Rise and Growing Role of Multinational Enterprises - Coursework Example

Account for the rise and growing role of Multinational Enterprises Courtesy of the globalization flows and of the ongoing trade liberalization, in conjunction with sharply declining costs of communication and transportation, there has been a sharp increase in the tradable goods globally over the last fifteen years. Simultaneously, a veritable explosion in e-based connectivity since 1995 as well as the emergence of a completely new global Information Technology outsourcing industry has resulted to the networking of service and product providers globally (Heshmati, Sohn, and Kim, 2007:116). Consequently, hastily expanding trade in both goods and services is becoming an increasingly powerful engine in driving the dynamics of growth and development to a global state. This paper will account for the rise and growing role of multinational enterprises form Asia Pacific in the global economy and particularly in Europe. Aims of Chinese multinationals in international business strategies When it comes to global economy, no nation is self-sufficient. Each needs involvement at different levels in trade in order to sell what it produces and acquire what it lacks as well as produce more efficiently in some economic sectors than its trade partners. As conventional economic theory supports, trade promotes economic efficiency through provision of wider variety of commodities, regularly at a lower cost, notably because of specialization, economies of scale, and the related logical advantages (Rudman, 2006:149-151). Documented evidence asserts that, international trade is a subject of contention because it can sometimes be a disruptive economic and social force as it changes the conditions of wealth distribution within a national economy, predominantly due to changes in prices and wages. As of this moment, a small group of developing countries is transforming the global economic landscape. Led by China, Japan, India, and Brazil, these expanding economic powers pose a variety of challenges and opportunities for European economic interests and leadership of the global economy. Chinese hesitant stance suggested the precise nature of global flows and the impacts are still poorly understandable. The rise of Chinese investment in European nations differs from earlier waves of investment from the United States and thereafter from Japan. A huge number of Chinese firms are heading abroad to become globally competitive instead of going to exploit advantages developed at home. With this aspect, according to European policy makers, Chinese investors resemble in behavior Korean multinationals (Feenstra and Wei, 2010:517). While in Africa and in Latin America, many Chinese investments are seeking to secure energy resources, those into Europe or North America are more likely to be in search of market or strategic assets. Direct Chinese investment among European countries is still relatively insignificant. However, over the last past few years, it has and still is showing a clear upward movement. The EU, according to some sources, accounted for merely one percent of Chinese outbound M&A in terms of value between 1999 and 2005. Numerically, he Greenfield investment projects outpace acquisitions despite the fact that many of these tend to be minimal. Greenfield investments wise, although the amount of venture in European projects funded by China increased by 500 per cent since 2000, it commenced from a low base thus remains modest. A report released by the French Agency for International Investments (AFII) pointed out that, Chinese firms accounted for a mere 0.5 per cent of all manufacturing projects and 0.9 per cent in job creation in Europe between 2002 and 2005. The growing role of China in European market accounted for 1.2 per cent of Greenfield investments over the period between 2004 and 2006 (Tang, 2010:5-7). These margins depict Chinese worth within European trading market as it surpassed Korea by creating over 7000 jobs in Europe in period between 2004 and 2006. Aims of Japanese multinationals in international business strategies Subsidiaries of Japanese multinational companies play a major role in the European market. Most Japanese multinational companies chose European market since EU is one of the most attractive investment destination due to its economic integration put into place by coal and steel traders. Japanese multinational companies account for an average percentage of global trade since Japanese investors find European markets potential (Ando, 2005:60). The major factors that contribute to Japanese multinational companies in the EU market are the Japan’s wide spectrum of global operations and international competitiveness. Usually, Japanese multinationals prefer to locate investment where rewards are greatest, potential of market is high, risks and costs are minimal. In terms of cost, Japan is one of the most expensive countries for conducting business due to high corporate taxes, expensive labor, and high utility costs (Ando, 2005:71). As a result, Japanese corporations are allocating their business for investment in the EU where the cost of doing business in minimal, market potential is high, and risks are least. Japanese multinational companies are competitive. They make tremendous efforts in transferring and rooting their competitive advantage to subsidiaries in Europe, which their headquarters and domestic plants back in Japan create and develop. In a way, this competitive nature incorporates the transfer of Japanese management style that includes advanced production techniques, decisions making techniques, great production methods, total quality management, total quality control, selection methods, and employees’ recruitment (Brewer, Young, and Guisinger, 2003:120). In applying Japanese management style in investment, the Japanese multinational companies were able to alter and adopt according to local European Culture and hybrid conditions. As a result, a number of Japanese multinational companies quote high quality, great production methods, productive innovations, and advanced technology. The competitive advantage of products manufactured by these firms indicates the overall strength of competitiveness in quality, price, cost, and appeal of brand. In this sense, Japanese multinational company products seem to achieve superior competitiveness. Therefore, European manufactured products appear to face stiff competition in future. Aims of Korean multinationals in international business strategies Direct investment of Korean multinational companies in Europe seems to have a cognitive approach due to data collected from some international trade sources. The documented data put across that, Europe accounted for only 15.3 per cent of South Korea’s total foreign direct investment until the end of 1996. The main targets were the United Kingdom and Germany with respectively 17.7 and 17.6 per cent, followed by the Netherlands with 11.3 per cent. In terms of sector, the manufacturing investment dominated with a value 53.6 per cent, fabricated metals accounted for over 72 per cent of the total value. Ease Europe that comprises of Romania, Uzbekistan, and Poland recorded a surprisingly high level of popularity among South Korean investors (Heshmati, Sohn, and Kim, 2007:139-142). Together they took more than 40 per cent of South Korea’s manufacturing investment in Europe. Recently, a glance at the investment by sector and by size in transition economies and western European industrial countries