Multinational Companies from the Emerging Economies
The global competitive landscape, thanks to globalisation, has become more diverse and dynamic due to the increasing number of players in the overall global economy. For several decades, Western nations — the United States, European countries — and Japan have dominated international trade and development. Many companies in the market, especially in markets that catered to international brands, have been usually receptive to corporations from these countries.
Even the concept of a multinational company has been mostly associated with their respective national brands, from the Japanese Sony and Toyota, the American McDonalds, the German BMW, and the British Virgin logos and Sir Richard Branson. At to some extent, it is undeniable that multinational firms, albeit also surpassing their national identities, have had a strong influence in the global economic landscape. The reason being is that basically, multinational companies have a strong impact to many economies outside their home country; they provide local employment and even modify their products for the local market.
What happens is that, as Rugman (2003, p. 3) pointed out, these firms “think regional and act local”. In the recent years, MNCs have approached global strategies through regional nodes, and from there, the per-country strategy translates to local initiatives.
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However, an interesting development is that these multinationals come from emerging economies have been taking more notable roles. As can be seen in the next sections, these MNCs seem to have taken a more different approach from the older MNCs, and this time, it is through their respective strategies that can be regarded as significant in the shaping of the future global competitive landscape. An Overview on MNCs Several literature on globalisation has attributed to the perception that globalisation is just a front of westernization or western imperialism.
Steger (2003) discussed that globalisation has been perceived as a form of cultural imperialism, even borrowing the name of an American MNC/brand, in pertaining to this form of imperialism, by means of “McWorld” (p. 73). Pieterse (2004) mentioned the equation representing globalisation, which was modernisation, equals westernization, with modernization serving as a sign of globalisation. The relevance of MNCs with globalisation can be seen in what Rugman (2003, p. 3) mentioned in the role of the MNCs in globalisation, basically referring to them as “the engine(s) that drives globalization”.
From this, it can be gathered that MNCs have made globalisation possible because through these products and commodities that have somehow, in a way, made the world initially closer. By means of such awareness, as represented by corporate initiatives, even the smallest of nations become aware of the United States by means of Walt Disney and McDonald’s, and those who have new-found fascination in electronics will be ingrained with the “Made in Japan” label beside the label “Sony”.
The corporation has evidently played a critical role in the entire global economic landscape, and it is by means of the international trade that multinationals have found the opportunity in expanding their business by expanding their markets. This time, MNCs do not just exist as a company but also as a tool in international relations and even in trade agreements. This is because that it is through these companies that market reach has surpassed geographical limitations.
For instance, British presence in India was made possible through the British East India Company, which is typically considered as an example of an MNC, the first of the modern kind. Globalisation is therefore undeniably influenced by the economic forces because of the interests in trade that lie among many nations; the capitalist intent to improve economic conditions has been seen in the prospect of trading with other countries, and it is through the MNCs that a country, on behalf of this entity, gets to trade in a foreign market despite the company’s more “local approach”.
However, it should be noted that MNCs are not just companies that introduce products into a foreign market; typically, consumer product giants such as Unilever and Procter and Gamble can regarded as among the most successful MNCs because its consumer products are widely recognised across many foreign markets. In addition to these corporations, MNCs can also create a significant impact to many local economies especially those that have a wide range of functions and operations in these countries.
Through the many processes required by MNCs, from the production to the distribution to the administration of its operations, the actions of these firms create impacts both at local and international levels. An MNC may be operating a manufacturing plant in China and distributing these products in the entire Asia-Pacific region. From this, the influence of the MNC in the global economic landscape alone is significant.
Hence, according to Buckley and Gauri (2004), these MNCs have enabled a certain global force beyond the economic, from the establishment of more improved communication networks to the development of many local infrastructures. Through these companies, they have managed to integrate international markets and in a sense, can create an economy entirely on its own. The size of MNCs, interestingly, can contest the size and even the economy of many nations thereby they have been considered as economic entities. In 2005, according to a report by the World Bank and Fortune Magazine, 95 out of the top 150 identified economic entities were MNCs.
Wal-Mart and British Petroleum ranked higher than oil-rich Kingdom of Saudi Arabia and even European nations Norway and Denmark (Mongabay, 2005). As Hamilton (1986, pp. 2-3) pointed out: “Certainly the largest firms account for a very significant proportion of the world’s stock of foreign investment and they wield substantial economic and political power, with the total sales of many corporations singly exceeding the Gross National Products of many nation states”. From this, it is evident that the influence of MNCs can also reach the political.
Their ability to influence trade relations can be based on the fact that they hold many factors at stake, not only from the organisation’s business standpoint but also its socio-economic effects as MNCs typically have shareholders and stakeholders. Hence, this shows that basically, no one wants MNCs to just fail. Apparently, this alone demonstrates that MNCs’ economic grasp is significant, and in the aspect of global competition, these companies, in a way, have made it clear that there are the corporate giants that are unbeatable and that competition have always favoured them.
