Why do firms become multinational enterprises

At the Global Breakthrough and Expansion phase, expansion to new markets and increased pres-ence to existing markets continues with globalization degree 25-50% and sales in three continents (Gabrielsson & Gabrielsson, 2009b). As the firm matures and with the new fear of losing overseas markets, they establish their own sales office in the form of foreign direct investment in addition to relying on exports and partners (Hashimoto 2011, p.27). With the drive to achieve global break-through, firms will start to take on distant and challenging new markets thus coming across difficul-ties in cultural, legal, and localization aspects (Rönkkö et al., 2008).

The internationalisation process of the firm has been a subject, which has been motive of study for a number of

The OLI theory refers to ownership, location, and internationalization (Dunning, 2000). It is a basic theory proposed by John Dunning in an attempt to explain the incentives behind the MNEs going overseas (Dunning, 1993), organizational forms of MNEs, the MNE’s location choices, and the decision choice that lay between FDI and its alternatives like international licensing, trade and outsourcing (Javorick, 2004). The Ownership advantage is how a firm’s tangible and intangible assets are used in overcoming extra costs of doing business in the global market and explain why a home-grown country firm as opposed to a foreign firm manufactures in a foreign country. Location advantage offers explanation to why a home-based MNE may choose to manufacture in a foreign country instead of home country (Helpman et al., 2004). Lastly, internationalization advantage is attributed to why a home-based MNE may choose FDI instead of licensing to gain production in a foreign country (Athreye and Chen, 2009).

Multinational corporations are organizations that work in numerous nations. They likewise help to keep up the worldwide predominance of the Industrialized Nations just by working together sustaining universal stratification. MNC may have a few premiums like overseeing mining operations in a few nations, fabricating merchandise in others, and market its items around the world. The essential recipients are dependably the Industrialized countries, particularly the one in which the multinational partnership has its reality home office. In their quest for benefits, the multinational corporations require helpful power elites at all industrialized countries. The MNC dependably require positive business atmosphere in type of low

To evaluate a multinational company (MNC) and its related functions, it is important to first define the topic. Thus, a MNC is a company that is operating in several countries but managed from one domestic country. There are many reasons for companies to internationalize. This can include increasing profit margins, gaining more market power, improving the reputation of the company or simply to exploit new locations with various benefits. In the modern economy, internalization is supported and enhanced through globalization. When companies decide to internationalize, the first step is to determine the structure and hierarchy of the company. There are many different operating modes that can be chosen. This can include but is not limited to licensing, franchising and international joint ventures. With reference to the operating modes, or often known as ‘entry modes’, there are two major categories which can be drawn upon. Non-equity modes are one option referring to operating modes, whereas equity modes include a high risk-level and high control (Gooderham, Grogaard, & Nordhaug, 2017).. In the following paragraphs the most important operating modes will be explained.

This allows other companies to sell and produce the main goods under the licensee’s name. Under licensing agreements there are two types of licensing, there’s cooperating licensing and franchising. A cooperative license allows companies to license their products which allows other companies to produce the goods. This eliminates the need of having to set up warehouses and production equipment in other countries to expand. This can lead to greater brand recognition because the brand will be introduced to new countries and markets. Another positive of licensing products is that it can allow companies to bypass tax’s and tariffs. As the goods are being produced in the country for the given market there is no need to import. For example, Coca Cola is produced in Australia and sold only to the Australian market. While Coca Cola in America is made by the American licensee and only sold to the American market. The problem with allowing other companies to produce your good is that the quality may differ. Some people believe that coke in America tastes differently to Mexico. This is believed to be from the different sugars present in each recipe. Coca cola hasn’t been able to change the sugar as the products are locally produced. Another negative of using licensing can be that licensees may turn into competitors. This can occur when the license expires and hasn’t been renewed. Workers of the company will have insider knowledge of products and

As a company decides to become a MNE (Multinational Enterprise), it “deploys resources and capabilities in the procurement, production, and distribution of goods and services in at least 2 countries. Rothaermel (2013, p. 271) By licensing patents to foreign competitors, it is believed that it will in turn reducing its own competitive advantage due to decreasing the uniqueness of its product. Allowing a foreign competitor to have permission to utilize its product, consumers will have access to the targeted product from more than one source. As the competitor is foreign and presenting the targeted product within a market outside of the MNE’s market base, complete elimination of the MNE’s competitive advantage would be unlikely as long as there

