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Topic: What are the main causes of differences in the strategies, capabilities and organization of multinational enterprises from the Asia Pacific? Specify your reasons using corporate cases of multinationals from different industries and different countries of origin.

Consider a number of perspectives, including the aims of Japanese multinationals in relation to global strategies; the aims of Korean and Chinese multinationals and international business strategies; differences between industries and types of business; the degree of global versus regional control, and changes in operational control over time; the competitive advantages of these multinationals compared to those of rivals; variations in management, organization, and operations between home country and host nations; the ability of Japanese, Korean and Chinese multinationals to compete in Europe, Asia and North America, and their ability to adapt to changes in policy and markets; and the policies of host governments and the relevance of the EU.

Answer

Contents

Introduction. 2

The aims of Japanese multinationals in relation to global strategies. 2

The aims of Korean and Chinese multinationals and international business strategies. 4

The degree of global versus regional control 7

The competitive advantages of Asia Pacific multinationals. 8

Comparisons between operations in home-country and host-country settings: The relevance of the EU.. 9

Conclusion. 9

References. 10

 

Introduction

The aim of this paper is to discuss the causes of differences in the strategies, organization, and capabilities of multinational enterprises (MNEs) from the Asia Pacific. To achieve this aim, the paper approaches the subject from a number of perspectives. These include the aims of Japanese MNEs in relation to global strategies; the aims of Chinese and Korean MNEs in relation to variations in industries and businesses; and a comparison between regional and global control.

The paper also addresses aspects of changes in operational control, competitive advantages of MNEs, and comparisons between operations in home-country and host-country settings. To address these issues amicably, the paper addresses explores how Asia Pacific MNEs compete in Europe, Asia, and North America. The issue of the relevance of the European Union (EU) for Asia Pacific MNEs also falls within the scope of this paper.

The aims of Japanese multinationals in relation to global strategies

Japan started emerging as an economic hegemony after the end of the American economic hegemony during the early 1970s. In the new world order that started emerging in the early 1970s, a triad emerged, which comprised the EU (European Union), North America, and Asia. Japan emerged as a major participant in Asia’s economic development. Japanese MNEs were at the forefront of this improvement in economic performance.

The decline in the power of the US as an economic giant was evident in the country’s level of Foreign Direct Investment (FDI). Since the 1970s, the level of outward FDI of the US started declining remarkably. Incidentally, all this time, the US occupied the same geographical space with Japan and the EU. This geographical space, commonly known as the Triad Power, shared several characteristics (Deng, 2007). Some of these characteristics include similarity in technological infrastructure, low macroeconomic growth, existence of knowledge- and capital-intensive companies in most industries, and homogenized demand (Deng, 2007). In this homogenization process, there is a tendency for convergence of key product attributes to occur. This homogenization is also characterized by protectionist pressures. In many ways, these characteristics define the environment in which MNEs operate.

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As an integral part of the Triad Power, Japan is home to MNEs that produce the most innovative products in all industries. It is also home to the producers of the newest products. Some of the largest MNEs are found in Japan, the US and the EU. It is not surprising that this coincides with the fact that high investments are normally directed routinely to the production processes that take place in Japan. These capital-intensive processes also go hand in hand with knowledge development efforts.

However, MNEs from Japan as well as the other Triad Power countries face a serious problem of losing their monopoly with regard to brand names, patents, and technological innovations. In spite of various safeguards in the form of patents and brand names, these companies end up incurring losses once their innovations diffuse to rivals. For this reason, the companies end not succeeding in meeting their targeted distribution capabilities in foreign markets. In such a scenario, recouping innovation costs becomes a virtually impossible task.

MNEs operating in Japan face a major dilemma whenever they develop an innovative product whose demand is expected to be high. The companies have to establish an extensive distribution system across many countries, especially in the triad region. Such an effort requires the company to incur high fixed costs that translate into a very high risk. This risk becomes a serious impediment to the companies’ future operations if the new product fails to deliver in on expectations as far as its sales are concerned.

Conversely, when marketing efforts for the new product are first carried out at home, rival companies within the triad power may come up with an equivalent of the product with the aim of capturing their home market. In this situation, they dominate the distribution as far as that market is concerned. Even the biggest MNEs in Japan face this dilemma. These companies find it extremely difficult to replicate their excellent home-market share performance in the EU and the US.

