Essay: Explain how and why firms become multinationals enterprise.

1. Explain how and why firms become multinationals enterprise.

Becoming a Multinational is a strategy which is a long time action of a firm which has an impact on the activities of the firm and will be implemented after a thorough planning of the problem and the environment. This impact is done though expansion from a National company to an international one. When a company which was recently doing business in it own domestic arena comes out to bring in its business and operations to the global level, then it becomes an MNC. The reasons for becoming an MNC are varied. (Kotler 2003)

A key problem that companies face when competing in domestic markets characterized by parity of core product attributes is that traditional differentiation strategies are eliminated from the marketer’s arsenal. Such strategies revolve around the notion that building sustainable competitive advantages requires differentiating a product from the competition along attributes that is important and relevant to customers. In contrast to these normative recommendations, operating in commoditized, price-driven markets like international ones out of home, implies that the ultimate winners will be the most efficient producers. In response to this reality, producers historically have relied on strategies that focus on lower costs and higher volumes. Such a competitive landscape clearly favours bigger producers who are able to capitalize on the efficiencies realized through greater economies of scale. This is where the MNCs come to play. Unfortunately, these conditions leave the producer who competes only on price at a significant competitive disadvantage. (Tourangeau 1981)

There are but many steps that will have been done before an MNC enter a foreign country.
There is a defined framework of eight key components that form a basis for any type of MNC strategy. (Kotler 2003)

The components are:

1. To identify target customers and markets.
2. To identify the principal products/services.
3. To specify the best geographic domain.
4. To identify the core technology.
5. The expression of commitment to survival, growth, and profitability.
6. To specify the key elements in the company philosophy.
7. To identify the company’s self concept.
8. To identify the firm’s desired public image.

2. Why is the technology contribution of multinationals is potentially is so important for developing countries? Which factor will determine whether or not the transferred technology actually provide the benefit for the host developing countries?

The role of technology is phenomenal is determining what sort of product and how will it be formed to target the aimed countries. In a study by Fred David’s (1989) investigation of strategies of large manufacturing and service firms collected from the Business Week 1000 firms, the results revealed nine key components: customers, products/services, location, technology, concern for survival, philosophy, self-concept, concern for public image, and concern for employees. Here what is stressed on is technology of the product. (Kotler 2003)

Positioning  a brand against one or more competitors, represents an inherent aspect of achieving the brand differentiation that ultimately results in the competitive advantages critical to a brand’s long-run success in the market .This could very well be done by a technological leadership. As noted earlier, positioning traditionally has involved differentiation on physical, tangible product attributes that are relatively central to customers’ purchasing decisions. Companies typically invest in research and development (R&D) as a means of creating new products or new features for existing products, then employ other strategic tools (e.g., advertising) to create associations of a product’s uniqueness among the competition. (Gregory and Taylor 2004)

However, improvements in technology have accelerated the diffusion of competitive strategies in the marketplace to the point where companies are no longer assured that they will achieve sustainable competitive advantages from their R&D efforts. As an example, any breakthrough made by a personal computer company in terms of physical product attributes will be quickly imitated by competitors in today’s marketplace. In essence, then, any point of physical differentiation for a company strategy will soon become commoditized as competitors add similar features to their offerings, undermining the company’s ability to build long-term competitive advantages in the market for the MNC company. (Gregory and Taylor 2004)

Another way in which the consumer can be converted with the technological know-how is the online use. Online marketing strategy is about getting in front of your customers every way possible. This can include search, social media, or any other online destination where you will be able to attract customers or get in front of them with a message. A good marketing consultancy can help companies with anything from strategy to actual marketing and product development. The experience covers businesses in e-commerce .This can generate a lot of growth for clients and worked with enough companies to understand how businesses can truly succeed. One may need an outside company with experience catering to diverse business needs, this strategy can be taken in by consultancies. Thus technology here too has played a phenomenal role. (Spulber 2004)

The major factors that determine the use of technology could be creativity. Creativity is another innovative strategy followed by corporate today. This needs an entire team of developers, designers, and social media experts that are constantly creating new content and media that people out there love. This involves strategies for technological innovation of the product so that it pulls attention of the customer to the brand. Another factor is the consumer himself. If he values technology, one could very well give it to him. Consistent with this rationale, it was found that consumers exhibited a preference for a “no-choice” option (i.e., choice deferral) when all brands under consideration were similar in their attractiveness. Deferring choice affords consumers the opportunity to engage in a search that might yield additional information capable of discriminating between brands that are similar on performance dimensions considered earlier in the choice process. Thus, deferral simultaneously can reduce the probability of experiencing negative emotions associated with suboptimal product choices and increase consumers’ flexibility during decision making. Unfortunately, when consumers defer choice, companies suffer because of delayed revenue streams or, even worse, lost revenues if consumers never reinitiate their choice processes. For example, Sony and Philips were reportedly concerned that the simultaneous launch of the Minidisk and Digital Compact Cassette technologies would impede growth in the consumer electronics market owing to consumer delay in choosing between these products. Fortunately, consumer researchers have identified several alternatives to deferral that might exist when brands are undifferentiated. Rather than deferring choice, consumers may—given the similarity that exists between brands in such instances—engage in a random choice process). As another possibility, the nondiagnosticity of performance-relevant inputs of products with similar attribute performance can create the potential for decision making to be driven by factors typically viewed as less central to the choice process. Specifically, under such conditions, choice of technology may be based on a consideration of peripheral cues that might, a priori, be viewed as relatively immaterial or irrelevant to the decision. (Spulber 2004)

Another factor that determines the use of technology in a foreign country is the Points-of-difference (PODs)which are attributes or benefits consumers strongly associate with a brand strategies, positive evaluation and believe they could not find to the same level with a brand which is in competition, i.e. points where you are claiming exclusiveness or superiority over other products in the same category. Another factor is Points-of-parity (POPs) – Associations that may not be different to the brand strategy but may be shared by other brands i.e. where the technological benefits of the competitors can be matched. Thus customer loyalty other brands although little in this industry is very high. (Spulber 2004)

Whilst when assessing the deliverability criteria for technology in the above listed context we will look at their:

• Feasibility
• Communicability
• Sustainability

Traditionally, the people responsible for positioning brands through a varied technology have been concentrating on the differences that differs each brand strategy apart from the competition. But focusing on differences is not enough to sustain a brand against competitors. Here we consider the reference within which the brand works and the features the brand shares with other products. (Frances and Stephen 2006)

Last but not the least is competition. More generally, a firm has a competitive advantage in technology when it is implementing a strategy not simultaneously implemented by many competing firms and these other firms see significant disadvantages in acquiring the same level of operations. A key problem company’s face when competing in markets segmented by parity of core product attributes is that traditional differentiation strategies are chucked out from the marketer’s arsenal. Such strategies revolve around the idea that building sustainable competitive advantages requires a unique product with a unique technology from the competition along attributes that are important and relevant to customers. In contrast to these normative recommendations, operating in commoditized, price-driven markets shows that the ultimate winners will be the most effective producers. In response to this reality, agricultural producers historically have trusted on strategies that focus on lower costs and higher volumes. Such a competitive landscape clearly inclines towards bigger producers who are able to capitalize on the effectiveness realized through greater economies of scale. (Pettigrew et al 2002)