Nations and Emerging Markets - Management Assignment

International business can take various forms, such as, internationally committed company, International Learning, multidomestic, transnational firm, and/or multinational firm. A multinational firm also referred to as Multinational Enterprise (MNE) is defined by Shenkar and Luo (2007:94) as “a firm with foreign direct investment (FDI), whether in manufacturing, or in services, over which it maintains effective control”

Significant growths and successes in media, education, transportation, information, travel, health care, etc. have attended MNEs in recent years, most of which are in developed of emerging markets.

Emerging market economies (EMEs) are markets or national economies whose social and/or business activities are rapidly growing or in the process of industrialization. While there are about 28 emerging economies, China and India are considered the two largest (Subhash, 2006), it is worthy to note that successes scored by MNEs in emerging markets are principally due to economic transformation, globalization, liberalization, and advances in communication; all of which derive principally from being agents of knowledge, capital, technology, expertise, higher national productivity and export performance (Caves, 1996), change and job creation.

MNEs have pumped a lot of resources into emerging markets such as China, India, Hong Kong, Indonesia and the Eastern European bloc, etc. for which unprecedented growths in revenue have been recorded in the past decade. For instance U.S. airlines such as Delta and Continental have increased their routes in China, India, etc.; Delta Airlines recently extended its destinations to Nigeria, earning better profit margins by such decisions. Automakers such as Ford (U.S.), General Motors (U.S.), Toyota (Japan) have made strong inroads into EMEs, creating wealth in both host and home countries in its wake.

MNE's are today more diversified than ever, leveraging globalization trends to increase their spread despite risks and uncertainties such as currency fluctuations and corruption in EMEs. The numbers of MNEs have also significantly increased, with 15 developed countries increasing their number of MNEs from 7,276 in 1960 to 39,650 by mid 1990s, and the world's largest 1000 industrial firms accounting for about 80% of global industrial output (Economist, 2000:21). Even though MNEs accounts for only 13% of 1,250 publicly listed firms in a Conference Board survey, they represented 53% of total sales, while holding 40% to 50% of world trade within them, Shenkar and Luo (2007:96). Most MNEs leverage Emerging economies' ability to provide cheap skilled labour, reformed exchange rate systems, stable local currencies, large population with increased purchasing power and tastes.

While MNEs have scored such successes, they have also had problems of location dynamics, especially dealing with suspicions of host economies. Again, the lower wages which are usually an initial attraction are sometimes eroded, making it expedient to move production to other locations.

MNEs have had to contend with local laws which are not stringent or transparent in protecting intellectual property and technology. Countries like China and India have increasingly closed the imitation gap, and have become competitive innovators in industries that were decades earlier, exclusive to developed countries' MNEs. These have created hypercompetition, forced down prices and profit margins, and triggered ever increasing need for further development of dynamic capabilities in MNEs global operations.

MNEs from developing Countries (DMNE)

Today, MNEs are no longer synonymous or exclusive to developed economies. Globalization has made it possible for MNEs to emanate from developing countries. UNCTAD, World Investment report identifies over 100 DMNEs, most of which has characteristics that stem from their source and the global environment that have triggered their evolution.

While DMNEs share similar characteristics with MNEs, such as desire to exploit specific internal advantages, overcome export and stringent local environmental obstacles, and leverage lower production costs abroad, DMNEs also have characteristics unique to them, such as, seeking to exploit advantages in intermediate technologies, leveraging low to medium skill labour and cost reduction. Examples could be found among Chinese companies where they combine intermediate technologies and labour intensive processes to gain price advantages. That is why DMNEs are able to efficiently mediate the flow of technologies from developed to developing countries. For instance Japanese VCR technology and cheap labour were combined by Korean DMNEs to provide VCRs to developing countries.

However, DMNEs are limited by capital shortage characteristics, which reduce their bargaining power in host industry. This they compensate with increased desire to learn, reliance on alliances, export intermediaries, and/or government organizations, and imitation of existing products, rather than being innovators of products.

Since DMNEs are less likely to go public due to tight control of founding governments or families (Shenkar and Luo, 2007:113), there is inherent increase in risk aversion, that is why DMNEs are also likely to engage in manufacturing, when not diversified, since they are usually better able to employ labour intensive techniques, in which they are more comfortable and better able to control, before moving up to technology intensive products. Such products are targeted at foreign markets where they can compete on price instead of product differentiation; and not home markets where demand may likely be low and attended by unaffordable prices due to income level. For instance, Kia and Hyundai are house hold names in U.S.A. and Europe and Africa, while LG and Samsung virtually dominates the electronic market in Nigeria and the African sub-region.

Generally, DMNEs pursue low-cost, manufacture for private labels, component manufacturing, low-cost leader, first-generation or market-specific technology, and specialized niches. However, some DMNEs have achieved leadership positions in their industry, for instance, Samsung and LG are leaders in HD plasma TV. Hyundai and Kia Motors have achieved leadership position in low cost vehicles; Telmex and MTN Group, Ltd. are regional leaders in telecommunications.

Finally, it is important to note the increasing difficulty in assigning nationalities to multinational companies whether DMNEs of MNEs (Aykut and Goldstein, n.d). For instance the home country of Mittal Steel is 88% controlled by an Indian resident in London, while SABMiller, is British-registered, listed on both London and Johannesburg stock markets, managed principally by South Africans, and having major shareholding by Altria (American) and Santo Domingo family of Colombia. Aykut and Goldstein (n.d).

Despite the successes, problems and characteristic of both MNEs and DMNEs, it is certain that there will always remain brighter future and opportunities in various areas of investment for these globalization vehicles. It will, however, be expedient to critically assess risks, environmental impact, effects on economy and citizens in order to effectively weather global challenges attending FDI by both MNEs and DMNEs.

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