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Barriers for Multinational Corporations Essay

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Updated: May 4th, 2021

Globalization has led to unprecedented opportunities for International trade and business investments. Varieties of multinational firms are expanding their global operations by applying entry strategies such as subsidiaries and joint ventures. For instance, the Ford Company has been in a joint venture with Sollers for the last two years. Another company that has expanded its global operations is the Coca Cola Company. The success of these multinational companies never came on a silver platter. These companies encountered various challenges that are discussed in this work.

Issues The Host Country Could Face Because Of The Expansion

The expansion of PPQ will create a number of issues to the host countries. To begin with, the subjects of constant competition will emerge. As a matter of fact, an increase in the number of companies will lead to an increase in the level of competition. This will lead to production of power brands by the different companies involved in the competition. To give a further explanation, power brands are designed by firms to specifically give the firm a comparative advantage over others. Another issue that will emerge from the competition is lower prices. Most customers tend to prefer lower priced commodities as compared to highly priced commodities. The same competition will lead to a reduction in prices of commodities in the host country. Consequently, the companies involved in the industry should prepare to lower the prices of their commodities.

Another issue that may crop up is the threat to the local industry. This is because the newly established will company will also try and command the local market (Masters, 2004, P. 7). This is a major threat to the already established companies.

Common Cultural Barriers by Multicultural Companies

Cultural difference is also another barrier to streamlining the operations in multinational corporations. It is crucial for multinational companies to consider the cultural differences prior to investing in a foreign geography. These differences can be political states, language, religion, demand types, or even preferences. Foreign nations have a tendency of having different thoughts and priorities on how they conduct their businesses. In fact, culture influences the behavior of managers and other employees when interacting with others (Dreari, 2008, P. 15). This affects the perception of employees on their manager. Furthermore, expected behavior is linked to cultural values. The failure by Wal-Mart in Germany is a good example of some of the cultural barriers to any multinational company. Wal-Mart expanded into Germany by using the same management and business tricks it used in the U.S. It is sad that the management failed to recognize the disparity in the two countries thus, leading to the failure in Germany. Nonetheless, Wal-Mart learnt from their mistake and improved on their decision when expanding to China. The use of local brands and joint ventures enabled Wal-Mart to earn a considerable section of the Chinese market.

Importance of Diversity to the International Arena

Diversity has grown to become a vital concern in the current world of International business. The effect of cultural diversity varies depending on the company’s culture and the type of environment. The effect and significance of cultural diversity has increased with the increase in the number of multinational companies. In fact, dynamic organizations are constantly searching for different employees owing to the fact that a diverse workforce is essential in the international business. This is because a diverse workforce brings different ideas, interests, and talents. Any organization that fails to clinch diversity efficiently and do not take a holistic style of eliminating injustice and prejudice negatively affects their clients and employees. Organizations have to focus on holistic policies that tackle wider human resource problems, and appreciate a diverse employee atmosphere (Kundu, 2003, P.1).

Effects of Ignoring Multiculturalism

Any organization that fails to clinch diversity efficiently and do not take a holistic style of eliminating injustice and prejudice negatively affects their clients and employees. Organizations have to focus on holistic policies that tackle wider human resource problems, and appreciate a diverse employee atmosphere (Kundu, 2003, P.1). Actually, companies that ignore multiculturalism are deemed to fail. This is because clients and employees have a tendency of discriminating against firms that do not diversify their cultural preferences. In fact, employees are apt to work harder when they are assured that their company knows no cultural boundaries. On the other hand, companies with cultural prejudice tend to demoralize the alienated staff. This cuts down on their output thus, limiting the firm’s human resource. Cultural boundaries do not only affect the staff, but also affects the clients. To elucidate further, a company with a diversified culture provides goods and services to all. This improves on their sales and boosts the profits of the company.

Political and Economic Issues Arising From Global Expansion

Any company with a motive of expanding its operations beyond its borders should be prepared to counter some political and economic challenges. To begin with, the topic of compensation benefits is a major political concern for multinational companies. The laws from different nations create a challenge in compensating employees. For instance, the laws in the U.S. make compensation for employees than other countries. A good example of a country where the employees receive low compensation is china. In multinational organizations, the wages of employees especially the salary of the Chinese managerial work force much relates to their performance. This implies that there is not much benefits and compensation for Chinese staff. A related outcome for such a system is an increased number of job frustrations with an experienced and qualified staff (Wu, 2008. P. 3). This can make employees to give little effort to the company. Another political challenge to multinational companies is political instability. The safe political environment is necessary for efficient business transactions. This ensures that any investments made by a multinational company have enough time to reap benefits. This owes to the fact that political instability can lead to wars, which may in turn lead to losses for multinational companies.

Economic challenges may also be experienced in foreign countries. Evidently, different populations have different purchasing power. For instance, the purchasing power for citizens in developed countries is far much higher than the purchasing power for citizens in developing countries. In fact, the citizens in developing countries spend have little to spend on luxuries (Govindajaran & Gupta, 2004, n.p.). This is majorly because the poverty levels in their countries only allow them to purchase the basic needs. That said multinational companies should analyze the purchasing power of different countries before making their expansion decisions. Ultimately, the availability of funds or loans in foreign countries is also another economic challenge. Countries that provide loans to investors always give room for investments by multinational companies. That said it is important for companies to expand to countries where access to loans and credit is readily available (Dreari, 2008, P. 23).

Importance of These Issues To Germany And Japan

Both Japan and Germany have a tendency of restricting their cultural diversity to their customs and traditions. Thus, when expanding to these nations PPQ must consider the cultural barriers in place. For instance, Japan has cultural issues involving the ethnic minorities and the Yamato Japanese. In Germany, the conflict between the resident Germans and the immigrant Muslims is escalating. Therefore, it is important for PPQ to invest in these countries while favoring the majority. However, it will be necessary for PPQ to try to consider the minorities due to cultural diversity. The Political and economic reasons above will not apply to Germany and Japan. This is because the countries are politically stable, developed, and provides access to loans and credit.

References

Dreari, A. (2008). Barriers for Multinational corporations. Web.

Govindajaran, V., & Gupta, K. A. (2004). Web.

Kundu, S. C. (2003). Managing Cross-Cultural Diversity. Delhi Business Review, 2(2), 1-8.

Masters, G. (2004). Web.

Wu, J. (2008). An analysis of Business challenges Faced by Foreign Multinationals Operating the Chinese Market. International Journal of Business Management, 3(12), 1-6.

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