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Porter notes that “Firms, not individual nations, compete in international markets.” How does this statement help to explain some of the major challenges facing MNEs? How do the determinants of national competitive advantage help explain how companies can maintain their economic competitiveness?
The report has been made for the complement of Porter notes that “Firms, not individual nations, compete in international markets.” According to Porter notes Multi-National Enterprises (MNEs) gain a competitive advantage in the changing global environment and do business in international market as a leader of whole nationwide range for people all over the world. The types of strategies are accumulated aside various enterprises with their major concretes, facilities, vision, and mission for growth in international market.
Firms, not individual nations, compete in international market. This is the perfect comments of today’s globalize world .Because firms are compete in international boundary with product and the people of different countries choose their product in their development and also measuring the product quality and price. One nation cannot run or compete in international boundary.
Multi National Enterprises (MNEs)
The definition MNEs can be said in many ways. Actually when any company goes to do business in some different places in different countries and carries some characteristic with their huge subunit or segment or division, large labor, large economy, huge capital then this types of company is called MNEs (Multi National Enterprises).
For example IBM, Shell, Bata or Ford etc
According to the porter there are five major challenges which one affected Multi National Enterprises (MNEs).They are-
Potential Entrants: According to porter potential entrants means when a new business entry the industry, it change the completion of the market. Any firm can be able to enter and out in the market it there is no charge for in and out. I n the real life however industries possess characteristics that prevent the high profit levels of business in the market and inhabit a additional rivals from entering the market.
For example when a company increases profits, we should expect more firms in the markets, on the other hand when profits decrease we would expect firms exit from the market.
Suppliers: A brings about industries need raw meterials-labor, components and other supplies. This requirement leads to the relationship between the industry and the firms that produce the raw materials used to create products.
For example-garments industry related to textile industry.
Buyers: In the world customer divided in three classes such as higher class, middle class and lower class. Within this three level of class peoples basis criteria is different like as product price, usage, familiarity, attributes, attitude, lifestyles, salary , demand, want, need etc.
Rivalry: Competition among rival firms drives profits to zero if the firm following the traditional economic model. The intensity of rivalry among firms varies across industries, strategic analysis are interested in these differences.
Substitutes: According to the porters substitute products refer to the products in other industries. A close substitute product constrains the ability of firms in an industry to raise prices.
There is some other factor which is also challenge for Multi National Enterprises. They are-
Political situation interact one of the most prominent sector in a society where the viable acting unit. Domestically and internationally business conduction influence along with the country’s political system.
For Example, in Hong Kong the political change, which brings result of China, took control in 1997 and fall hazard situation of many mangers to believe that China would change the interpersonal business relationship between government, regulation and business forum with more influence and strong balance in business atmosphere.
The Impact of Ideological Differences on National Boundaries
The cultural, language, religion, political ideology and history have vastly attracted by national boundaries. For example in European, the Austro-Hungarian, Empires distinguish in the Yugoslavia, Romania & Poland after First World War. But after Second World War countries often were formed individual ethnic groups.
The legal Environment
Another external dimension of international business environment is legal environment which is closely related to political environment. Management has to be concern the perfect valid way of particular the countries.
For example: Hong Kong was moving away from the legal traditions established by the British toward the impact of Beijing..
Exchange Control: The amount of capital living of that country, foreign exchange, capital formulations are very important part in Exchange control.
For example: When Venezuela enforced currency control after a few month federal strike in an undertake to orient the flood of capital from the country.
Import Restriction: The selective restriction like Import restriction of present raw materials, machines and spare parts are common for industry to purchase within the host country.
Price Control: Some product which is public interest like as food car, pharmaceutical, gasoline and some other products often subjective to price control.
Internet is now a day’s very important way to communicate with Global business. Although it has some bad practice this is Cyber Terrorism. The internet is a vehicle for terrorist attract by foreign and domestic arena.
For example: The Melissa Virus that damaged the websites of CNN, yahoo, Amazon and ZDnet.com [“Doing Business in a Dangerous World,” Harvard Business Review, April 2002]
When the MNEs set up their industry in particular countries then they have to concern on that countries government rules and regulation such as tariff, scale of reservation, policy trend of business, Taxes and sometime its burden to maintain for the enterprise to such of that regulation.