One of the reasons why many Japanese MNEs fail to succeed in becoming triad powers is their lack of equal capabilities for penetration and exploitation. Another reason is failure to ensure preparedness to unforeseen events and outcomes. To recover their innovation costs, Japanese MNEs need to penetrate into the triad market. With adequate preparedness, these companies are able to anticipate the various strategic moves made by foreign rival companies or even competitors within the home-country market that forge partnerships with foreign companies.

The aims of Korean and Chinese multinationals and international business strategies

In recent years, Korea has experienced rapid economic growth. As a result, many MNEs have emerged from this Asia Pacific country. They have started competing not just in the triad market but also in Africa and South America. Moreover, MNEs from South Korea have started making important contributions to Korea’s FDI outflows. In many ways, the strategic capabilities and characteristics of Korea are related to those of Other Asia pacific countries especially China and Japan.

The greatest wave of the emergence of MNEs in the South Korean economy started in the early 1990s. During this time, regulations on FDI outflows were liberalized by the government. However, it is not clear whether the resulting economic move was occasioned by this move by the government. For many scholars, MNEs made critical contributions to this rapid economic growth  and the aggressive penetration of Korean FDI in foreign markets.

However, at the time FDI outflows were liberalized, South Korean MNEs had not yet fully evolved. For this reason, one would not expect them to play a big role as if they were operating in a developed economy such as the US. During these early years of FDI liberalization, Most Korean MNEs chose to start by venturing into the Triad market as well as other foreign markets. In this way, they set up a stage for rapid expansion initiatives upon gaining various competitive advantages in different areas of strategic focus.

This was a very ambitious undertaking because of the high risks involved. This is particularly true of MNEs dealing in electronics such as LG and Samsung. For these companies, introduction of innovative products forms parts of the core strategy. These innovations are easily replicated by competitors in the triad markets, making it impossible for these companies to recoup the costs incurred in research and development. This problem is also faced by many Japanese MNEs that deal in related products.

The case of China is somewhat different from that of South Korea and Japan as far as the operations of MNEs is concerned. In 2009, 37 Chinese MNEs were features in the Fortune 500 list (Buckley, 2009). Fortune 500 is a prestigious publication of the Fortune Magazine, which presents a list of the top 500 corporations in the world in on the basis of revenue. On this basis, China was ranked fifth in terms of contribution to the Fortune 500 list. In 2007, only 24 corporations had been listed in this magazine (Buckley, 2009). It is worthwhile to point out at the outset that many Chinese MNEs are operated as State-Owned Enterprises (SOEs). Some of these companies include Sinopec (which is the largest company in Asia) and CNPC (China National Petroleum Corporation).

Acquisitions form an integral component of the international business strategies of Chinese MNEs. In 2004, Lenovo, a Chinese computer company, acquired IBM’s PC (personal computer) division. In the automotive industry, Shanghai Automotive Industry Corporation embarked on the process of acquiring Ssangyong Motors from South Korea. Ninjang Automotive acquired MG Rover from the UK in 2005. In 2009, Sinopec acquired a company called Addax Petroleum Corp from Switzerland. In the same year, Petrochina acquired a 45% stake from Singapore Petroleum (Kim, 2009).

The acquisition forays of Chinese multinationals led to a rapid increase in the flow of FDI into foreign countries. As of 2008, China had accumulated FDI stock worth US$184 billion in foreign countries (Kim, 2009). By this time, more than 8,000 Chinese companies had undertaken FDI operations in some 174 countries in different parts of the world (Kim, 2009). These activities revolve around not just the energy and electronics industries but also finance, retailing, mining, and wholesale.

Chinese MNEs have also focused a great deal on FDI outflows in Asian countries as well as Tax havens such as British Virgin Islands and Cayman Islands. In fact, the greatest area of focus for these companies is Asia. Given this trend of directing FDI to tax havens, it becomes difficult to determine the exact amount of FDI outflows, particularly during the last few years. This is because FDI directed to such tax havens ends up finding its way to other economies. Meanwhile, the choice of Asian countries is greatly influenced by close cultural similarity, geographical proximity, and low operational costs.

In the years to come, it is expected that the Chinese companies will continue focusing primarily on the Asia Pacific region before undertaking overseas operations (Rugman, 2004). If this turns out to be the case, it will demonstrate a pattern resembling that of other MNEs around the world, which adopt a regional expansion strategy as opposed to a global strategy.

