Course Name Professor’s Name University Cite, State Date The Emerging Markets Multinationals Internationalization Multinational corporations are business organizations or companies that have business operations in more than one country in a region or the entire world. Multinational corporations usually possess or control different means and factors that concern the production of goods, services and products. Multinational corporations, also known as international corporations have had a huge role to play in the modern process of globalization in different countries around the world. With the increased interconnectedness of different countries in the world, conducting business over the boundaries of a single country has become much easier. This has led to an increasing trend of the emergence of multinational corporations over the last century, especially with the advent of air travel (Sachwald, 2001). In the better part of the 20th century, most of the multinational corporations operating in the global business market were majorly from the developed countries of the North, in countries such as France, Germany, Britain and the United States. Some of these huge multinational corporations that thrived in the global market in the better part of the 20th century include American General Motors in the automobile industry, American Coca Cola Inc. in the Soft drinks food industry, French Total Company in gas and petroleum services industry and British HSBC Holdings in the banking and financial industry among others. However, after the end of colonialism and the attainment of independence by most of the third world in the 1960s and 1970s, the trend of multinational business organizations began spreading into other countries other than developed nations. In the late 1980s and the better part of the 1990s, a number of countries in the world experienced rapid economic growth and expansion in their local economies, leading increased levels of industrialization in these countries. These countries would later earn name emerging economies and markets. Some of these countries include South Korea, Singapore, Taiwan, Malaysia and South Africa among others. Emerging market economies have a number of characteristics similar to those in many developed nations such as improved technological levels and developed infrastructural systems such as good roads and faster rail transport (Reilly, 2014). At the same time, these particular economies have a number of characteristics that clearly identify them with the underdeveloped or developing nations such as poor governance issues, poor wages and lack of adequate skilled labor, as observed by Luo & Tung (2007). Nevertheless, emerging market economies have a huge potential of becoming developed very quickly owing to the rapid levels of economic growth and expansion in their countries. They have experienced increased levels of Gross Domestic Product (GDP), increased levels of employment and increased industrial production among others. For many of the emerging economies, business organizations and companies based in their territories have been drawn into the internationalization processes as a result of the rapid economic growth experienced in these economies. With an increase in the production of quality goods and services, it has become of necessity for business organizations to be able to sell the surplus goods, products and services to foreign markets so as to profit. This desire to offload their surplus goods, products and services has led to increased internationalization processes in the business organizations and companies that are part of emerging markets economies, as noted by Roberto & Maria (2011). There are many reasons as to why different multinational corporations whether in developed economies or in emerging economies normally seek to internationalize their operations and business activities. Johanson & Vahlne (1990) asserts that there has been a general assumption among many business organizations and companies that internationalization of their operations and activities is one of the sure ways of ensuring a marked improvement of their profitability levels. This assumption rests on the fact that internationalizing a particular business organization or company’s activities and business operations will increase the market share of the said firm. An increased market share will lead to increased sales of the goods, products and services offered by the particular business organization or company. All these will ultimately result into the increased profitability of the business organization or company in general. This is therefore perhaps the biggest reason as to why different business organizations and companies always seek to internationalize their business operations and activities. Internationalization processes and issues have become a major part of modern international business and marketing, whether from business organizations and companies in the developed world or from business organizations and firms in the emerging market economies. Because multinational corporations have also rapidly surfaced in emerging market economies, it is clear that these corporations and business organizations are undergoing internationalization processes in one way or another (Dunning, 2000). The definitive question then becomes if the same processes of internationalization that occurs in multinational corporations from emerging economies is the same as that which takes place in the developed world economies. To sufficiently analyze and explain this particular question, it is paramount to try and look at how internationalization processes occur among multinational corporations in developed economies, and then compare and contrast that with how the internationalization processes of these types of firms in emerging market economies. Such an incisive comparison and contrast mechanism will then shed light if indeed there is a difference between the internationalization processes of multinational corporations in these two types of economies. Most of the multinational corporations that operate and come from emerging market economies experienced somewhat different internationalization processes as compared to most of the multinational corporations that are based in the developed nations. Most of the multinational corporations and business organizations that are based in the developed nations used the Uppsala model of internationalization. This means, as Johanson & Wiedersheim-Paul (1975) assert that most of these developed countries’ multinational corporations waited until they had become larger in size and capacity before undergoing the internationalization process. Most of the multinational corporations and business organizations from the emerging markets economies on the other hand did not delay until they were large enough to undergo the processes of internationalization. This implies that the multinational corporations and business organizations from emerging market economies in a way have followed a differentiated paradigm in their process of internationalization as opposed to the major paradigm of the Uppsala model used by multinational corporations and business organizations from developed economies back in the early days of internationalization, as surmised by Roberto & Maria (2011). The Uppsala model of internationalization of multinational corporations is a paradigm that attempts to explain the gradual manner in which business organizations and corporations increase the intensity of their international operations in foreign markets and economies. This particular school of thought within the concept of multinational corporations’ internationalization observes that various business organizations and companies normally delay their entry into the international market for a particular reason. The reason put forward, as argued by Johanson & Vahlne (1990), is