The Challenges Faced by The Multinational Companies

The strategies and forms of international business have continuously evolved in the last few decades as a result of continuing progress in technology, liberalization of investment flows, and increased competition among enterprises. Growth is an inherent part of business enterprises and also represents a survival chance. The pressure from the competitors to gain significant market share while doing their business, force the organizations to be on constant vigil and monitor competitors so they can expand beyond the limits of their domestic markets.

The expansion of the organizations globally is the need of the hour not only because of the width and breadth of their home markets but also because in a free trade world the market share in the domestic market becomes threatened by foreign competitors. Several different reasons force the businesses to seek constant growth and outplay their competitors through global variables like, environment, price and competitiveness and the global business scenario.

For many businesses, the internalisation is undertaken with caution as a process involving multiple processes which include planning of strategies and reducing the risk to maximum extent. Generally the companies chose the markets which are less risky and which are relatively easy to enter, and later move and dig deeper in the respective market to gain more market share and gain confidence about foreign business.

Market factors

The evolvement of different technologies like information technology, the broadening of international tourism, the vast improvement of living conditions in various developing countries and exchange of cultural heritage led to the emergence of consumer groups in different countries and regions of the world with comparable educational backgrounds, lifestyles, purchasing power, needs for goods and services, and aspirations to quality standards. This scenario, combined with the liberalization of international trade and the availability of global distribution channels, opens wide opportunities for enterprises to market their products and services on a global scale.

Cost factors

The race for market leadership in a segment leads to heavy investments ranging from R&D to innovating and the cost for development of new products and to differentiate the existing ones. In the car industry, for example, the introduction of a new model may represent an investment to the tune of one billion dollars. In the pharmaceutical industry, the cost associated to the successful development of a new drug is of the same order of magnitude. In the consumer goods sector, the cost of promoting a new brand could be as high as $US500 million. A single domestic market would not allow companies to achieve economies of scale and to break even on such costs, hence the need to project operations with the global market in mind.

Competitive factors

The reasons that businesses from around the world think of internalisation is to obtain advantage and be ahead of their competitors and to keep competition at home at bay due to various reasons like economies of scale or expertise at operating in global markets. As stated going global would give the business the flexibility of economies of scale and cutting the prices in the home market and also the expertise of operating gives an edge in devising a strategy in keeping the competitors at bay.

Costs and risks of Alliances

Although the notion of strategic alliance suggests the pooling of complementary skills and resources to achieve a common purpose, the fact is that in many cases the partners are also competitors outside the specific purpose of their collaboration. Consequently, it may happen, either by design or by the natural course of events in the alliance’s life, that the learning process and the benefits of partnership evolve asymmetrically to the parties in a way that changes their relative competitive positions. In some cases, which are not the rule, one of the partners enters the alliance with the deliberate intent of undermining the other party’s competitive position. This is what we can call predatory tactics. Also, in many cases, a major aim of each of the alliance partners is to learn as much as possible from the other partner, continually assess the benefits reaped from the alliance, and eventually discard the partner and leave the alliance when there is no further room for value appropriation.

Failure to adhere to contracts due to rapid internationalization changes:

• What if the market conditions change dramatically?
• What if one of the parties ceases to fulfil its obligations?
• What if one of the parties is taken over by a competitor?
• What if the patents to be used are declared invalid?
• What if competitors come up with a better technology?
• What if the licensor grants the licence to a competitor?
• What if a third party infringes assigned licence rights?
• What if one of the parties gets out of the agreement?

Cross-cultural considerations

Cross-cultural negotiations are often difficult to conduct. On top of the normal obstacles, the relationship building is made more difficult by differences in nationality, culture, race, gender and language. Similar difficulties may occur in negotiations between two entities of vastly different corporate culture, such as between universities and large corporations or between small and large entities. In any of these cases, special care should be taken to understand how the parties expect the negotiation process to evolve and prepare for it accordingly.