The reasons why Multinational corporations internationalize their business

A multinational corporation is a type of organization which runs both in home country and
outside home. Statistics says a multinational company earns 25% or more of its profits from the
foreign countries. When a corporation earns that rate from outside home then it is considered as a
multinational company. There are several reasons for expanding business all over the world by
the MNCs. Through the expansion there are positive chances for market growth and
diversification. The important factors regarding internationalization are described below.

Exploring markets: It is known that the types of product vary from country to country. China
produces better leather products and Japan produces better steel. But the demand for both of
these products is universal. All over the world demands for these products. So, international
expansion creates opportunities to reach more customers and ultimately the growth of the
corporation. Vodafone a leading telecommunication company of the UK expanded of its
business to India in order to offer services to the larger portion of Indian citizen. This is truly
beneficial for the company as they achieve a larger amount of the market share.

Diversifying companies operations: Sometimes a company might encounter the negative

growth of sales in the native country. A multinational company can erase this negative growth by
diversifying their products. Peoples taste varies from country to country. A multinational
company can offer unique product to the international market. This will help them to grow more.
Coca-Cola Company offers nowadays a various range of products other than just their flagship
product Coca-Cola. People of the UK have problem with the sugar that the beverage companies
add into their products. So, Coca-Cola Company brought diet coke where least amount of sugar
is added which is tolerable for everyone. Besides they offer mineral water and soda water too.
This diversifying approach helped Coca-Cola Company to expand their business in India, China
and South Korea. Topo Chico a Mexican sparkling water is bought by this company recently
which is another example of diversifying.

New talents searching: Even the human resources vary from region to region. Going
international, a multinational company can utilize international labor by getting unique ideas
from the talented people all over the world. Google offers job to the tech people all over the
world in order to ensure the higher level of thought process and engineering. They do not rely on
the academic result rather pooling talented people with their works. Nowadays people with
innovative technological knowledge are getting jobs in multinational companies. As they offer
innovative ideas that enhance the productivity and the growth as well. Recently Netflix hired
people with the knowledge of several languages in order to understand people more of various
countries because Netflix has become a worldwide streaming site. So, people from various
regions are streaming nowadays. Knowing their culture will help Netflix to create particular
shows for them and growing their market share.

Competitive advantage: This is the most of vital advantage of going global. Entering into the
international market with unique ideas creates competitive benefits for that organization with its
rivals. Going first in an ecosystem may help with the technology as well. Unique ideas create
brand image of the company throughout the world. British American Tobacco launched their
products all over the world on the basis of demand and economic condition. They produce
several types of cigarettes on a various range of prices. This helps them to increase their
competitive advantage as they both economic and luxurious product. When the smartphones of
the whole world depends on the button, then Apple came with a revolutionary idea of multi
touch operating system in their mobile phone. They also teased at the launching of iPhone that
the operating system of iPhone is five years ahead of that time. This created their brand value up
to the mark and they are still dominating the smartphone industry.

Chances for investment outside the border: Sometimes investment opportunities that are not
available in the home country can be invested in the foreign market. Alcohol and pork are
forbidden in the Muslim countries even though the resources are sufficient to produce these
products. So, they can manufacture these types of products for the international market and gain
profit. Besides, sometimes multinational companies get more enumeration from the foreign
government than the native one.

The typical challenges that a multinational corporation faces during the time of
internationalization

For an MNC international market is a new market. Sometimes the employees hardly get
adequate knowledge of the culture of a foreign country and their demand. So, surviving on that
condition sometimes getting hard for the MNCs. There are many examples that the corporations
withdrawn their business from a particular country because of negative market growth. There are
some major challenges that MNCs face which are illustrated below,

Adverse market: Involving with foreign markets sometimes causes difficulties to run the
business there. It happens when the executives are not aware of the people, their culture, laws of
government and many other factors. There are many countries where this information is so
confidential to the foreigners. So, it is tough for them to run their business there if this is the
market condition. Many MNCs reported this type of adverse situation of Chinese market because
Chinese government permits most of the organization that is government owned. Besides there
are tariff and non-tariff barrier that the corporations face while entering into the market.

Unstable Political Scene: MNCs face challenges when the political state of a country is
vulnerable and the government is unreliable. Strikes, riot cause the business activity to postpone
for a longer period of time. Corporations can hardly deliver their products when there is a
political instability. So, the cost of holding the products increases and there is a possible risk of
getting higher level of loss upcoming future. So, it is really hard for the managers to forecast the
business if it continues. Besides, unstable political situation causes corruption in the market
which discourages the foreign firms to invest as well. Developing countries are corrupted more
than the developed countries. So, the executives should properly research before entering into
that type of market.

Market intervention: The level of doing business and the market shares sometimes manipulated
by the government policies. MNCs are bound to obey these policies as they are under threat of
withdrawing their business. There are some countries who forced their foreign pharmaceutical
companies for the lower fees of licensing their patent to the locals. This is a price manipulation
and creates lowering the price. They did this to reduce government’s healthcare expenses. When
these kinds of manipulations are happening randomly, the MNCs simply withdraw from the
market or else they will face a huge amount of loss. Mostly the developed and well-known
countries are doing this kind of activity with their MNCs.

Higher Labor Cost: When it is about the developing or under developed countries then the
labor cost is cheap and tolerable. But when it is about the well developed country then
sometimes the labor cost is pretty higher. It happens because of the government policy. Various
host countries cost higher labor cost which also increases the overall operational cost. Countries
like Australia, England, Scotland and many other rich countries have higher labor cost. MNCs
take some initiatives so reduce this cost, especially the idea to establish the plant far away from
the headquarters.

Balance between operations and supply chain: It is hard for the MNCs to balance between
these two the when there is an emerging economy. To get sufficient production along with
proper operational activity which will handle global customers is much costly. He process is
even critical as the economy is still not up to the order. In the developing markets, there are
increasing numbers of newer customers who demands various and newer products. So, entering
into this type of market MNCs need to ensure proper operational activity and reliable supply
chain.

Disagreement: Problems arise when the interest of producing and designing products create
conflicts among the corporation, the government and the people. The way of production may not
be liked by the government and people. This will lead the customers and the government to
dominate the MNCs and they will not be able to run their business with their full potential. So,
MNCs should avoid those countries where they feel limitation in running the business.