Course: Business Administration Year 2

Module: Business, Markets and

Competition

Module Code: BIS-2-BMC

Assignment No: 1

Assignment Name: Essay, Globalisation

and Trans-national Corporations

Name:

ID:

Marker:
Words: 2072

Business Administration Year 2 Page 1

Business Markets and Competition
 What competitive advantages might TNC’s have? Why might TNC’s
pose a danger of monopoly power?

1. Introduction

In this reports I will aim to answer two questions; 1.What competitive advantages might
TNC’s have? 2. Why might TNC’s pose a danger of monopoly power?
I will answer these questions focusing on a major corporation as the major focus, this will
be Microsoft Corporation.

Microsoft Corporation is a transnational computer technology corporation that

manufactures develops, licenses, and supports an extensive range of software products
for computing. Microsoft in one of the largest multi national corporations, coming number
seven in most profitable corporations worldwide according to CNN.money (2009).

2. Competitive advantages

Transnational corporations can have many competitive advantages over rivals, which may
give them the edge in the particular market they are associated with.

2.1 One major advantage can be the power of marketing i.e. advertising.

Microsoft can be said to have competitive advantages when it come to their power to
market their product. As a TNC Microsoft has vast amount of money to spend on
advertising, on all platforms from TV and radio and to internet. DeWitt (2009) shows the in
an article that Microsoft spent 1.4 billion in 2009 on advertising alone compared to rivals
like Apple corp. with 500 million. This power to advertise their products can give TNC’s like
Microsoft a powerful advantage in reaching its consumer market.

2.2 Another example of TNC’s competitive advantage is influence over governmental

regulations and an apparent ability to politically manipulate entire economies also known
as ‘Corporate Domination’.

Judge (2009) reports on Microsoft’s use of political power to gain a competitive advantage
in the Swiss computer market. The report reveals a lucrative governmental contract given
to Microsoft, by the Swiss government, without allowing rival companies to bid for this
contract. The report reveals how rival manufacturers such as Linux and 17 other vendors,
have protested to a Swiss government contract that was given to Microsoft without any
public bidding. The contract given was a multi-million pound contract for Microsoft to

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Business Markets and Competition
 provide Windows desktops and applications, which included support and maintenance, for
state buildings.

Governments may be unwilling to oppose such TNC’s like Microsoft due to the threat of
withdrawal that they may threaten a host country because of the subsequent tax revenue,
employment, and economic benefits TNC’s have.

3. TNC’s may present competitive advantages when considering power to distribute their
product.

3.1 Microsoft’s Internet Explorer browser is seen to have much more competitive advantage
over the browser markets compared to its rivals like Netscape (one of the original web
browsers).

Netscape Navigator was the most widely used web browser during the internet boom of
the early nineties. Netscape enjoyed a large market share until Microsoft released their
Internet Explorer as a free download unlike the Netscape browser. Despite is its advantage
of being a free browser; Microsoft was to gain even more competitive advantage over rival
browsers. The corporation proceeded on later versions of Internet explorer to integrate
the browser into their Windows Operating system, which was the leading OS at the time.
The browser comes already installed and ready to use, therefore lessening the need for
consumers to go out their way to download or purchase other browsers. In the early
nineties many new computer consumers were first computer purchases for home users or
small office, therefore many of the users had little if any experience using a web browser
so they may have had nothing to compare or to consider as alternatives. Microsoft now
had a no worthy opponents and was now able to release a new version of Internet
Explorer when they felt the need.

Microsoft also includes its media player free with its operating system and therefore has
given them much advantage over such competition like the Apple’s iTunes, which has to
be downloaded onto the PC.

In recent years there have been many browsers and media players that have entered the
market and have become significant rivals for example Opera and Firefox which is
available for free and has a strong relationship with Google, the worlds biggest search
engine. Despite this Microsoft still have dominant market share as shown by Net
applications (2009), Microsoft Internet explorer has over 64% browser market share, with
its closest rival Firefox coming second with 24% share and subsequently followed by much
smaller browser like Safari with only 4% according to Net applications a “leading source of
applications for webmasters and eMarketers” (see appendices).

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Business Markets and Competition
4. Danger of Microsoft posing monopoly power

TNC’s may have monopoly power over non TNC’s companies in their market, which is
defined as the ability of a corporation to control the price within its relevant product
market to exclude competitors from doing business within their relevant product market.
Teacher (2009) reports “The U.S. Department of Justice calls a market "highly
concentrated" if a company "holds more than 42 percent share of that market”

4.1 Microsoft has over ninety percent market share in operating systems as of 2009 shown by
Net Applications (2009) (see appendices). Such a commanding share of the market might
suggest Microsoft’s power of monopoly over its rivals like Apple. Microsoft could pose a
danger of monopoly power due to a numbers of advantages it has over competitors.
Gladkova (2009) writes “Russian anti-monopoly authorities informed us about the fact
that they intend to officially include Microsoft in the register of monopolies doing business
in the country”. This is an example of countries beginning to acknowledge Microsoft as a
monopoly and may show an intention for host countries to monitor the corporation to see
if it uses practices that are unreasonable high and prevent competition in the market.

