Motives and Procedure of International Business

Why Do Firms Become Multinational Enterprises? Using Examples, Explain What Motivates Lorganisations To Engage In International Business And How They Internationalise

This report is based on identifying the reasons why do firms become Multinational Enterprises (MNEs). In this context, the paper will find which factors motivate organizations to engage in international businesses (MSG, 2020). Moreover, this discussion will contain the procedure of how companies internationalize while exploring the reason why they switch to become an MNE. With this paper, motives for internationalization will be investigated for different companies specifically for two real-life examples (Yerkin, Nazym, & Gulmira, 2019). In general, there are so many reasons for which firms get to engage in foreign direct investment. Thus, this research will be based on internationalization drivers’ theories which motivate organizations to inaugurate themselves abroad. Here, the aforementioned categories are efficiency, market, resource and strategic resources seeking motives ( Toni, 2011). It has been found that most of the companies usually start their operations domestically while conducting value-added activities in the borders of the native country only. It is because becoming an MNE typically needs a change of mindset and view to a large extent. Thus, this paper will explain how businesses internationalize with the help of two MNE examples to summarize the main findings later.  

There can be a number of reasons why companies become MNE and hence these reasons are usually known as motives behind becoming MNE while engaging in international business. It is because companies expand internationally for so many reasons such as:

This motive of an MNE explains the desire for market opportunities exist abroad. Here, market opportunities may include the absence of competition, favourable changes for the product into foreign markets, and demand for the organization’s product in international markets. Thus, a company’s desire to grow through extending from saturated domestic markets to the international market is one of the biggest motives behind internationalization (Adams, Jeanrenaud, Bessant, & Denyer, 2016).

Here, it is also one of the MNE motives which allow modern firms to expand their sales as well as acquire newer markets in a way that they can easily record decent growth rates (Federal Reserve Bank of St.Louis, 2015).

This is one of the reasons companies internationalize as it helps them to diversify the risks of the organization. In this context, risk diversification helps organizations to minimize risks of stagnating growth within their native country and other countries as well (MSG, 2020).

Market Opportunities

It has been found that resource acquisition is the major reason for organizations to expand globally. It is because the emerging, as well as developing countries, has comparatively enhanced deposited minerals, land, metals, and other business resources. Another reason is that many of the developing and emerging nations are not having the resources or the expertise required to tap their reserves of such metals and minerals. Thus, it is a motive of MNE to internationalize its business (Federal Reserve Bank of St.Louis, 2015).

Researchers have found that companies globalize their business in order to achieve economies of scale. It is because economies of scale are hugely advantageous and it enables an organization to economize the distribution network and the transport as well. Therefore, companies get motivated for internationalization for increasing competitiveness against international firms of the relevant industry (Yerkin, Nazym, & Gulmira, 2019).

In this way, there are some proactive reasons or motives behind companies’ internationalization include profit-seeking, exclusivity and uniqueness, overproduction, competitive strike, declining domestic sales, political reasons, economic changes, and many more (Wilson & John, 2014). As per the theory of ownership advantage, MNEs typically are technological leaders and hence invest hugely into developing novel products and services. This theory of internationalization suggests that maintaining stronger protection of IP rights and brands through internationalization always helps companies to leverage enhanced profits from innovation (MSG, 2020).

It is well-aware that internationalization refers to the process of introducing business into one or more than one foreign markets while developing products as well as services for satisfying the basic or local requirements of new markets (Almutairi, 2019). In this context, internationalization of any business is a significant undertaking; however, if it is done thoughtfully and methodically then it can definitely transform a company (Federal Reserve Bank of St.Louis, 2015). Thus, internationalization can always lead to incredible opportunities while practicing into the following steps:

Selection of the expansion country: the businesses usually evaluate the market attractiveness of all countries under consideration while using accurate and reliable metrics. Here, some key factors which are considered include taxation issues, demand for products, certification and licensing and local regulations (Wilson & John, 2014).

Conduct a detailed market analysis: in this context, companies utilise classic SWOT analysis, PESTLE analysis and classic SWOT analysis for determining the merits as well as demerits of setting up their business within particular countries. It is because market analysis usually requires special attention to the internal and external environment ( Hamilton & Webster, 2018).

Sales Expansion

Planning the market entry

Evaluating the market position

Consider targets ( Toni, 2011).

Fine-tuning of products and services

Evaluating core competencies

Analysing value chain and supply chain options

Apart from this, based on literature and studies internalization can be done with the help of different models as follows:

Innovation model: this model of internationalization typically emphasizes internationalization forms and company resources so that companies can internationalize effectively (MSG, 2020).

