Multinational Enterprises and Local Contexts

Question: Discuss about the Multinational Enterprises and Local Contexts. Answer: Introduction In such a globalized world, the challenges and issues for the multinational corporations in the international business trades are rising with an increasing rate. These challenges are the stumbling blocks which act as the barricades in the successful operations of the company in the overseas areas. Procter Gamble is one of the top most and successful MNCs which have its operations across the globe (Procter Gamble, 2016). Established in 1837 by primarily offering hygiene and personal care products, Procter Gamble made its extensive presence in the consumer goods industry. By having the first acquisition in the year 1930 of the company named, Thomas Hedley Co., PG initiated its move towards becoming one of the leading MNCs across the world. But having operations in around 80 different nations was not an easy task for the organisation (PG, 2006). There occurred continuous issues and challenges in its each international expansion but with striving efforts and competencies, the company made a recognized presence in all the overseas regions. . Key challenges for an MNC in the international business arena PG has gained a robust global market share by performing international business with the implementation of Porters Diamond theory of national advantage. The Diamond theory of Porter explains that for what reasons specific organisations attain competitive benefits in various locations (Ketels, 2006). This theory helps in understanding the relative position of any organisation in the international or global competition. There are several global factors which impact the performance of an organisation such as population size, cost and availability of labor, natural resources, location and land. By having an understanding of the benefits of the theory, Procter Gamble have achieved its global presence in several numbers of countries (Smit, 2010). There are numerous key factors which affects the selection of a host country for the global expansion. These factors include environmental, political, technological, social, economic and legal factors. The more favorable these factors are, the higher is the number of multinational companies expanding in those nations. PG as a renowned multinational corporation have expanded successfully in several geographical locations. One of the host country in which PG marked a symbol of growth is Singapore. In the year 2007, the company planned to have global expansion in Singapore by its initial perfume manufacturing segment to be launched (edb, 2017). Behind the selection of Singapore as the host country where the company planned to expand its global business, there were several regional factors. These regional factors were the primary source for emphasizing PG to expand its operation in Singapore. The primary factor out of all the factors was the economy of Singapore. By having a PESTLE analy sis of Singapore, the company realized that the economic factors are the most supporting elements for the flourishing businesses of MNCs and global companies. Singapore is ranked as one of the most liked and favored investment destination for the big corporations. As per the reports of 2011 survey done by Business Environment Risk Intelligence, it was found that Singapore is on the second position in the top investment destinations of the globe (iberglobal, 2011). It includes factors such as potential opportunities for foreign exchange, improved political conditions and budding operational opportunities. From the perspective of foreign investment and trade, the economy of Singapore is at the second position according to the data of Globalization Index 2012 (iamsterdam, 2014). From the competition point of view, the economy of Singapore is much supportive and is considered as the most relaxed and easiest place for performing business operations as per the reports of World Bank in the year 2012 (worldbank, 2012). Among several countries and economic regions, Singapore is considered as the most respected and fair trade regions which have fair policies, rules and laws in the business industry. PG have possessed strong internalization of its products and brands, internationalization can be explained as an approach through which the organisations used to get about the influence of the global transactions both in an indirect as well as a direct manner upon the present operations, conduct and future strategies of an organisation. PG have functioned according to the Uppsala internationalization theory. As per this theory, an organisation do not lay down an operational set-up in the host country at the initial level rather there is an intensification of the activities in the overseas market. There is a step-by-step process by which a company establishes itself in a foreign nation (Johanson and Vahlne, 2009). PG has also adopted the Uppsala internationalization theory in its global expansion in Singapore as the organisation first established its presence with sales of perfume. Corresponding to this, the company started selling its several diverse products in Singapore and gained strong brand visibility and customer segment. This theory have supported PG in a much greater senses as by having entry through a single product offers a chance to the company to analyze the potentiality of the market rather than investing a huge amount of capital at the initial phase only. The selling of perfume t the primary stage, t h elped PG in having insights of the market, market competition and customer requirements. Therefore, working with the Uppsala internationalization theory has offered several competitive benefits to the organisation (Figueira-de-Lemos, Johanson and Vahlne, 2011). For entering into the markets of Singapore, the company takes use of Foreign Direct investments i.e. FDI and primarily through Greenfield ventures as PG had its new venture in the host country, Singapore by having new operational facilities from the base. Till the year, 2010, the Asia Leadership Development Centre of Procter Gamble was hosted by Singapore (edb, 2017). Foreign Direct Investment as an entry strategy means that the company expands its business by the means of acquisition, merger, opening up of a new venture or having expansion of current operations in the targeted country (Bodie, 2013). This kind of entry strategy has both advantages as well as several pitfalls. There are several benefits which were obtained by PG by having global expansion by the means of Foreign Direct investment such as it helps PG to have a sustainable future in the host country as expansion through FDI supported the stimulation of the economic development of Singapore. The international trade also became very easy and flexible for the company and it also aided Singapore by the means of boosting up