With the developed world markets becoming increasing saturated, the multinational corporation (MNCs) have now turned to the emerging markets of the world. These countries which are on their way through modernization, are now a potential source of revenue for MNCs, countries such as Malaysia, Indonesia, India and China. However for companies to enter the markets, there will be challenges that they will have to overcome, as to tap the potential revenue goldmine. This is because, every country has a different and unique background or culture in doing businesses. In this assignment, I shall discuss on the types of strategic approaches MNCs use as to gain entry through a particular market. The strategic approaches which firms use as to do business in emerging markets that shall be discussed here are through Foreign Direct Investment(FDI), Licensing and Franchising. We shall discuss each method and analyze the benefits, the risks involved and other factors which may lead to the application of the method in different countries around the world. But first, we must define, what is an emerging market and how does a country fall into that category. The term emerging markets was coined by economist at the International Finance Corporation (IFC) in 1981 but after many years, the term had changed meanings and evolved by definition and is now defined as a new market structure arising from digitalization, deregulation, globalization and open-standards, that are shifting the balance of economic power from the sellers to the buyers (BusinessDictionary, 2013)
Another question which must be asked and answered before going any further is that why should businesses invest in emerging markets, pouring in hundreds and millions of dollars in a potentially risky investment, when they can further strengthen their domestic markets with the same value of money. Well the answer is simple, according to Forbes, emerging market are increasingly important on a global scale, this is because they become the driver of global growth. Though public investors are still underweight in emerging markets, however, corporate profit tends to grow faster when economic growth is highest and emerging markets of developing nations have a higher growth rate compared to already developed nations such as the US and the UK(Forbes,2010) That being said, we are now able to analyze each strategic approach that businesses use in emerging markets.
Firstly, we will study the strategic approach of Foreign Direct Investment (FDI). FDI can be defined as an investment made by a company or business entity based in one country, into a company or business entity based in another. One of the forms of FDI is Greenfield Investment. Greenfield investment is when a company or firm directly invest in new facilities and or the expansion of current facilities. Though high capital investment is needed from MNCs, Greenfield investment is highly sought by host country as it creates new production capacity, jobs and transfer of technology between nations.(Gerarrd, 1996)For instance in Hungary, It is one of the leading countries among economies in transition in terms of receiving Green Field FDI due to its loose ownership law. According to the Investment and Trade Development Agency Of Hungry , Greenfield investment account for investments of over $450 million in 1998 alone with Japanese Investors accounting for $200 million that year. This shows the significance of Green Field Investment. Companies which made the investment were Shinwa,Nokia and Temic(Antaloczy,2001). However, with different countries the ball game changes dramatically, for instance the Indian Government had previously allowed foreign companies to only own 51% of Indian single brand retail joint venture with an Indian partner (Sanjaya,1983) This became a major problem for companies which wanted to own more than 51% of their shares. But on the 10th of January 2012, the Indian...
References: 1)Business Dictionary. 2013. emerging markets. [ONLINE] Available at:http://www.businessdictionary.com/definition/emerging-markets.html. [Accessed 30 August 13].
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