The Emergence of MNCs from Emerging Economies Overview Despite the MNCs facing many criticisms for their exploitation of the Third World Nations (Hamilton, 1986), MNCs, as previously mentioned, remain to serve as an economic source especially when it comes to its contributions through its foreign direct investments (FDIs). However, should economies start to emerge and establish its own MNCs, a question that can be raised is that whether these new generation MNCs from these emerging economies would follow the steps of its predecessors.
These MNCs, whether they come from the wealthiest or the poorest nations, have the similar intent to generate profits. Theories surrounding MNCs, as Hamilton (1986) explained, address international capital flows and at the same time, the transfer of skills, resources and technology. These companies are complex because many stakeholders and shareholders are involved, and with MNCs from emerging companies are starting to take a more absolute and distinguishable form, it is important to look at how these firms can potentially contribute to the changing global competitive landscape.
Such examination can be seen in a case to case basis. The evolution of a multinational corporation can be examined based on the resources of the country and the capability to establish and organise such organisation. Hence, as Tolentino (2000) pointed out, there are many strands that can be considered when it comes to assessing the evolution of MNCs, especially as these come from certain countries. Some of these aspects that Tolentino enumerated are the national stage of development, the domestic industrial development, and the comparative advantage of countries.
South Korea: Samsung Electronics Albeit considered as a developed nation, South Korea is still considered as an emerging economy. According to Tolentino (2000), South Korea’s development of its MNCs took over several decades as the country had to emerge from political conflict. The development into a newly industrialised economy started with the utilisation of its human resources which were, after the Korean War, found itself with no work albeit their high level of education and skills.
What happened was since South Korea had scarcity in natural resources and that the country was dependent on foreign trade, the country then developed industries that were non-traditional and labour-based. Hence, the more industrial approach by South Korea would lead to the building of its own comparative advantage. Samsung is a chaebol, a term referring to a Korean business group which is supported by a government or/and typically owned by a family. Samsung Group, the entire conglomerate which owns many international businesses including Samsung Electronics, was founded in the 1930s.
The growth of the company can be seen in its continuous acquisition and founding of smaller companies in Korea which happened at several points in the group’s history, from the acquisition of the Ankuk Fire & Marine Insurance in 1953 which would be renamed as SAMSUNG Fire & Marine Insurance in 1993 to the founding of Joong-Ang Development in 1966, which would be later renamed as Samsung Everland (Samsung, 2008). However, it wasn’t until the Samsung Electronics division of the Samsung Group that the world took notice of the new product.
Competition in the electronics world has been stiff and many MNCs from developed nations have been competing in this arena. For several years, Japan can be said to have dominated this sector with its strong electronic brands such as Sony and JVC; however, Samsung would eventually implement its own strategy and would successfully penetrate the international market. In tracing the development of Samsung Electronics, Yu (1998) mentioned that the company went through the rigorous stages of development and addressed its many hurdles.
For an economy that can be considered as something that was catching up with the post-Second World War growth spurt of North American and European nations, along with Japan, Samsung established a set of goals according to the following: ‘1) to invest in production systems; (2) to acquire the necessary know-how, and (3) to become competitive in world markets’ (Yu, 1998). However, the company did not easily achieve these goals as Samsung Electronics faced many challenges including its lack of resources from labour skills to technology to infrastructure.
Its market potential was also considered unfavourable. However, Samsung managed to fulfill the development and production stages, and from there, the company would become an established electronics company in South Korea. The company found means to address the product, technology and manufacturing dimensions of its growth path. The internationalization of Samsung products, a critical step in achieving its MNC status, initially started through OEM (original-equipment manufacture) agreements; eventually, Samsung would design its own products.
However, in order for Samsung to successfully enter the international market, the company was faced with the definition of its own competitive advantage; this is to say it is important for Samsung to determine how it would be able to have a significant portion of the market if the company, during those points, was unknown. Hence, as Yu (1998) mentioned, Samsung found its strengths by means of price competition. Hence, Samsung;s competitive advantage can be seen in the company’s ability to come up with sophisticated electronic equipment at a more competitive price.
This would apparently become an anchor for Samsung to compete with other electronics firms. Usually, when it comes to electronics, there have long been the trusted brands, and Japanese electronics have long held the position as a pioneer and a strong competition in this sector. With Samsung electronics now a strong competition with Sony, the company has demonstrated how it managed to emerge in a global market by utilising a more consumer-favoured strategy, and that is by means of price competition.
Because of this, the Samsung brand would start to create its niche in the global market and has redefined competition by putting South Korea on the map in the world of electronics. India: Tata Motors Tata might not be one of the most famous car brands today, but these Indian cars can potentially change how people look at and use their cars. Recently, Tata Motors have been headlined because of the introduction of its line of cars. In 2008, Tata announced the launching of “the world’s cheapest car” priced at US$2,500.