Uppsala model: according to this internationalization model companies focus on different forms of internationalization, relationships with other companies and company resources.

The eclectic paradigm is mainly focused on relations with other firm and forms of internationalization only

Network model: this model of MNE is majorly focused on company resources as well as relationships with the rest of the companies worldwide (Wilson & John, 2014).

Strategic MNE model: this model of internationalization depends on three key factors include internationalization forms, firm resources, and relationships with rest organizations (Vijayasri, 2013).

Based on the above analysis and research, it is clear that the MNE concept can be explained with the help of real-life examples effectively ( Luiz & Sanchez, 2018). Here, the MNE examples which can be used to explain and support the motives of internationalization into real context are as follows:

Coca-Cola: the firm is the leading company in the food and beverage industry which sells soft-drinks like Coke all across the world. It is a company which manufactures carbonated soft drink since the 19^th century (MSG, 2020). The company has been chosen as a real-life MNE as it is the best example and benchmark relevant to the selected topic. It is worth knowing that Coca-Cola is selling its products into more than 200 nations as well as having more than 84,000 suppliers all across the world (Almutairi, 2019). It is because the MNE is generating more than 80% of the profit from foreign markets only. Moreover, there are some key factors that motivated the company to internationalize its business. These factors are as follows:

Political and economic conditions

Internal economies of scale

Recognition of the brand (Adams, Jeanrenaud, Bessant, & Denyer, 2016).

Growth and Access to new markets

Johnson and Johnson: this is the best example of multinational enterprise which experienced as well as leveraged the benefits of internationalization in an effective manner. It is an American MNE founded in the year 1886 which develops pharmaceutical, medical devices and consumer packaged products. This company believed in the good health of people living all across the world. With the help of internationalization, the company has improved access and affordability, while creating healthier communities and putting a healthy body, mind as well as environment worldwide (Yerkin, Nazym, & Gulmira, 2019). 

Risks Diversification

Conclusion

In whole, this report has successfully explored the reasons why companies become multinational enterprises (MNEs). In addition to that, the paper has used real-life examples such as Coca-Cola and Johnson & Johnson Co. Moreover, this paper has explored all possible motives behind organizations engage in international business. For example, sales expansion, resource acquisition, risk minimization are the key motives of the modern firm when they decide to internationalize. Apart from this, after identifying the motives of the internationalization the paper has been discussed how these companies internationalize with the strategies and MNE models. For instance, MNE models such as porters five forces, Uppsala, pestle, SWOT, porter diamond model have been explored to find the process of how they internationalize. In this way, MNEs always wish to internalize the benefits from owning a particular technology, expertise or patents, brand, that they find too risky or unprofitable to rent or license to other firms. In addition to that, it has been found that enforcing international contracts can also be costly as well as ineffective within countries where the law is weak and court procedures are inefficient or long. In a nutshell, organizations and managers should always be cautious of market analysis and opportunities for making business decisions regarding expansion internationally.

References

Hamilton, L., & Webster, P. (2018). The International Business Environment (4th ed.). london: oxford university press .

Luiz , M., & Sanchez, A. V. (2018). Strategic Management in Tourism (3rd ed.). Oxfordshire: CAB international .

Toni, A. F. (2011). International Operations Management: Lessons in Global Business. england: gower publishing limited.

Adams, R., Jeanrenaud, S., Bessant, J., & Denyer, D. (2016). Sustainability‐oriented innovation: A systematic review. . International Journal of Management Reviews, 18(2), 180-205.

Almutairi, M. (2019). Analysis of Samsung's internationalization process and the strategies implemented to generate an effective positioning of its brand and products in foreign markets. Journal of the community development in Asia, 2(1).

Federal Reserve Bank of St.Louis. (2015). Why Would a Firm Want to Become a Multinational? Retrieved from St.LouisFed: https://www.stlouisfed.org/on-the-economy/2015/april/why-would-a-firm-want-to-become-a-multinational

MSG. (2020). Why Companies Engage in International Business. Retrieved from MSG: https://www.managementstudyguide.com/need-for-international-business.htm

Vijayasri, G. (2013). The Importance of International Trade in the World. International Journal of Marketing, Financial Services and Management Research, 2(9), 111-119.

Wilson, & John, P. (2014). International human resource development: Learning, education and training for individuals and organisations. Development and Learning in Organizations, 28(2).

Yerkin, N., Nazym, S., & Gulmira, S. (2019). Governance and Internalisation in Social Policy: Definition, Concepts and Causes. Journal of Legal, Ethical and Regulatory Issues, 22(1).