Over the last 150 years the corporation has risen from relative obscurity to becoming the world’s dominant economic institution (Bakan, 2004) They have achieved this through internalization and control everything we do in our daily life In this essay, we will be looking at how the transnational corporation will continue to stay competitive in the global market while taking into consideration the economic and the cultural issues faced by the transnational corporations and the impacts they have.
One of the theories that considers the Economic Issue is Dunning’s Electric Paradigm. According to Dunning (1979) to gain competitive advantage over other transnational corporation it must invest in things that gives them advantages like Ownership (O) of property, assets, natural resources, know-how, etc. this gives them advantage over other nationality companies. Location (L) that is selected advantageously in favor of environmental cultural and political climate in the country can mean that the other corporation’s may have to settle for the second best. Internationalization (I) of the assets that add value to the company and moving them beyond the national boundaries and thus adding to the competitive advantages
However, Dunning’s theory has some draw backs there is no definite number of OLI types of advantage and it is always expanding so you always can’t follow them.
The economic issue is also talked about by the Porter’s Theory of National Competitive according to this theory it keeps its competitive advantage by factors like the Demand Conditions which is accessible to the Transnational Corporations and it can be used as lucrative offer to the government and be used to create jobs and a boost to its economies. Porter (1991) claims that for a company to have competitive advantage it has to create and advance in technology without the help of others. It can dictate the government policies and make it competitively advantageous to them though it may be immoral to do this it is the intelligent this to do as it will eliminate competitors and it will be beneficial to the business. Essential controlling the economy of the country with advancements in other fields gives you competitive advantage. It must also consider to adapting to the country’s culture and giving them to work in the way they usually do. It also effects the government and the culture of the company it is one of the draw backs of this theory.
Uppsala Model takes into consideration the cultural factors that the companies face while they are trying to internationalize. In this model, the companies try to internationalize only when they have a strong domestic base and they start to choose to expand to markets which has closer psychic distance, meaning a market which has uses same currency and has a similar mindset of that of the domestic market, also uses same language and similar political system. This gives you advantage over those who are not close to the psychic distance of the market. But due to advancements in technology the barriers of not having closer psychic distance have reduced over the years. It also takes experience from previously entered market and use it in the new entering market. Uppsala Model does take into consideration the cultural issues and tries to use it to its advantage but it fails to
The Resource Based Theory is also a theory that takes into consideration the issue of culture. According to Barney (1991) having a strategic resource allows Transnational Corporations to cultivate a competitive advantage. If a corporation has these four qualities formed in them it would allow them to have a competitive advantage. They are “valuable”, “Rare”,” Imperfectly Imitable” and “Non-Substitutable”. Having these four qualities will be very useful in the culture of the company as it is very hard to take down companies that have this in their culture and the consumers will also stick with the company as there is no substitute and the rivals cannot replicate it. The theory does not explain how to cultivate this theory into the company which is very important and dues to recent technological advances it is hard to create products that are non-replicable as most products can be replicated easily.
Regarding the economic issues Dunning’s Electric Paradigm states that it can gain competitive advantage by considering the OLI factors. Porter’s theory of National Competitive Advantage gives the competitive advantage by developing their own technology and use hat to control the government and dictate the rules.
Considering the cultural issues Resource Based Theory illuminates how strategic resource that if implemented in the culture will give competitive advantage and the Uppsala model, which takes into consideration previous experience and Psychic Distance in culture to gain competitive advantage over other corporations.
In conclusion, Transnational corporations are huge and cannot use any one theory to be competitive in the global economy, they should adopt and improvise the theories to their situation so that it fits them perfectly and should consider all the theories before selecting the ones suitable for them.