The Porters Five Forces model (see appendices) can be used to show the monopoly power
posed by TNC’s like Microsoft as a TNC.

4.2 Power of Suppliers 

In looking at power of suppliers, we look the question do suppliers have power over firms
in this industry for example TNC’s in this case. There need to be a determination of
whether there are more or fewer suppliers than companies in this industry. Fewer
suppliers may mean more power over buyers in the industry. An example is PC market.
Intel is one of only a small number of providers of CPUs for the PC industry. Intel has
developed brand awareness as a high quality product, it can be said consumers would
rather buy an Intel powered PC as oppose to another. This ability to differentiate can give
the supplier power. Therefore this can give them power over the PC industry. Microsoft
has the largest share of the market for Intel-compatible PC operating systems which is
extremely large and stable by Meghan (2009). The article describes a closer relationship
between the two companies compared to the other software developers like Linux. “Most
of the world's PCs are powered by an Intel microprocessor” (Times100, 2008). Intel is
responsible for manufacturing many processors for products that include notebooks, PCs,
servers and wireless technology. Intel has also announced an increase in its range of high
end customers to include, for example, mobile phone companies and hospitals. This being
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Business Markets and Competition
 apparent and taking into consideration Microsoft’s close relationship with the PC maker,
can be said to automatically give Microsoft a clear advantage over its rivals.

4.3 Threat of New Entrants

In looking at the threat of new entrants in a market controlled dominated by TNC’s,

barriers to entry is an important point. TNC’s may present high barriers to entry, which
are designed to limit or stop potential entrants from entering a market. Barriers to entry
may have the effect of making a less contestable market.
Economies of scale would bring Microsoft into consideration, though Microsoft individual
products are seen as expensive for example Microsoft office software, they have found a
way of adopting economies of scale by bundling their software together with a PC, so as a
way to lower their unit price and increase their output, which a new software developer
may find hard to charge the same price considering operating and working capital
requirements. Microsoft has stringent contracts with their PC manufactures. Eloquence
(2001) reports that Microsoft forces contracted OEM’s (Original Equipment
Manufacturers) who are the various companies that manufacture PC’s, not to install any
operating system besides Microsoft Windows on their PC’s in return they receive
significantly lower prices on Microsoft's Windows operating system.

TNCs like Microsoft can create barriers to entry through proprietary product differences or
trademark. Microsoft was able to create universal software for personal computers.
Microsoft’s software was able to be used at home/office and by professional or novice.
This universal approach to developing their software and couple with Microsoft’s
copyright and patent contracts on products may have allowed Microsoft to be such a
dominant figure and any company looking to enter such a market will have to find a way
of dealing with this fact.
Brand identity is important when considering a danger of monopoly power. Microsoft is
well established as a credible, quality product, and buyers may make conscious choices to
buy a Microsoft connected product as oppose to a new independent entrant.

4.4 Rivalry 

Microsoft dominates its market and there is little rivalry with its competitors, it operates in
a concentrated industry where few firms control most of the market share. Sherman
(1998) states when few forms have dominant market share, they are able to set the
competitive rules for the industry. This reduces rivalry can lead to monopoly power.
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Business Markets and Competition
 Microsoft despite its apparent dominance of the software and operating system market
does still have many growing competitors with their added threats.
Apple computers have been marketing their products extensively and lately they are very
popular. Microsoft may lose customers to Apple who makes stylish and easy to use
computers. Apple has become a huge brand that a lot of chic individuals want. Apple may
appeal to the younger generation of consumers due to its apparent trendy design.

Microsoft has a threat from other operating system manufacturers like GNU/Linux. These
operating systems are numerous and unique in their design. They appeal to different users
depending on their requirements. The GNU/Linux systems offers free software for the
users' freedom to run, copy, distribute, study, change and improve the software. “More
precisely, it refers to four kinds of freedom, for the users of the software” (gnu.org 2009).
Mainly the threat of these systems is the fact that they are free.

4.5 Substitute Products

A substitute products product or services can impact on whether a TNC may have
monopoly power in the industry or not.
Gadgets may also threaten the dominance or apparent monopoly power of Microsoft.
Consumers have available to them different gadgets to use the internet and for
computing. Mobile phones have mini computers that run their own operating systems.
Net books are immerging very popular and need a lightweight operating system. Tablet
computers and many other devices are running their own software and are substitutes to
the desktop computer and Microsoft Windows.

