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Obstacles Faced by Multinationals Essay

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Updated: Jul 8th, 2019

Multinational enterprises in emerging economies have the challenge of accessing technology and knowledge for production. They usually depend on expertise from foreign partners that may dictate the terms of their partnership. Many of them lack the knowledge needed to market and sell their goods to foreign markets.

They may find it difficult to compete with international brand names that already dominate large markets. Furthermore, the research and development capabilities of these organizations often hamper their general success (Sauvant, 2005). It is particularly challenging to operate in target foreign markets that have weak institutions for investment.

Several MNEs in developing economies tend to direct their investments to countries with similar economic challenges. These countries are likely to possess opaque political systems that constrain business set ups. Furthermore, their regulatory environments may be hostile to the concerned MNE. Sometimes these countries may have insufficient property rights or haphazard corporate governance structures.

As a result, it may be difficult to become successful in such areas. Access to home resources is an important determinant to success after foreign expansion. MNEs from developing countries may not have adequate support to do well in target markets. They may lack the financing, utilities and knowledge that several developed governments offer their MNEs.

This lack of strategic support from their leaders may make it particularly hard for such entities to do well in foreign markets (Dunning & Gugler, 2008). Challenges may also arise in production capabilities. Most MNEs from emerging countries offer low cost production as one of their key advantages. Therefore, when they expand overseas, they must offer tangible cost advantages for their goods.

However, such a strategy is not sustainable because competitors from other emerging economies will come up with effective ways of production and thus offer lower prices (Higher education, 2011). Therefore, the longevity of these businesses is quite questionable. MNEs from emerging economies also face the challenge of finding markets that have similar cultures.

Countries like China may expand and thrive in Myanmar, South Korea or Vietnam but may perform poorly in Australia or the UK (Wong & Chan, 2003). This stems from differences in management styles, formation of business networks and strategic decisions. Such institutions may find it difficult to fit into these environments. Communication channels may be inappropriate or lacking.

Furthermore, intercultural differences could impede cooperation and development of trust between concerned partners thus minimizing their chances of success. It is possible to solve most of these problems through company and government effort. Governments may intervene by offering human resource assistance, technical as well as financial support to MNEs (Child & Rodrigues, 2005).

Additionally, the multinationals need to build or strengthen their capabilities in order to differentiate their products. This would eliminate the need to rely on low cost advantages alone. Furthermore, such organizations need to invest in their brands such that they are recognizable in foreign markets. However, this process cannot be done overnight.

Companies would have to think of it as a long term strategy that would yield results in a number of years. As mentioned earlier, intercultural differences often come in the way of overseas expansions. MNEs can overcome this hurdle by interacting with local foreign communities and embracing social responsibility.

Furthermore, they need to incorporate target market players in various functions of business. MNEs should accept that their management styles are different and attempt to reduce their foreignness by adopting local business cultures.

References

Child, J., & Rodrigues, S. (2005). The internationalization of Chinese firms: A case for theoretical extension? Management and Organization Review, 1(3), 381–410.

Dunning, J. & Gugler, P. (2008). Foreign Direct Investment, location and competitiveness. NY: Elsevier.

Higher education (2011). Expanding abroad: Motivations, means and mentalities. Web.

Sauvant, K. (2005). New sources of FDI: The BRICs – Outwards FDI from Brazil, Russia, India and China. Journal of World Investment and Trade, 6, 639-709.

Wong, J. & Chan, S. (2003). China’s outward direct investment: Expanding worldwide. China: An International Journal, 1(2), 273-301.

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IvyPanda. (2019) 'Obstacles Faced by Multinationals'. 8 July.

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