The multinational enterprises


Current business world is changing with convenient forms. Multinational enterprises (MNE) are the addition of this which brings changes in investment arena in national as well as international markets. MNEs provide productive capacity in a number of countries where the generated profit and income flows are part of the foreign capital flows moving among countries.

With economic growth and development of countries, role of multinational enterprises (MNE) or transnational corporations become more important with the adaptation of more open outward oriented approaches. Cost advantage is considered with utmost advantage. Local markets throughout the world are being deregulated and liberalized foreign firms. The deregulation is perusing to locate part of the production process in other countries where there can be benefitted by cost advantage.

The field of competition might be in cheaper sources and they can take various forms of labor, raw materials and components or in favorable government regulation. Although international markets may present high levels of risk they also present the potential reward as higher levels of profit and competition.

"Firms, not individual nations, compete in international markets." -Porter

Multinational Enterprises (MNEs) are firms with foreign direct investment, service or manufacturing, over which it maintains effective control. Considering the current importance, the development of the multinational enterprise and the impact of foreign direct investment as a vehicle for the increased globalization of business activity. Firms with growing economies and increasing incomes may have the capacity to face fast pace competition and may provide future growth markets.

The challenges facing MNEs in emerging market

It can be shown from current business world that when a company is entering into international markets there are dissimilarities in the economic, political, legal and cultural environments that pose incentives and obstacles to successful expansion. These differences are significant in transition economies. The major challenges that facing by multinational companies in emerging market are described below.[1]

Political and economic environment

In conducting business, having good knowledge over the political environment and controlling over economic environment of the particular country are important. The stability of political and economic environment is the key elements to influence the investors' decisions. It may seem that the recent global political situation in emerging markets has favored foreign investment. For example, "open door policy" of Mexico of the early 1990s attracted significant inflows of foreign investment. However, an ongoing problem faced by entrants into emerging market is their political and economic unpredictable in several transition economies. In China, the government maintains control and monopoly over the major sectors including railways, post and telecommunications. They allow private in manufacturing and service sector. But in practice, this means that the current constitution and the legal regime will resist political reform.[2] These inharmonic conditions of political and economic reform have been created many uncertainties for foreign investment. There prevails changeable economic policy, market protection as a method of local government to support the development of local economy. The most important fact is the role of inter document playing in economic governance. These unpredictability of the political and unstable economic climate for foreign investors in emerging market poses a significant challenge which the investors have to face inevitably.

Organizational Structure

Organizational structure is an aspect where changing technology both facilitates and provides the stimulus for adaptation to the changing configuration of the market environment. In the initial phase of entry into international markets, organizational structure is unlikely to play a catalytic role in internationalization. There followed by the sequence and speed of management moves into international markets. Primarily, responsibility for international markets is likely to remain within the domestic organization where the international operations viewed as an addition to the domestic market. In the growth stage, a separate organization or manager have to assign who will be responsible for international activities.

Legal and institution issue

The legal and institutional environment is very important as it reflects the overall attitude of a host country towards foreign investment. Legal and institutional environment are poorly developed in emerging market for a long time in term of competition policy, regulatory policy, corporate taxation, and definition and enforcement of property rights[3] Moreover, the implementation and enforcement of law is weak due to unqualified accountants, bureaucrats and lawyers. As the legal framework is often subject to frequent changes, it creates considerable uncertainty for businesses.

Infrastructural Issue

The pattern of communication, distribution, and management perceptions varies from country to country which threaten the success of international firms. Due to communication problem, economies in transition may not function well. For example, in Chinese market the personal contact is an effective strategy. Basically the Chinese communication system is technically oriented rather than commercially oriented. Because of poor infrastructural problem, foreign firms have to set up their own distribution system, supply centers and warehouse which force the companies to settle in large cities as well as in convenient areas. As a result, the market for many western goods is also much closer to distribution in the countryside or in smaller towns. The infrastructural barriers include-

  • Difficulties of sourcing raw materials
  • Lack of personnel training
  • Problems in operation and maintenance of transferred technology
  • Large transaction cost.
Societal Issue

In competition among countries within the market, social issues are irrevocable in many aspects. The widening gap between rich and poor in emerging markets is one of the more focused factors. Other social issues include ethnic tensions that arise within nations which can effect as a whole. For example, ethnic problem exploded disastrously in Central Europe. In former socialist countries, the socialist legacy is another obstacle which leads to the foreign invest flow in as well as the owning to the state controlled industries. In those countries, the work habits are influenced by alcoholism and absenteeism. So it may found difficult there to handle workers work attitude.

Determinants of National Competitive Advantage in maintaining economic competitiveness Production factor endowment and creation

Different factors like human resources, infrastructure, and knowledge resources, physical and capital resources are used in production to help in increasing national competitive advantage.

Domestic demand conditions

Each country has their separate demand pattern. In international market it is so important to identify the demand conditions of countries. The domestic demand of a country for a particular product depends upon a number of factors like buyer sophistication, anticipatory demand, demand size, taste of consumers etc.

Related and supporting industries

A particular market may influenced by other supportive markets of supplementary and complementary products. Competitive as well as compatible domestic suppliers plays role to intensify competition.

Firm strategy, structure, and rivalry

Strategies of companies whether marketing or company related vary from industry to industry. It is decided within the company whether it will follow cost leadership or product differentiation. By maintaining one's individual strategies, each company engage in rivalry among themselves in the market.


The major economic problem faced by modern industrial economy is the competition in the world markets. According to economists, the world's leading nations are not to pay any important degree in economic competition with one another and they are not solving any of their major economic problems which are attributed to failures to compete on world markets. International factors play roles in the economic difficulties of these countries instead of blaming foreign competition for the economic depression of the world's leading nations. The problems are mostly home-made of the investors.[4]

Competitiveness in a market attributes the sustainable position, whereas uncompetitiveness refers to a situation where the market will cease to exist. No countries have any intension to be out of world market which ultimately intensifies competition. National competitiveness is considered as the combination of favorable trade performance which is consistent with international market. By investing in areas and utilizing the factors of production, firms may develop within national market and can gain an absolute and comparative advantage in international market


  • "Competitiveness: A Dangerous Obsession" by Prof. Krugman Vol. 73, No. 2, pp. 28-44
  • Bradley F, (1995), International Marketing Strategy. 2nd Edition. Hertfordshire: Prentice Hall International.
  • "Do Nations Compete Economically?" by Malcolm H. Dunn
  • A Primary Study on the MNEs' Entry Strategies in Emerging Market by Yanyan Zang & Gang Wang
  • Buckley, Peter J. and Mark Casson, (1998), "Analysing Foreign Market Entry Strategies: Extending the Internalisation Approach", Journal of International Business Studies 29, p. 539-62.
  • Brassington, F. & Pettitt, S,, (2000),Principles of marketing. 2nd Edition. Harlow: Pearson
  1. A Primary Study on the MNEs' Entry Strategies in Emerging Market by Yanyan Zang & Gang Wang
  2. According to Roger strange, Hui Tan
  3. Klaus E. Meyer, Saul Estrin
  4. "Competitiveness: A Dangerous Obsession" by Prof. Krugman Vol. 73, No. 2, pp. 28-44

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