Why are companies interested in expanding into emerging economies if they are well known for political instability and corruption?
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The main driver for the investment in the emerging economies and international expansion is considered the lack of opportunities for the further development of the domestic market. It may be a reasonable explanation for the internationalization process in the case of General Electric’s (GE), a highly successful and competitive enterprise in the USA (Mark 2).
It is observed in the related literature findings that the organizations usually invest abroad merely after obtaining a strong and competitive position in the domestic market because, in this way, they will have sufficient experience gained through overcoming numerous challenges (Bosco, Bratucu and Baltescu 10). Moreover, experienced organizations usually have exceeded resources that allow them to reduce the risk of significant financial loss while entering an unfamiliar market.
Another motivation for the international expansion of business is the development of competitiveness. Since the main GE’s rivals were already present in the developing markets, GE’s entry to the Middle East region helped the company to take away a portion of their profit (Mark 3). Moreover, through the investigation of new regions, the organization attains new knowledge that may enhance its innovativeness and technological advancement (Amann and Cantwell 112). As a result, new competitive advantages may be developed.
How GE succeeded in operating in MENAT given the barrier to its entry it was facing?
The Middle East and North Africa region is known for its difficult political environment and is characterized by the high rates of corruption (Mark 4). These difficulties may be regarded as the risk factors for the failure of effective integration into the market (Li and Zhou 857). Without support from the government and in an attempt to overcome the political challenges, organizations will likely not be able to sustain.
GE could overcome the potential political and financial threats “in a cautious manner,” by limiting the number of direct investments in the region and formation of joint ventures with the local enterprises (Mark 5). It is possible to assume that by doing so, the organization avoided significant financial loss and reduced the costs while entering MENAT. Nevertheless, the expansion progress was significantly slowed down, and GE experienced difficulties in the establishment of relations with the local customers.
Overall, it is possible to assume that slow temps of expansion may benefit the organization in the accumulation of experience and in the learning of customer’s preferences. The cautious approach is a smart strategic decision helping to dodge the fatal errors and ultimately consolidate the position in the market in the future perspective.
How can GE achieve a continuously high rate of growth without compromising high corporate standards?
GE’s corporate standards include social values such as environmental protection, civil rights protection, promotion of equality, multidimensional development of local communities, infrastructures, and economies, etc. (Mark 9). It is possible to say that in this way, the company attempts to meet the social needs of both private and corporate customers as well as support the efforts of the local governments in their attempts to achieve progress in the regional development. Through the fulfillment of these values, GE declares itself as a good corporate citizen (Soo Sung et al. 5). Through consideration of the interests of various groups of stakeholders, GE increases its attractiveness and customers’ trust. As a result, the level of profitability grows.
Many MENAT countries are characterized by underdevelopment in many aspects of economic and social life. The commercial, industrial, and technology sectors also lack advancement and innovation. By highlighting the corporate values, GE attains the opportunities to build the partnerships that are based not only on the commercial benefits but also have the ethical foundation. In this way, it is possible to be engaged in long-term partnerships consolidated by compliance with the principles of morality and social awareness.
What pitfall should GE MENAT watch out for as it expands in the region?
According to the researchers in the market orientation, “new ventures that wish to expand their business in new foreign markets have to overcome a lack of legitimacy and their liability of newness, smallness, and foreignness” (Chen and Afolabi 11). First of all, the internationalization of business requires companies to improve their knowledge management strategies. The exploration of local customers’ needs, preferences, and interests is essential to the successful integration of the business into the new market. Through the investigation of the local environments, GE has a better chance to adjust and apply its resources efficiently, strengthen the bonds with the customers and governments, and forms effective partnerships with the organizations.
Another pitfall that may interfere with the successful expansion is the dynamic political and economic changes. GE needs to monitor the environmental situation and make timely adjustments in its inner policies and decision-making process (Han and Afolabi 12). It is important to be aware of the current changes in the institutional, social, and business knowledge; otherwise, it will be hard to meet the organizational market intention and, at the same time, meet the local communities’ needs.
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Nevertheless, GE has a well-established and appealing set of corporate values and standards and a significant experience of business conduction. These aspects may be regarded as GE’s competitive advantages facilitating the creation of commercial and social networks on the regional scale and proving. In this way, GE has a great potential to increase customer awareness and prove its reliability in the MENAT region.
Amann, Edmund, and John Cantwell. Innovative Firms in Emerging Market Countries, Oxford: Oxford University Press, 2012. Print.
Boscor, Dana, Gabriel Bratucu, and Codruta Baltescu. “Drivers of the international expansion of emerging-market multinationals.” Bulletin of the Transilvania University of Brasov. Economic Sciences.Series V 6.1 (2013): 9-14.
Chen, Han, and Adeleye Afolabi. “Developing a Social Network as a Means of Obtaining Entrepreneurial Knowledge Needed for Internationalization.” Technology Innovation Management Review 4.9 (2014): 11-18.
Li, Julie, and Kevin Zhou. “How foreign firms achieve competitive advantage in the Chinese emerging economy: Managerial ties and market orientation.” Journal of Business Research 63.8 (2010): 856-862.
Mark, Ken 2015, General Electric’s Expansion in the Middle East. PDF file. Web.
Soo Sung, Chang, David Choi, Kim Daeeop, and Jin Lee Woo. “Do Entrepreneurial Companies Make Good Corporate Citizens? Exploring the Relationships Between Entrepreneurial Orientation, Market Orientation, and Corporate Citizenship.” Journal of Enterprising Culture 22.1 (2014): 1-25.