Multinational corporations

transnational corporations multinational corporations are logical argumentes that extend outside of their own rural, whether they are determined throughout the world or only in a bitstock other countries, they are considered multinational. The value adding activities which are owned by these companies are used to produce tangible goods or intangible services or the combination of both. There are m whatever reasons as to why dissolutes set about multinational and in that location are various strategies for a regular to require multinational.The immediate motives of the Firms good deal be to expand telephone line, to seek new marketplace, or for additional profits and revenues. It may carewise be to concentrate on the economics of denture that a larger international essential batch bring. The motive commode market seeking activities is soaked among strongs who produce slightly advantage related to engineering science or brand which gives them a matched advant age over domestic rival. Another reason for steadfasts to make multinationals is to inexpugnable key supplies. A secure and privileged access to inputs and/or scattering outlets and market access afford many firms especially those in manufacturing, to receive a competitive advantage over their less favoured rivals.A firm powerfulness excessively function multinational to have access to broken greet factors of increaseion. Factors of issue like labour is a major(ip) monetary value factor in Europe and US and gives a competitive detriment compared to imports. So firms depose offshore fruition to the host countries and blend in competitive. broken cost capital through government subsidies is also a strong force to become a MNC.The discussed factors have been well captured in product cycle theory developed by Professor Raymond Vernon. The theory suggests that the rootage phase places with product development and innovation in home untaught as to maintain close linkag e amid research and production as well as the assumption that similar demand pull up stakes be created in other similar market. The second power point assumes the product to be matured and production standardized as well as good demand from other market and an essential form of revenues from the new business. Also, Competitors will observe the growing demand and try to establish themselves in the markets by setting up production in the importing country and befitting a MNC rather than an exporter. Finally in the last stage many competitors enter the market and focus is more on cost and resource seeking activities.The above discussed factors are traditional motives and the theory lost its power in 80s itself as the business environment became more complex. In the emerging motives the above forces that originally triggered firm to become a MNC became secondary. change magnitude Scale of economies, RD investments and shortening product breeding cycles were not the choices for a firm to become MNC but rather a prerequisite for companies to survive in the business environment. Now the major motive for a firm to become a MNC is to capitalize on competitive positioning in quadruplex markets and leverage global information access.The above motives are purely unstable and opportunistic to the proactive business decision which sees international markets as major strategic opportunity. The decisions to become a MNC substructure be purely defensive, for model as a reaction to pressures in domestic markets. Overseas demand can military service to offset seasonal or cyclical downturns in domestic demand. It can also be that the domestic market has become saturated or the product is coming to the end of its domestic life cycle.The above discussed motives are sagacious, logical and in that respect are strategies used to become a MNC but on other hand the motive of firm to expand might be in-person ego of managers and also for personal monetary benefit of busin ess managers who want to expand at any cost as the salary might be attached to the chroma of the business. These irrational motives create principal agent problem in the future. Having explored why the firms become MNCs we now look at how firms become MNC. The prerequisites for being an MNC might be to have a distinctive competency to overcome the liability of hostileness and the firm must also have some organizational talent to operate in the global market. Moreover, the host country should also provide some location specific advantages so that the firm have strong reasons to invest there. These prerequisites are precise important as they help to define the strategic options available to compete worldwide.The process of firm becoming a MNC starts with a combination of developing strategies, rational analysis and opportunism. few firms may fol dispirited an internationalization model which was developed by Swedish academics from Uppsala. The model describes how a firm enters a unlike market and gains market knowledge by means of commitment of resources and how it gradually develops local capability and market knowledge to become an effective competitor in foreign market through several investment cycles.The firms may use the eclecticist paradigm and transaction cost analysis approach which explains the extent, form and class of international production and how it is founded on juxtaposition of the ownership specific advantages of firms contemplating foreign production, the propensity to internalise the cross border markets for these and the attractions of the foreign market for production (Dunning, 1988). So the entry decision is taken in a rational manner based on the costs of transactions.The firms may also take aim to enter the international market by low commitment and low control mode such as by export or subcontracting. Exporting is treating goods and services from one country to some other. Exporting can be direct and indirect. Direct exp orting can be do through agents and distributors. Direct exporting helps to proactively enter the foreign market. Indirect exporting can be done by export houses and confirming houses who are just the intermediaries. There are many contractual forms for international business like management contracts, Turnkey operations, manufacturing contracts, etc. Licensing and franchising can also be an option for a firm to become a MNC. Licensing means there is an conformity that one party can utilise or sell intellectual property in return for compensation. The problem with licensing is that there is a risk of leak of knowledge and intellectual property and after the licensing agreement is over the partner can become a powerful competitor. Franchising which is also a form of licensing, gives certain rights to do business in a prescribed manner to other party in return for royalties or fees. Franchising can take form of manufacture- retailer immunity or wholesaler-retailer franchise and hav e similar risks that of licensing. There has been a tremendous growth in franchising especially in US AND UK.If the firm wants to penetrate deep in the market and wants fuller involvement and control, the firm can go for a joint venture or foreign direct investment (FDI). control stick venture which is a collaboration of 2 or more parties can be contractual or equity based. It has the means to overcome restrictions on foreign investments or imports. Firms have to share costs and/or technology and the shared approach permits economies of scale and a potential to enter market. some(prenominal) joint ventures are formed but the true reason behind it is FDI. FDI might also face problems of disagreements over strategic direction, managerial functions or use of appropriate profits. Cultural difference can also be a major barrier in the joint venture. FDI which is a very high risk strategy can be explained as the governing body or acquisition of income generating assets in the host cou ntry over which the expend firm has control. It involves either taking control over established business in overseas market or developing a make out made business operation. FDI can be broadly classified into two types, outward FDIs and inward FDIs. This classification is based on the types of restrictions imposed, and the various prerequisites essential for these investments. The reasons for considering FDI are tariff quotas, tax breaks,grants, subsidies, and the removal of restrictions and limitations. Before opting for FDI a firm might also consider countertrade which is described as the most important trend in international business of emerging economies. It involves an agreement between two parties to pay in goods and services. There are many types of countertrade like barter, clearing agreement, compensation, etc. countertrade can open up trade where there are strict exchange controls or where the countries faces shortage of currency. In mop up companies can become MNC by gradually moving up the scale from exporting and licensing to high commitment foreign direct investment. Some firms can directly adopt the high commitment strategy due to the maturity of market. In short, none of the approaches are necessarily right or malign but should be consistent with the overall strategic intentions and motivations of the firm. The firms can start with one option and then by experience move towards another in light of degree of commitment and risk involved, set against the train of control and closeness to market. Dunning, J.H. 1989. Multinational Enterprises and the Growth of Services. The Service Industries Journal,9. Bartlett, C.A. et al. 2006. Transactional Management. United States McGraw- Hill.Whitelock. J. 2002. Theories on internationalization and their impact on market entry. International marketing review,19 Bellak.C. 1994. How internal And Foreign Firms Differ And Why Does It Matter?. Journal of Economic Surveys. 18.D. Laughton. 1995. How firms internationalise their operations in B. Dawes, International Business A European Perspective. Godiwalla,Y.H. 1986. Multinational Planning- Developing A Global Approach. Long Range Planning, 19.