4.6 Keizer, G (2009) reveals Microsoft’s has succeeded in the creation of its newest OS system
“Windows 7”. The article reveals that their new operating system has gained dominant
market share above competitors for example Apple max OS X. It is shown that major
retailers like PC World have been promoting the new OS system as a great triumph. This
shows Microsoft is still a dominant corporation in its Market and seems to have a stable
hold on its top position.

5. Conclusion

To conclude when TNC’s like Microsoft have monopoly power they face little competition.
Therefore they will be price makers and with a demand curve that is inelastic, for example
consumers buying the Microsoft operating system even if Microsoft increase their product
price. The competitive advantages and dangers of monopoly power posed by TNC’s can

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Business Markets and Competition
result in a number of undesirable effects. These include; an increase in prices and decline
in consumer surplus which is the difference between what consumers are willing to pay
for a product like Microsoft office and what they actually pay as the market price, there is
less choice for consumers and TNC’s classed as monopolies are able to use their monopoly
power to pay lower prices to their suppliers. For example Supermarkets are able to pay
low prices to farmers because the farmers don’t have any alternatives to help sell their
produce. Therefore TNC’s have significant competitive advantages over non multinationals
and they pose a number of dangers as a result of their monopoly power.

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References
Cohen A, (1999) Microsoft Enjoys Monopoly Power.15 November 1999. [Online]. Available
from:
http://www.time.com/time/magazine/article/0,9171,992551,00.html#ixzz0XAcBiLFT [Accessed
24th November 2009]

DeWitt (2009) Apple's 2009 ad budget: Half a billion.CNNmoney.28 October, 2009.

[Online].Available from: http://brainstormtech.blogs.fortune.cnn.com/2009/10/28/apples-
2009-ad-budget-half-a-billion/ [Accessed 24th November 2009]

Eloquence , T (2001) Microsoft's Dirty OEM-Secret. Oct 23, 2001. kuro5hin. [Online] Available
from: http://www.kuro5hin.org/story/2001/10/23/13219/110 [Accessed 23 November 2009]

Gnu (2009) Gnu operating system.Gnu.org [online].Available from: http://www.gnu.org/

[Accessed 22nd November 2009]

Judge, P (2009) Windows 7 Finally Gets It Right.eweekeurope. October 21,

2009[online].Available from: http://www.eweekeurope.co.uk/comment/windows-7-finally-
gets-it-right--2172 [Accessed 25th November 2009]

Judge, P (2009) Red Hat Sues Switzerland Over Microsoft Monopoly.22nd May 2009.
Eweekeurope. [Online]. Available from: http://www.eweekeurope.co.uk/news/red-hat-sues-
switzerland-over-microsoft-monopoly-965 [Accessed 25 November 2009]

Keizer, G (2009) Windows 7 Sales Beat Mac OS X Market Share.computerworld. 28 November

2009. [Online] Available from:
http://www.pcworld.com/article/183325/windows_7_sales_beat_mac_os_x_market_share.ht
ml [Accessed 24th November 2009]

Meghan (2009) Windows 7 Collaboration.technews.October 22, 2009. [Online].Available from:

http://tech-buzz.net/2009/10/22/windows-7-collaboration-intel-and-microsoft-tech-
collaboration-delivers-consumer-and-business-benefits/ [Accessed 22nd November 2009]

Microsoft (2009) Microsoft news [online].Available from:

http://www.microsoft.com/business/default.mspx [Accessed 21st November 2009]

Net applications (2009) market share data.netapplications. [Online].Available from:

http://www.netapplications.com/news.aspx [Accessed 21st November 2009]

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Sherman, A (2009) Mergers and acquisitions from A to Z: strategic and practical guidance for
small- and middle-market buyers and sellers.UK. Publisher: AMACOM Div American.

Svetlana Gladkova, S (2009) Microsoft to Officially Become a Monopoly in Russia.profy.com.

April 02, 2009. [Online]. Available from: http://profy.com/2009/04/02/microsoft-officially-
monopoly-in-russia/[Accessed 20th November 2009]

Teacher, D (2009) The Dirty Little Secret: Health Ins. Co. Monopolies.16 August 2009.wpoll.
[Online]. Available from: http://wwww.dailykos.com/storyonly/2009/8/16/767544/-The-Dirty-
Little-Secret:-Health-Ins.-Co.-Monopolies [Accessed 20th November 2009]

Thetimes100 (2009) Identifying and creating new markets - a new strategy for a global
leader.times100. [Online] Available from: http://www.thetimes100.co.uk/studies/view-
summary--identifying-creating-new-markets---new-strategy-for-global-leader--85-227.php
[Accessed 20th November 2009]

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Appendices

The chart shows Operating System market share.

Source: Net Applications (2009)

The chart shows Internet Browser market share.

Source: Net Applications 2009

Source: marketingteacher.com

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