International-Business-Dr-R-Chandran-E-book
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124 International Business- Dr. R. Chandran There are some product lines where the competitive advantages erode very fast. The strategic followed in such cases are given below. 1. One possibility is to enter new markets where little competition currently exists. For example Crown Cork & Seal, the Philadelphia-based maker of bottle tops and cans, reacted to the slowing of growth and heightened competition in business in the United States by expanding overseas. It sets up subsidiaries in such countries as Thailand, Malaysia, Zambia and Peru, estimating correctly that in these developing and urbanizing societies, people would eventually switch from home grown produce to food in cans and drinks in bottles. 2. Another strategy often followed when senescence sets in is to use the firm’s global scanning capability to seek out lower cost production sites. Costs can then be minimized by integration of the firm’s manufacturing facilities worldwide. Many electronics and textile firms in the US shifted their production facilities to Asian locations such as Taiwan and Hong Kong, to take advantage of the lower labour costs. REASONS FOR THE GROWTH OF MNCs 1. Non-transferable knowledge It is often possible for an MNC to sell its knowledge in the form of patent rights and to license a foreign producer. This relieves the MNC the need to make foreign direct investment. However, sometimes an MNC that has a production process or product patent can make a larger profit by carrying out the production in a foreign country itself. The reason for this is that some kinds of knowledge cannot be sold and which are the result of years of experience. 2. Protecting Reputations Products develop a good or bad name, which transcends international boundaries. It would be very difficult for an MNC to protect its reputation if a foreign licensee does an inferior job. Therefore, MNCs prefer to invest in a country rather than licensing and transfer expertise, to ensure the maintenance of their good name. 3. Building Reputations Only for Private Circulation
125 International Business- Dr. R. Chandran Sometimes, MNCs invest to build their image and reputation rather than protect their reputation. This motive is of particular importance in the case of foreign direct investment by banks, because in the banking business an international reputation can attract deposits. If the goodwill is established the bank can expand and build a strong customer base. Quality service to a large number of customers is bound to ensure success. This probably explains the tremendous growth of foreign banks such as Citibank, Grind lays and Standard Chartered in India and other developing countries. 4. Protecting Secrecy MNCs prefer direct investment, rather than granting a license to a foreign company if protecting the secrecy of the product is important. While it may be true that a licensee will take precautions to protect patent rights, it is equally true that it may be less conscientious than the original owner of the patent. 5. Product Life Cycle theory and impact It has been argued that opportunities for further gains at home eventually dry up. To maintain the growth of profits, a corporation must venture abroad where markets are not so well penetrated and where there is perhaps less competition. This hypothesis perfectly explains the growth of American MNCs in other countries where they can fully exploit all the stages of the life cycle of a product. A prime example would be Gillette, which has revolutionized the shaving systems industry. HP laptop, Sony Walkman and Xerox face various stages of their life-cycle in their home country. 6. Availability of Capital The fact that MNCs have access to capital markets has been advocated as another reason why firms themselves move abroad. A firm operating in only one country does not have the same access to cheaper funds as a larger firm. However, this argument, which has been put forward for the growth of MNCs, has been rejected by many critics. 7. Invest and prosper “out” and not “in” The strategic motive for making investments has been advocated as another reason for the growth of MNCs. MNCs enter foreign markets to protect their market share when this is being threatened by the potential entry of indigenous firms or multinationals from other countries. Fast growing Only for Private Circulation
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124<br />
<strong>International</strong> <strong>Business</strong>- <strong>Dr</strong>. R. <strong>Chandran</strong><br />
There are some product lines where the competitive advantages erode<br />
very fast. The strategic followed in such cases are given below.<br />
1. One possibility is to enter new markets where little competition currently<br />
exists. For example Crown Cork & Seal, the Philadelphia-based maker of<br />
bottle tops and cans, reacted to the slowing of growth and heightened<br />
competition in business in the United States by expanding overseas. It<br />
sets up subsidiaries in such countries as Thailand, Malaysia, Zambia and<br />
Peru, estimating correctly that in these developing and urbanizing<br />
societies, people would eventually switch from home grown produce to<br />
food in cans and drinks in bottles.<br />
2. Another strategy often followed when senescence sets in is to use the<br />
firm’s global scanning capability to seek out lower cost production sites.<br />
Costs can then be minimized by integration of the firm’s manufacturing<br />
facilities worldwide. Many electronics and textile firms in the US shifted<br />
their production facilities to Asian locations such as Taiwan and Hong<br />
Kong, to take advantage of the lower labour costs.<br />
REASONS FOR THE GROWTH OF MNCs<br />
1. Non-transferable knowledge<br />
It is often possible for an MNC to sell its knowledge in the form of patent<br />
rights and to license a foreign producer. This relieves the MNC the need to<br />
make foreign direct investment. However, sometimes an MNC that has a<br />
production process or product patent can make a larger profit by carrying out<br />
the production in a foreign country itself. The reason for this is that some<br />
kinds of knowledge cannot be sold and which are the result of years of<br />
experience.<br />
2. Protecting Reputations<br />
Products develop a good or bad name, which transcends international<br />
boundaries. It would be very difficult for an MNC to protect its reputation if<br />
a foreign licensee does an inferior job. Therefore, MNCs prefer to invest in a<br />
country rather than licensing and transfer expertise, to ensure the<br />
maintenance of their good name.<br />
3. Building Reputations<br />
Only for Private Circulation
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