that the business organizations and companies normally seek to attain adequate experience in operations and business activities from the domestic market and economy. After attaining sufficient market and economy experience from the domestic set up, the particular business organization or company is able to successfully venture into international operations and business activities. This school of thought in the internationalization process of multinational corporations and business organizations further contends that business firms that have already gained sufficient domestic experience usually start their internationalization process by venturing into business activities and operations in countries that are in close proximity. This paradigm thus underlines the key importance that geographical and cultural disposition plays in the internationalization process of multinational corporations and business entities (Saarenketo et al. 2004). After the particular multinational corporations and business organizations have entrenched their business activities and operations in closer countries and economies, they are then able to expand into other far off markets and economies. The Uppsala model of multinational corporations and business organizations’ internationalization further contends that at the beginning, a business firm in the process of internationalizing its operations will involve itself in occasional and sporadic sale of goods, products and services in the form of exports. The multinational corporation will then start the exportation of its goods, products and services through the use of independent subsidiaries. Later on, the particular multinational corporation will start carrying out its international business operations and activities through the use of foreign sales subsidiaries (Chang et al. 2009). Up till then, does the Uppsala school of thought argue that a multinational corporation or business organization can commence manufacturing and/or production activities in a foreign market or economy. This particular model of multinational corporations’ internationalization has been used by most of the multinational corporations from the western world to expand into international business operations and activities. However, most of the multinational corporations and business organizations that have been founded in emerging market economies have evidently not strictly followed the internationalization processes taken by their predecessors in the field of internationalization (Nodström, 1990). Firstly, due to the institutional differences and conditionality’s that exist between emerging market economies and the developed market economies, most of the multinational corporations from emerging markets do not normally delay their entrance into the international market as is seen with those multinational corporations form developed markets. This is because the domestic market and economic systems in emerging market economies are not as developed and advanced as those in the developed economies, thereby only limited sufficient and valuable domestic experience can be attained from delaying operations into the international stage. Furthermore, some emerging market economies have domestic systems characterized by negative business processes such as market failures and such implications greatly affect how multinational corporations and business organizations internationalize their business operations and activities. For example, in an effort to cut down on physical technological requirements and management costs, many multinational corporations coming from emerging market economies usually undergo organization into business groups that are diversified and are not even related. Khanna and Yafeh (2004) contend that owing to the nature of the domestic economy and market systems that prevail in many emerging market economies, the multinational corporations from these particular countries will most likely engage themselves in the production of goods, products and services that are cost competitive in nature. The two argue that the major intention of multinational corporations and business organizations from emerging market economies is to be able to gain a competitive advantage over the already established multinational corporations from the developed market economies. Bartlett and Goshal (2000) are of the opinion that most of the multinational corporations and business organizations from emerging market economies usually involve themselves in aggressive operational engagements due to a number of reasons. One of the major reasons for this kind of aggressive nature operations is because most of these multinational corporations and business organizations are venturing into particular markets or industry sectors as late movers, where other multinational corporations from the developed countries may have already successfully entrenched themselves. Thus, to be able to sufficiently threaten and compete with these multinational corporations and business organizations from the developed market economies, it is imperative for multinational corporations from emerging market economies to operate in a quite aggressive manner. By operating in an aggressive manner in the global market, multinational corporations and business organizations are able to take on greater economic risks that normally come with the internationalization processes of multinational corporations (Buckley & Casson, 2002). Multinational corporations and business organizations from emerging market economies also differ in their internationalization processes from those multinational corporations from developed market economies due to the differences in the domestic product markets of both sets of multinational corporations. Andersen et al. (1997) contend that the product markets and domestic systems in developed economies are well advanced and organized, making it easier for multinational corporations in these places to internationalize as per the Uppsala model. For multinational corporations from emerging market economies however, the domestic product markets are not well developed and suffer from information shortages due to poor development of communication infrastructure and limited organizations offering consumer information. As such, multinational corporations in emerging market economies must device their own modified models to internationalization (Khanna & Palepu, 1997). Consequently, Gammeltoft et al. (2010) observes that the role that the governments of emerging market economies play in supporting or not supporting the internationalization of business firms in their territories affects the way these firms internationalize. They argue that most developed nations governments play a key role in supporting their multinational corporations, therefore they can internationalize in a smooth and gradual way as proposed by the Uppsala model. For those in emerging markets however, government support is not always assured, and as such these multinational corporations must look for fitting methods to internationalize, not in a gradual Uppsala model-like sequence, but in any sequence best fitted to their situation. In conclusion, it has been observed throughout the paper that there are a number of major differences in the manner through which multinational corporations from emerging economies internationalize in comparison to multinational corporations from developed economies. Due to the many prevailing differences, from government involvement, to product market nature and need for experience, firms from emerging economies must find methods by which to successfully internationalize. Nevertheless, it is noteworthy, as Roberto & Maria (2011) assert that some multinational corporations from emerging market economies have resorted to the use of the Uppsala model of internationalization. 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