Strategies of MNC's in Developing countries in Era's of globalization


By

Shobhit Kumar Acharya
Mr. C.M. Dubey
Asst. Professor
I.P.S.R. Unnao
 


This Article offers a longitudinal and descriptive analysis of the strategies of multinationals from developed countries in developing countries. The central argument is that strategies were shaped by the trade-off between opportunity and risk. Three broad environmental factors determined the trade-off. The first was the prevailing political economy, including the policies of both host and home governments, and the international legal framework. The second was the market and resources of the host country. The third factor was competition from local firms. The impact of these factors on corporate strategies is explored,
as shown in Fig. , during the three eras in the modern history of globalization from the nineteenth century until the present day. The performance of specific multinationals depended on the extent to which their internal capabilities enabled them to respond to these external opportunities and threats.

Multinational Strategies in Developing Countries in the Three Eras of Globalization

Opportunity/Risk

First Global Economy 1850-1929

De-Globalization 1929-1978

Second Global Economy 1978 -

Political Economy

High receptivity; international law and imperialism support Western firms

Expropriation; Import Substitution; exchange controls

Liberalization, but sovereign and assertive governments

Markets and Resources

Low income; cultural differences; vast natural resources

Limited convergence; Foreign ownership restricted.

Globalization; tribalization; low cost labor

Competition

Embryonic

State-owned companies; private enterprise curbed

Growing private sector

Strategies

Co-opt local elites as partners; seek home country support; overcome logistical challenges

Divest; invest in West; forced negotiations; joint ventures and local participation

Access low labor costs; adapt to local markets and politics


Although important insights can be obtained from long-run perspectives, it should be noted from the outset that it presents major definitional issues. Countries have shifted between the "developing" and "developed" categories over time. Japan is the most obvious example, given its progression from developing status in the first global economy to the world's second largest economy in the contemporary global economy. However in the second global economy, the terms "developing" and "emerging" are used loosely, with countries such as Singapore and South Korea typically included in the category despite their level of economic development. For the purposes of this paper, developing countries are defined simply as beyond the West and (after 1950) Japan. It is readily acknowledged that deeper analysis would require a typology of countries to be employed.

In the first era of globalization, the strategies of multinationals in the developing world had been straightforward. They had sought access to their resources, and governments had frequently given them exclusive contracts and favorable deals in order to build businesses. Innovation had rested more in the area of execution Ė whether engineering feats, or building new organizational forms. As the world de-globalized, the main challenges faced by multinationals were political. Mounting hostility led many firms to divest, and to invest elsewhere. The firms that remained needed to build political contacts with local governments, and attempt to strengthen their local identities, specially by localizing their managements. There was relatively little attempt to adjust products to markets, although the extension of the direct selling model to developing countries was important. There was also relatively little need to adjust to local competition.

In the contemporary global economy, political risks declined with the spread of liberalization and the abandonment of anti-foreign restrictions. There was no sudden reversion to the pre-1929 situation, however, and in such major emerging markets as China, corporate strategies needed to carefully manage relations with the government. There were also new types of political risk, including being sued in American courts for human rights abuses. Developing countries, or at least the larger and more fast-growing ones in Asia and Latin America, were increasingly seen as indispensable by multinationals in every industry. However there was a growing need in parts of the world to incorporate local relevance into global products, which was exactly the advantage of new, locally-owned firms, that were growing to scale, and becoming multinationals in their own right.
 


Shobhit Kumar Acharya
Mr. C.M. Dubey
Asst. Professor
I.P.S.R. Unnao
 

Source: E-mail December 27, 2010

          

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