of the nations economy and increasing the employment opportunities in Singapore. The company realized huge tax incentives as the parent company offered FDI for having improved and additional technologies and expertise. Through FDI, PG also attained sound development of the human capital resources as there is interchange of knowledge and competence among the workers of the host and the home country. Therefore, it will results in getting more competent human resource and innovative ideas and opinions. FDI is considered as the most ethical way of entering into any other territory in comparison with entry strategies like acquisition, merger etc. and that is why, there is additional support gained from the government of the host country in terms of subsidiaries, gate saving, improved technologies etc. (Meyer, Mudambi and Narula, 2011). With all such positive elements, there are also some pitfalls realized by the company such as Singapore is a well-developed economy which results in high costs of all the activities and operations. Thus, in comparison with expansion in other nations, the global expansion in Singapore sounds more costly for the company. The risk factor of PG was also much high as there was always a risk of political changes in the nation which h directly or indirectly impacts the operations of PG (Dikova and Van Witteloostuijn, 2007). There was also a pitfall of FDI for the host country i.e. Singapore as by having such a strong FDI of a competent MNC results in decreased share of the domestic retailers. There are several constraints of FDI which are associated with expansion of PG in Singapore such as the unviability of the required amount and quality of labor, high cost of production as there is complete new set up in the greenfield venture of foreign direct investment, the political factors such as instability of policies and market competition. All these are the constraints which act as the barricades for the successful expansion of a multinational corporation in a foreign nation. But with adequate strategies and competencies, PG have managed its sustainable stay in the country (Meyer and Sinani, 2009). There are several key international business challenges which have been faced by PG in its numerous global expansions. The first challenge is of managing the cross-border regulation and political risks. The challenges includes having compliance with the fluctuations taking place in foreign currency, foreign national regulations, fiscal policies, assurance of quality control in the global manufacturing business units, difficulties in the enforcement of the various intellectual property rights in overseas nations and trade barriers. There are few such challenges such as the import curbs in Argentina and the mandatory pricing cutting in Venezuela. These challenges act as hurdles in the successful business operations of PG in those countries. Another major challenge in the global business faced by the company is the social cultural and economic related factors. The primary factor is the modifications in the needs and demands of the consumers because of economic recession. For example, US A, which is the primary and the major market for the products of PG have hit by recession in past years, this leads to sudden decline in the market share of the company. Because of the recession, the disposable income of the individuals falls down and so their buying power. It led down huge impact over the lifestyles and buying behaviour of the customers. The customers started purchasing products which are of low prices or of medium range instead of high cost products. It results in sudden down fall in the sales of PGs premium class products. Such economic changes are the big challenges for the companies to overcome and sustain. There are also other key challenges which have been faced by PG in its international operations such as rise in the prices of commodity, shift in the focus towards new and upcoming target market segments and modifications in the channels of distribution (Ng, 2013). There are 17 specific goals in the UN Sustainable Development Goals which are required by the large scale companies to have their emphasis upon in their future operations. PG as one of the leading MNCs also have its focus on some sustainable goals out of these 17 goals (Sustainabledevelopment, 2017). The primary focus in the current business of PG is upon the quality education as the company invests a large amount of capital for the studies of the mass living below poverty line and the rural children. The current as well as the future goals of PG includes protecting environment and conserving resources which comes under the UN Sustainable Development Goals of Responsible Consumption and Production, Sustainable Cities and Communities, Life on Land. The reason behind having the focus on these goals is that, there is an efficient Ned for sustainable manufacturing and responsible production practices as the resources ate scare as well as the environmental conditions are also deterioratin g. Horne for having a green society and sustainable operations it is essential to have these goals (pg, 2014). Conclusion From this descriptive essay, it can be concluded that there are several key issues and challenges which have been faced by the multinational corporations at the time of global expansion. Having business operations in global world is not an easy job which can be performed without hurdles. There are several issues which arise because of the various external environmental factors. For sustaining the challenges posed by these factors, it is required by the corporations to have an in-depth analysis of these factors before going global. It is also concluded that an adequate entry strategy must be chosen by the companies as the global entry strategy has its own advantages and pitfalls. Thus, after having a critical analysis of these pros and cons, a company must select the best suitable sentry strategy. From the future perspectives, it is also essential that the MNCs must have their focus on few of the goals of UN Sustainable Development Goals as by this; the companies can have improved bra nd recognition and have enhanced sustainability in the business operations. References Bodie, Z. (2013).Investments. McGraw-Hill. Dikova, D., Van Witteloostuijn, A. (2007). Foreign direct investment mode choice: entry and establishment modes in transition economies.Journal of International Business Studies,38(6), 1013-1033. Edb, (2017). PROCTER AND GAMBLE SINGAPORE, Retrieved on: 8th April, 2017, Retrieved from: https://www.edb.gov.sg/content/edb/en/case-studies/pg.html Figueira-de-Lemos, F., Johanson, J., Vahlne, J. E. (2011). Risk management in the internationalization process of the firm: A note on the Uppsala model.Journal of World Business,46(2), 143-153. iamsterdam, (2014). 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