Multinational why a business would want to become

Multinational enterprises originated
in the early 20th century and then started to quickly increase and
grow after the second world war. Multinational enterprises are “firms that extend beyond the borders of an
individual nation and operate with affiliates and branches in at least two
countries” (Why Would a Firm Want to Become a Multinational?, 2018) MNEs focus
on producing and selling their products in different countries to achieve goals
like company growth, localization advantage and many other benefits. Having
different operations in different countries helps a business enter more
international markets, therefore, the business will most likely grow not only
in size but in revenue as well. There are different ways in which businesses
can become multinational enterprises. Consider Toyota, Toyota is a
multinational enterprise that produces and assembles different parts of their
cars in different countries. For example, the wheels are produced in countries
like Canada, while the engines are produced in corners like the UK and China.

By doing this Toyota can produce its raw materials in specific countries to
guarantee not only the lowest costs in the raw materials themselves, but can
also take advantage of the cheap labour wages in developing countries.

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            There is a variety of different
reasons of why a business would want to become a multinational enterprise,
however, each business will also have its own personal goals they are trying to
achieve when first internationalizing. Some of the main advantages of why a
business would want to internationalize are; ownership advantage, localization
advantage, to avoid trade barriers or taxes, or to take advantage of government
grants.  When businesses internationalize
they gain and develop a larger name of their brand which can lead to gaining a
large section of their selected market. By becoming a MNE businesses can also
begin to invest money into developing countries while still be protected by
intellectual property rights. Under the localization advantage most business
will try to produce and sell their products or services as close to the
consumer as possible. One of the most common reasons why businesses would want
to become multinational enterprises is to manufacture the new developed
products in third world countries to gain advantages in trade, economies of labour,
and materials. By doing this, businesses can reduce costs in transportation, and
may also be able to have a better understanding of their target market. This
can then lead to the business adapting their products or services to better
suit their target market. Different countries vary their level of corporation
taxes. Businesses might want to become multinational to take advantage of this,
which leading to lower taxes. In some countries like Japan or China, trade
barriers can be not only expensive but very time consuming because of certain
laws which only allow a certain number of foreign products and services to be
sold in the market. Businesses can also avoid this if they decided to
internationalize to those specific countries. Lastly, many businesses can
exploit government grants. Government grants is money that is given to
businesses by the federal, state or local government. An example of this was in
the 80s when a lot of businesses in the US where attracted to the UK due to the
large number of government grants.

            There is not one specific way in
which businesses become multinationals, in fact if a corporation is planning on
internationalizing there are different ways in which they can do so.

Nevertheless, there is no proof of one being more successful than the others,
as each business has different strengths and weaknesses. One of the most common
ways that businesses achieve this is by branching. This is probably one of the
most uncomplicated ways to become a multinational enterprise if the business
has a correct amount of cash. Businesses could also attempt to acquire subsidiary,
this means that a business would look into vertical integration given that they
have a substantial amount of cash. However, not many businesses attempting to
internationalize may have a sufficient amount of cash which leads us to a more
affordable option. Corporations can carry out research to find a local
competitor that already has a segment of the market and can introduce the idea
of a joint venture to that specific business. Moving on to the cheapest and
fastest way to begin to establish foreign sales offshore and almost
guaranteeing minimal risk is by selling franchises. Franchises is when a third-party
business or investor purchase a licence from a company to use that specific
brand. McDonalds is one of the best examples when looking at franchising as
most of the McDonalds retailers around the world are franchises.

            Even though there is a very large
number of advantages of businesses becoming multinational enterprises, there
are also a very large number of risks and challenges that corporations could
face. One of the main reasons why many businesses fail when first
internationalizing is the lack of an international company structure.

Businesses should attempt to have a clear and structured plan of their future
company structure. They must decide whether there will be one main headquarter
for all the global business relations, or if there will be different offices
and representatives all around the globe. Before internationalizing to new
countries businesses must also become familiar with the laws and regulations of
their targeted country. “From tax
implications through to trading laws, navigating legal requirements is a central function
for any successful international
business.” (News, 2017) Failing to do so could lead to costly fines and
future disputes with the selected countries. Different countries have different
tax systems and businesses should not only be familiar with them but they must
also have a specific accounting strategy to deal with all tax and to guarantee
that no extra taxes are being payed. Businesses could run into a lot of
problems if the tax policies of the new country are not followed correctly. A
very obvious risk that is faced by businesses are political challenges.

Businesses should create a risk assessment of the political and economic
landscape to minimize any unnecessary issues that could be avoided. This
problem is more common in emerging markets as this could lead to  political instability. Unstable policies or
corrupt practices could pose a big risk to businesses planning to
internationalize which is why businesses must continue to monitor the political
developments and attempt to plan accordingly.

            To be able to have a better
understanding of why businesses should become multinational enterprises one
must conduct a study on the businesses that most successfully internationalized
and how they did. One of the most successful international business of 2017 is
Apple Inc. Apple first focused on expanding their stores and businesses inside
the US until they had a total of 254 stores. On the 30th of November
in 2003, Apple Inc. opened their first international store in Tokyo, Japan. (Spencer,
n.d.) This is an example of how a business waited until they had a concrete and
profitable number of stores in the initial country to then slowly begin to
internationalize. By 2012 83% of all Apple Inc. stores we in foreign countries
while only 17% were in the US. Coca cola is also one of the biggest international
businesses, however, one of the reasons why they successfully internationalized
was their global marketing. Coca cola first started to globalize in the 1900s
when bottling plants where initially built in Cuba and Panama. Once these
plants became successful Coca Cola reduced globalization costs like shipping
and delivery. (Staff, 2018)

            In conclusion, if businesses have
the resources then there are many advantages of why they should become
multinational enterprises, however, prior research and risk assessments should
be conducted to attempt to minimize any issues that could be faced when
internationalizing. This is due to the fact that there are many risks and
challenges that can be faced when internationalizing. There is not one specific
way in which a business must internationalize which is why businesses looking
to expand into foreign countries must determine which one suits them better. Conducting
research on businesses that successfully became multinationals can also
motivate and inspire local businesses to do the same and prove how there is
multiple ways in which this goal can be attained.