Multinational Enterprises and Emerging Markets

Topics: Foreign direct investment, Investment, Macroeconomics Pages: 2 (638 words) Published: May 15, 2013
The need for multinational companies to invest foreign economies becomes erstwhile with increasing globalization. Multinational Enterprises, MNEs, enter foreign markets for different reasons; some enter the market in search for market control as regards sales and distribution of their goods and services while for some, it is either to gain cheaper labour or utilize more specialized expertise or for easier access to a resource(s) that facilitates or is essential to its primary home production process. In most cases, the investment risks are reduced for the investing company. While most MNEs would be involved in either a foreign investment to replicate exactly the same product or service it does in its home country as in a Horizontal Foreign Direct Investment (Horizontal FDI), some others would be interested in a foreign investment where a product or service that facilitates or compliment their home production is subject like in the outsourcing of a particular aspect of a production process either for cheaper labour or for a localized expertise, this investment would be classified as a Vertical Foreign Direct Investment (Vertical FDI). (SHENKAR, et al., 2008) Developed countries are seen to have benefitted more from globalization than the developing countries and thus MNEs from developed countries are more successful than their counterparts from developing countries. MNEs generally face difficulties as the take on new markets and cultures and hence, success on the part of an MNE embarking on a FDI is highly dependent on its strategic logic, objectives and entry mode. Problems encountered range from multiple entry barriers such as government policies and restrictions, fragmental retailing and nepotistic relations; for instance, (Iyanda, et al., 1979) quotes the Nigeria Enterprise Promotion Decree of 1977 which requires indigenous participation of at least 40% in the equity capital of foreign owned companies, which...
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