The degree of global versus regional control

Across the world, MNEs seem to be adopting a regional approach as opposed to a global strategy (Quer, 2009). In this regard, these corporations start by focusing on the local and regional market before venturing into the global market. This is because in local and regional markets the companies incur lower costs. Moreover, they tend to have more knowledge of this market compare to the knowledge of global market. Furthermore, the activities taking place within the regional market are easily coordinated directly from the corporate headquarters.

Regarding the issue of global control, focus is first and foremost on the triad market. All multinational enterprises from the Asia Pacific region tend to prioritize on operations within the triad market. In this regard, they adhere to a trend that is characteristic of MNEs from around the world. Upon gaining stability in operations within the triad market, Asia Pacific MNEs also seek to venture into a fourth region. For example, many Chinese MNEs have ventured into the African continent. Most of corporations have ventured into Africa after already gaining competitive advantages in the triad region.

The competitive advantages of Asia Pacific multinationals

The rise of Asian MNEs is a more recent phenomenon compared to that of Western multinationals. This phenomenon is characterized by the adoption of strategies that are different from those of Western multinationals in several ways. This is reflected in the competitive advantages that these corporations benefit from in the course of their operations within the global market. In recent times, the greatest competitive advantage has been in the realm of direct investment activities.

Various explanations have been suggested in efforts to account for differences in characteristics as well as the level of performance of MNEs from the Asia Pacific region. The investment-development-path approach, for instance, attributes these differences to variations in levels of development as far as a comparison between Asia and the West is concerned (Buckley, 2009). Another suggestion is that Asian MNEs resemble Japanese corporations than they resemble Western corporations. From this discussion, it is evident that not much literature has been directed to the issue of the competitive strategies of various multinationals. This is particularly true as far as comparison with Western corporations is concerned.

Nevertheless, it appears that the internalization strategies used by Asia Pacific MNEs differ in many ways from those of Western countries. Over time, this idiosyncrasy has turned out to be a major competitive advantage whenever these corporations set out to sell their products and services in the global marketplace.

Comparisons between operations in home-country and host-country settings: The relevance of the EU

To understand the competitive advantages of multinationals from this region better, it is imperative to focus on their operations in other Triad markets, particularly the European Union (EU) market. The EU market continues to be of strategic relevance to these corporations. One of the theories that best explains this relevance is the eclectic paradigm (Buckley, 2009). The eclectic paradigm states that trends in international production are determined by three advantages. The first advantage is firm-specific or ownership advantages such as expertise, skills, and proprietary technology. The second advantage is the way internalization of this set of advantages within transnational boundaries with the aim of overcoming market failures or imperfections, maximizing returns, and reducing transnational costs. Thirdly, the theory highlights the location advantages of both home and host countries.

The EU remains a strategic market for Asia Pacific corporations. This strategic importance has been demonstrated by the decision by various Chinese and Japanese MNEs to target EU MNEs in their acquisition efforts. Multinationals from both regions continue to compete in the realm of research and development. This competition has inspired many companies with their origins in the Asia Pacific to set up subsidiaries in the European Union.

Conclusion

In summary, many differences exist as far as the strategies, capabilities, and organization of multinational enterprises in the Asia Pacific is concerned. In Japan, the country’s unique management style has been a major competitive advantage. However, many Japanese MNEs face difficulties when selling innovations in the triad market. This is because of the replication of these innovations in the form of new products and violations of provisions created through patents and trademarks. In Korea, many multinationals have chosen to venture away from the home market and instead to embark on aggressive internalization efforts. Finally, Chinese MNEs have made significant gains through FDI outflows. They have achieved this goal largely through acquisition of foreign multinational companies.

 

References

Buckley, P. (2009). The rise of the Japanese multinational enterprise: Then and now. Asia Pacific Business Review,15(3), 309–321.

Deng, P. (2007). Investing for strategic resources and its rationale: The case of outward FDI from Chinese companies. Business Horizons, 50(1), 71–81.

Kim, J. (2009). Trends and Determinants of South Korean Outward Foreign Direct Investment. The Copenhagen Journal of Asian Studies, 27(1), 126-154.

Quer, D. (2009). International Expansion of Chinese Multinationals: The New Challenge Of Globalization. Nova Science Publishers, Shanghai.

Rugman, A. (2004). A perspective on regional and global strategies of multinational enterprises. Journal of International Business Studies, 35(1), 3–18.

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