How Multinational Corporations Enter New Markets

1680 words - 7 pages

Multinational Companies are corporations which have their home in one country but operate & lives under the law & customs of other countries as well. MNC are giant firms with their headquarters located in one country and with variety of business operations in several other countries. Offices/branches/subsidiaries of MNCs work like domestic company in each country where they operate with district policies & strategies suitable to the concerned country (market). They are duopolistic in nature. Sometimes their operations extend beyond the boundaries of nation in which they originally started hence; they also act as transnational corporations.
‘Profit is like blood of businesses. When domestic ...view middle of the document...

Mobil which was supplying the petroleum products to Kenya, Eritrea Sullen, etc from its refineries in Saudi Arabia established its refinery in Eritrea in order to reduce transportation cost. Many firms become MNCs due to availability of requires raw materials in bulk like European based companies go for their manufacturing facilities from Qatar, Saudi Arabia, Bahrain, Iran, Oman, etc due to availability of petroleum. Software, high technology & telecommunication companies from USA have located their operations in India due to high quality & low human resources. Availability of technology & managerial competence acts as pulling factors. American companies depend on Japanese companies for technology & management expertise in recent years. These are the major reasons for firms to become multinational enterprises.

Exporting is the activity to ship goods and services from the home country to a host country. The seller here is referred as an "exporter" whereas the overseas based buyer is referred as "importer". Exporting is relatively low-cost activity and expands profit largely. Exporting enhances domestic competitiveness & exploits corporate technology and know-how. Companies can sell their excess production & also gain information about foreign markets. However, a firm may not always be located in the best region & firm is further depended on the fluctuation of transportation costs & if they are unfavourable then exporting becomes uneconomical. Government regulations & trade barriers such as tariffs/quotas or other hidden barriers pose problems in exporting. Lastly, an exporting firm will have to work with agent/distributors that might not necessarily be loyal. Toyota exported Toyopet cars produced in Japan to USA in 1957. This was unsuccessful as they were overpriced, underpowered & built like tanks. However, Toyota took this failure as a rich experience & as a source of valuable intelligence & designed new models of cars suitable to US markets.


A form of licensing in which a parent company (franchiser) grants another independent entity (franchisee) the right to do business in a prescribed manner. This right can take form of selling the franchiser’s products using its name, production & marketing techniques or general business approaches for which the franchisee pays the franchiser a royalty or fixed amount. CAP Markets, a chain of fifty neighbourhood supermarkets in Germany carry of franchising on a large basis. The pros of franchising are that it is adoptable to international arena & gains high profits with low investments & risk. Benefits of R&D at low cost are available. Franchisee can free himself from failures of products & services. Information of market culture is received by franchiser. Acts as a new stream of income & is a time proven concept. The cons are that franchisee may leak secrets of the business. There is scope of misleading /dispute which reduces market opportunities for both...

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