depict an extensive disparity that stems from ideologies in development levels. Therefore, according to some economists, it is not important to regard Europe as a homogenous entity of Korean’s motivations towards investment. Korean overseas investment projects remained limited in size and for the most part confined to Asian Pacific region. Nevertheless, the size of outward investment is rapidly increasing making Korea among the most important new home countries of multinational companies. Emergency of Korean investors abroad assumed substantial proportions in which the approved foreign direct investment rose up from US$ 103 million in 1987 to US$ 2.5 billion in 1995 (Heshmati, Sohn, and Kim, 2007:173). This tremendous growth made Korean foreign direct investment increase considerably in the recent years. It also made Korea become less of a regional phenomenon. Differences between industries and types of business There are argumentative differences between types of products offered and the level of manufacturing. Industrial relations are part of the key factors for the success of a firm. Car manufacturing in the UK has had its problems in the past. Japan being one of the biggest car manufacturers on the planet identified this business gap. Japan decided to venture into the UK’s market due to UK’s deteriorating car manufacturing and presence of strong industrial relations. However, if Japanese car manufacturers’ multinational enterprises had passively accepted the traditional industrial relations in the UK, they would have certainly failed in their British venture (Kleinert, 2004:61-63). Nevertheless, Japanese multinationals actively pursued the establishment of co-operative relations between the car manufacturing company and the workers. analysis show that, the single union agreement with the Amalgamated Engineering Union, frequent discussions between managers and employees through the company council are still usable when constructing the basis for co-operation. All these practices are rampant among three Japanese automobile multinational enterprises. Japanese multinational companies are relatively competent compared to their rivals. They are competitive in nature, both at home and at European market. This is because; Japanese multinationals are able to acquire quality labor at a cheap price within the host country and at home. Japanese multinational firms enjoy benefits brought about by availability of potential market in the EU, availability of quality human resources in the United Kingdom, presence of direct air transport links with most of the European nations, and favorable real estate costs (Kleinert, 2004:79). Analysts assert that, the location strategies of Japanese multinational manufacturing companies consider the availability of qualified personnel working in science and technology as the chief location factor (Heshmati, Sohn, and Kim, 2007:175). Additionally, non-manufacturing multinational enterprises consider industrially lower waged locations but with high population and high incomes. With this respect, Japanese multinationals are able to compete stiffly against European local companies since they are able to produce high quality automobile products at a lower cost hence sell them at cheap prices. Cognitively, while many countries within Asia Pacific are becoming investment magnets for investors searching labor cost efficiency as others are unlocking their consumer markets hence attracting increased interest by multinational enterprises, Europe still remains a tangible investment location for Japanese multinational firms. Globally, Japan is one of the holders with considerable investment stock in European Union countries. By the end of 2006, Japan was the third largest holder of foreign direct investment stocks in EU amounting to 4.6 per cent (Ando, 2005:107). That was a tremendous performance even though did not match her gigantic rivals, United States and Switzerland, who held 46 and 12 per cent respectively of the European foreign direct investment. Variations in management, organization, and operations In terms of management, organization, and operations between home country and host nation, Japanese multinationals are intellectuals. In this field of management, they apply an integrated framework based on control and coordination as well as knowledge creation perspective in order to analyze their executive staffing decisions between their home plants and those in the European countries. They facilitate their operations by focusing on determinants of decision that help appoint an expatriate parent country national and host country national as the managing director of foreign manufacturing affiliates (Athukoralge, 2007:8). The available set of data explain that, Japanese multinational companies have a congruent organization of operations between home country and the host country through inter-organizational interdependence within Japanese vertical business groups. Korean government has policies that enable Korean multinationals to extent their investment in other countries with much ease. Their ability to initiate creation and innovation as well as advanced technology makes Korean multinational enterprises exceptional. This is because; their trading activities enjoy improved communication systems, cheap transportation, and modern management skills that expand acquisition of essential resources for use in the manufacture of their cheap, quality products (Brewer, Young, and Guisinger, 2003:75). As a result, they enjoy huge benefits brought in by sell of their manufactured products. Korean policies have historical adoption of cautious approach as a means of developing indigenous technological capability that facilitates international relations between Korea and the host country. In conclusion, the quality, cost, and efficiency of these multinational enterprises influence the trading environment (Athukoralge, 2007:13-14). Many factors have been conducive to facilitation of trade between multinational enterprises of developing countries (China, Japan, Korea, India, and Brazil) and Europe for decades. They include integration processes, standardization, production systems, transport efficiency, and transactional efficiency. Truthfully, the role of multinational enterprises from Asia Pacific in the global economy is factual and evident as elaborated in this paper. However, a further avenue for future work would be of great importance in order to transform the current multinational policies that require complementary adjustments. Bibliography Ando, K., 2005. Japanese multinationals in Europe: a comparison of the automobile and pharmaceutical industries. Cheltenham: Edward Elgar Publishing. Athukoralge, P., 2007. Multinational enterprises in Asian development. Cheltenham: Edward Elgar Publishing. Brewer, T, Young, S and Guisinger, S., 2003. The new economic analysis of multinationals: an agenda for management, policy and research. Cheltenham: Edward Elgar Publishing. Feenstra, R. and Wei, S., 2010. China's growing role in world trade. Chicago: University of Chicago Press. Heshmati, A., Sohn, Y., and Kim, Y., 2007. Commercialization and transfer of technology: major country case studies. New York: Nova Publishers. Kleinert, J., 2004. The role of multinational enterprises in globalization. New York: Springer. Rudman, S., 2006. The multinational corporation in China: controlling interests. New Jersey: John Wiley & Sons. Tang, F., 2010. Marketing Strategies of Chinese Companies: Focus on Germany und Europe. Hamburg: Diplomica Verlag. Read More