Answer: d. With licencing, a company provides technological know-how to a licensee in the foreign country. Although quality control can be a factor in the licensing contract, the licensee, not the licensor, would have the actual control over product and service quality. Distractors: a) An exporting strategy would result in increased cost savings from economies of scale by producing the product at a single location. b) An advantage of a strategic alliance is that it strengthens the competitiveness in a foreign market by allowing the parties to focus on what they do best. c) An advantage of an exporting as an entry strategy in a foreign market is that is has the lowest degree of risk. Establishing a subsidiary in the foreign country has a high degree of risk.

For several decades, literature has suggested that multinational corporations (MCNs), transnational corporations (TNCs), and or international business companies (IBCs), are among the most powerful and wealthiest organizations in the history of the world (Tirimba & Macharia, 2014; Bouquet & Birkinshaw, 2008; Fuchs, 2007; Cohen, 2007; Stopford, 1998; Meleka, 1985; Hawkins, 1979).

These companies have been responsible for creating job opportunites, boosting the economy and creating a better soucer of living for the citizens of these countries. “The vast numbers of MNCs are located all around the world; they vary widely in size and interest. Their intention is to take a package of capital, technology, managerial know-how, or marketing skills to carry out production or business services abroad. Their effects are far reaching, affecting the daily lifestyle of the average consumer. Partly because of their size, MNCs tend to dominate the sectors in which they specialize. As a result, their transnational business ventures offer much debate about their impact on developing countries; many arguments have been proposed on this subject alone” ( ).

Evolutionary theory was proposed by B Kogut and U Zander. The fundamental principle of this theory is that the firms are like social communities that specialize in creation and transfer of knowledge. MNE's are formed due to their enhanced efficiency as organizational vehicle to transfer knowledge across borders (Kogut, B and Zander U., Knowledge of the firm and evolutionary theory of multinational enterprises, Journal of International Business Studies, 2003, Pg

The rapid development of economy promotes the development of multinational companies, which have become a general form rather than a special form of a company. Multinational companies carry a lot of money, production technology, management expertise and sales channels to expand their business around the world. There is no doubt that multinational companies will become the subject of an act of international relations and play an increasingly large impact on international relations.

The objective of MNC to operate in other countries is to gain competitive advantage through several ways. Firstly, MNC is able to take advantage of difference in country-specific circumstances. For example, MNC may choose to locate its productions in less developed country like Vietnam to gain cheap labor cost. Secondly,

In 1977 Swedish researchers at Uppsala University came up with a model/theory how businesses should grow their activities in foreign market, this model explains that companies should select an entry mode by taking into consideration their own resources and exploring costs, and risks based on market nature. (Johanson and Vahnle, 2009) Researchers at Uppsala University in their empirical study found that Swedish firms mostly started their process of internationalization by exporting, initially companies had agents that represented them in foreign market, but these firms exported in countries that had little differentiation in culture, language and political systems from their home country, this was labeled in their model as physically close countries. Uppsala Model considers two types of knowledge objective and experience based knowledge, the model describes that after first entrance in foreign market businesses understands how to work in external country, and later they step by step increase level of internationalization to physically distant countries. (Johanson and Vahnle, 2009) But, can Uppsala model be applied to services? This model was mainly reliable for manufacturing industries; a paper with contrary arguments was published in 2008, providing two variables; environment-related and service specific, to question whether Uppsala model can be used for service

First the licensing may result in a firm's giving away its know-how that is giving away his competitive advantage to the competitor in the foreign market. Suppose Ford gives license to AvtoVAZ, one of the large Russian manufacture then it can start its own car manufacturing using Ford's know how. Second disadvantage is providing the license to the company there is no tight control over the subsidiary firm in foreign market. Ford wants to exploits the opportunity that it has in Russia by its own way. Licensee may not follow all instruction of Ford. The last problem with the giving license is that some terms of know-how can not be defined on a page or documented. Like service industry (Hospitality industry) that how to license the subsidiary for "how to well come and how to greet" as a part of the service.(Hill, 2003,p-215).