In addition to catering to the mass market, which initially responded to the emerging Indian middle class, Tata motors also developed the first prototype of an air compressed car. Hence, Tata motors have been becoming one of the more well-known car brands but admittedly, it hasn’t reached the heights of the mass model types like Ford and the expensive units made in Germany such as the BMW. In any case, what makes Tata an interesting case study is that despite the controversies it roused because of its cheapest car, the company has been making strategic purchases in the past years.
The Indian car company has surprisingly acquired the the Jaguar and Land Rover operations of the American company Ford; the acquisition was finalized in 2008 at the tag price of US$2. 3 billion. In addition, Tata also purchased the truck division of the car company Daewoo of South Korea in 2004, and in the next year, Tata purchased more than 20% of stake in the Spanish automobile company Hispano Carrocera. Tata has been also rumoured to have been making negotiations with car companies that have been affected by the recent crisis with alleged negotiations taking place with companies such as Fiat, General Motors and Nissan (Tata Motors, 2008).
From this example, it can be said that in addition to coming up with concept cars that may respond to the world’s current issues such as the air compressed car and the world’s cheapest car, Tata’s strategy has been more corporate in nature. This is to say that the company has been acquiring brands that have been already established, thereby furthering its position in the global market, not just by means of its brands but its divisions and joint ventures with some players in the automobile industry. China: Nanjing Automobile Group
Similar to Tata Motors, the Nanjing Automobile Group would gain the world’s attention when it acquired the key assets of the MG Group; more complex arrangements took place as the company disintegrated through its brands, with the Land Rover brand eventually being sold to Ford, and then Ford selling the subsidiary to Tata Motors. The Chinese automobile company brought the dormant British car brands such as the MG and the Austin. The company has since then introduced new cars based on these old brands.
In addition, Nanjing Automobile Group also went to joint ventures with other companies such as Fiat and bus manufacturer Iveco. The company, as can be observed, did not really develop its own brand in the recent years but it instead capitalised on strong car brands that had faced its own challenges. The acquisition of these companies and brands have made Nanjing Automobile Group a player in the automobile industry, and the strengths of the company is that it is developing and selling cars that have long had a niche in the market. Changing the Global Competitive Landscape
Based on the previous discussions on the companies Samsung, Tata Motors and the Nanjing Automobile Group, it can be gathered that these companies can change the global competitive landscape because their sensibilities were founded on the needs of the market they emerged from. This is to say that these companies know how to leverage themselves based on the needs of their immediate market: the local market. Form then on, their local success would enable them to internationalise until evidently, they are able to become major players.
As can be seen in the Samsung case, the company utilised price competition thereby the company provided a competitive product based on a function and a consumer need according to affordability. Samsung therefore provided a strong alternative to Sony. Although some consumers may think that South Korea was not a prime producer of electronics as compared to Japan, Samsung’s competitive advantage would prevail, thereby its market would expand as the Samsung products themselves would prove to be as competitive as the more known Japanese products.
For Tata Motors’ case, the company was founded on idea of addressing its local market, hence, the production of the cheapest car. With this, the company gained fame and significant market share in India, and with the tough economic times, a Tata car can be likely seen in the garages of many people in the future. The company therefore introduced a product based on its local sensibilities, especially with the need to come up with a functional product at a competitive price. As a result, Tata’s success would lead to the company being able to purchase huge automobile brands such as the Land Rover.
With such purchase, Tata Motors has further validated its position in the industry and not just as a producer of the cheapest car in the world. With such business strategy, Tata has also become a producer of one of the more luxurious car brands in the world. As for the case of the Nanjing Automobile Group, the company initially capitalised on buying out car companies that have been failing in the market, and from there, the company would leverage itself behind these brands.
Hence, Nanjing remains to be a silent partner in the production of the new generation MG cars but at the same time, the company has been gaining significant exposure through its business purchases. Similar to Tata, the Nanjing Automobile Group has established itself as a competitive company but this time, it is operating more from a business standpoint. These examples demonstrate how these MNCs from the emerging economies have found solutions for the changing world as based on the realities they came from. Price competition is an evident strategy utilised, and this has served well Samsung and even Tata Motors.
Another point is that these MNCs from these nations, instead of fully investing in a new brand, has made use of pre-existing famous brands and from there, they re-developed the products according to the company’s new business goals. Hence, these MNCs have been more strategic since they have a different sense on what global competition has been about: the company has understood the presence of many famous brands and products at this point, and their approach is by means of defining its own competitive advantage either by means of new product and brand development that caters to the needs of the markets from the emerging economies (i.
e. cheaper products) or by means of new innovations whereas still taking advantage of pre-existing niches of certain brands. This shows that the global competitive landscape in the future is no longer about market competition but also the integration of business strategies, networks, partnerships and of course, the classical market competition will still be luring in the background as it is fundamental. References Buckley, P. & Ghauri, P. 2004. ‘Globalisation, Economic Geography and the Strategy
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