Evolving into Nationalism. As a firm evolves from purely domestic into a true multinational enterprise, it must consider 1) its competitive advantages, 2) its production location, 3) the type of control it wants to have over any foreign operations, and 4) how much monetary capital to invest abroad. Explain how each of these considerations is important to the success of foreign operations.
Competitive advantage is a vital aspect of creating and guaranteeing business profits and sustainability beyond the foreseeable future. Companies create and maintain a competitive advantage over their rivals at the domestic market to earn a large market share and revenue streams. Firms transfer these competitive advantages to foreign environments as a strategy for winning a customer base capable of generating enough revenue. Besides, competitive advantages can help a firm to overcome the market imperfections in the foreign environment by creating favorable conditions for earning a risk-adjusted rate of return that exceeds the company’s cost of capital (Buckley, 2014).
In addition, firms must consider the production location when going global to control production costs as well as ensure legal compliance. Availability and cost of the inputs of production is a key determinant of a company’s success in the foreign market (Deresky, 2013). Transportation costs associated with the transit of products from the production site to the market also determines the success of a firm in a foreign market.
Companies must decide the necessary level of business control before investing in foreign markets. Higher levels of control expose the firm to higher risks. Companies that opt for licensing and management contracts maintain less control of foreign operations while those preferring joint ventures and acquisitions maintain higher control. The degree of control assumed determines the risk exposure of a firm and, therefore, success in the long run.
Firms going global must determine the optimal capital investment for their foreign operations. The capital investment required by a firm is based on the preferred investment strategy. The companies using licensing and management contracts require less capital investment while those in joint ventures and acquisitions must make substantial capital investments to fund operations. The level of capital investment is a determinant factor in the profit margins of a company.
Buckley, P. J. (2014). The Multinational Enterprise and the Emergence of the Global Factory. Basingstoke: Palgrave Macmillan.
Deresky, H. (2013). International Management: Managing Across Borders and Cultures, Text and Cases (8th ed.). New York: Pearson.
by EssayRoyal, Dec. 8, 2019, 6:45 p.m.