Determinants of National Advantage:
According to Porter, there are four factors which help the determinants of national advantage. They are:
Related and supporting industries
Firm strategy, structure and rivalry
Firm Strategy Structure
Related and Supporting industries
Figure: 3-1 The determinants of national advantage (Porter M. (1990:Page72), The competitive advantage of nations, Chapter-3)
A nation factor condition depends in productions of factor, such as labor skilled or infrastructure, essential to compete in a given industry. Every nation follow the possesses what economists have named factors of production. The factors of production mean the inputs necessary to complete infrastructure. (Porter M. (1990: Page 73), The competitive advantage of nations, Chapter-3).
The U.S.A. has been a considerable exporter of agricultural goods, certifying in part its unusual abundance of huge tracts of arable land. (Porter M. (1990: Page 74), The competitive advantage of nations, Chapter-3).
One of the most important affect of home demand on competitive advantage is through the mix and grave of home buyer needs. The most fundamental role of segment structure at home is in shaping the attention and priorities of nations firms. The relatively huge segments in a nation receive the superior’s and advance attention by the nations firms. (Porter M. (1990: Page 86-87). The competitive advantage of nations, chapter-3).
Example of these considerations is Air bus industries entry into commercial air lines. Air bus determined a section of the market that had been disregard by Boeing and other U.S manufactures a relatively massive capacity plane for short. (Porter M. (1990: Page-88).The competitive advantage of nations, Chapter-3).
Related and supporting industries:
The third wide determinant of national advantage in an industry in the presence in the nation of supplier industries or related industries those are internationally competitive. Japanese machine tool producers displace on world class suppliers of numerical control units, motors and other components, competitive advantage in some supplier industries confers potential advantages on nations.(Porter M. (1990: Page-100-01). The competitive advantage of nations, chapter-3).
Parts of Footwear
The figure illustrates how internationally competitive supplier industries underpin Italian success in footwear (Porter M. (1990: Page-101).The competitive advantage of nations, chapter-3).
Firm strategy, structure and Rivalry:
The fourth and final comprehensive determinant of national competitive advantage is an industry is the context in which firms can be create, organized and managed as well as the nature of domestic rivalry. (Porter M. (1990: Page-107).The competitive advantage of nations, chapter-3).
Firm strategy, structure and Rivalry include-
1. Strategy and structure of domestic firm’s
Strategy and structure of Domestic firms:
In this way firms are managed and choose to compete is impressed by national
Circumstances. In Italy, many successful international competitors are relatively small or
Medium sized firms that are privately owned and sum like- expended families.
(Porter M. (1990: Page-108).The competitive advantage of nations, chapter-3).
Company goals are most strongly determined by ownership structure, the motivation of
Owners and holders of debt, the nature of the corporate governance and the incentive
Processes that shape the motivation of senior managers. (Porter M. (1990: Page-110).The competitive advantage of nations, chapter-3).
All through the overall behavioral activities to concern the MNEs characteristics that are governed by operate in there functional areas to evaluate and earns the implementation and realization strategic vision is fully depending of their human resources.
The issues of the competitiveness based on infrastructure of building, strengthening cooperation between public and private institutions and improving educational performance. These issues are important because lot of policy making and hard task needed to cope with the MNEs challenges for globalization.
For example : The federal government’s share of research funding along with nationwide range almost 70 percent in 1960s in compare with 30 percent less than today. Most of the Economical Slack has been taken by the industry but beside this, the state is taken the lead.
Analysis and Discussion
According to my point of view these five factors plays a great impact on MNEs Business. A multinational may have operated their business an efficient for an organization and making effective performance in the economic market of the world.
Above the porter statement “Firms not Individual Nation, Competing the International market” is the moderate theme story of Globalization and belong with this statement is emphasize the compositeness of a firms to the international market arena and it give assure that the firm compete in international market not as an individual nation.
In my recommendation to overcome this challenges of MNEs those as are follows:
Purely assessment of the present political environment of host country where they do their business
Good political knowledge and how to tackle the critical political situation in the Host country
Technical Assessment with the help of proper Investment policy makes sure that the investment should be better in return of investment appraisal.
National GDP, Life style, Consumer trend, Culture, Historical and Geographical background of a country need to proper adjustment to their present situation.
Innovative and Competitive strategy needs to develop to the MNEs for their long term Sustainability.
The multinational enterprise compete the whole world economic market. Multinational enterprise(MNEs) is a corporation while they operate their business two or more countries for various perspectives, including the chip supplying of raw materials, low labor costing, capturing the equal market and.