Role of Multinational Enterprises from the Asia Pacific in the Global Economy

Introduction

The spectacle of the ever fast-growing business enterprises of multinational corporations globally has attracted considerable interest in appreciating its implications for the development of the world economy and the relationships among national economies. The escalating prominence of multinational corporations in the current global economy has been of significant interest not only to national government agencies and international organizations but also to local citizens.  The Multinational Corporations (MNCs) mobilize resources throughout the world; develop vertical and horizontal production networks which aid them to penetrate a wide spectrum of markets across borders. This is achieved through merging, procuring and setting up new establishments to expand and operate their businesses throughout the world. These economic acts have altered the operations of national economies as well as changing the relationships among them. Consequently, regional economic integration has been made possible besides having the globalization process intensified.

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Globalization has invariably had a significant effect to Multinational Companies in such a way that these enterprises are compelled to market their products to many varying markets with different classes and types of consumers with varying needs. For instance, Japanese corporations have the advantage of producing and exporting products at relatively cheaper process that their competitors (Guojonsson, 2009).  Nevertheless, rising production costs and instances of inefficacy at in Asia as well as stiff competition from domestic competitors, MNCs have sort to embrace globalization for the sole purpose of becoming effective in today’s global business environment.  The pertinent efficiency changes being experienced in Asia has led to a conflict with conventional business model.

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It is apparent that cheaper manufacturing processes and labor can be found within Asia hence aiding MNCs from Pacific Asia in improving their cost efficiency and innovation as well as background knowledge (Nakamura and Maso, 2004). Japanese firms emphasize on low price in order to ensure that they meet the customer expectations on the price. This them an upper hand in market penetration through increased customer awareness. However, in America and Europe companies value high prices in order to cover the costs incurred in the product development process.

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The Rise of Multinational Enterprises from Pacific Asia

            The most recent aspects of the globalization process have been the rising role of developing countries, such as those in Pacific Asia, multinationals in the international market. Most of these companies have been considered relatively small in comparison to the world’s largest MNCs with some having significant shares of capital held by public governments and often take global approaches to their undertakings via outsourcing, subsidiaries, and integration into the Global Production networks (Amighini et al., 2009).

            Despite the historical hostilities among the Asian countries, they are puzzlingly fast moving toward manufacturing and investment, and integration of trade, both regionally and globally. These new dynamics of Asia’s political economy represents the legacy of a remarkable interlude in which Western superiority, technological ascendancy and overwhelming conventional forces allowed leading powers such as the U.S., in a bid to ignore or intervene in potentially destabilizing and emerging regional conflicts without posing danger to their domestic economic ventures (Keller & Rawski, 2007). The Asian multinationals has so far been represented by renowned global brands such as Honda, Toyota, Hyundai, Canon, Samsun and Sony. Japanese, South Korean and Chinese companies emerged on the global scene as early as the 1970s and did influence product innovation as well as best practices in manufacturing and business processes in MNCs globally (Rajan et al., 2009). The new brand of multinationals from Pacific Asia entering the global scene have arrived with some built-in advantages such as enormous domestic markets which provide considerable momentum and scale. According to the Fortune Global 500 list of 2009, 145 Asian Pacific companies, representing a 29% of the total, included nine newcomers from China alone (Rajan et al., 2009). It is important to note that the success of South Korean and Japanese MNCs demonstrates that the customers across the world are open minded as regards to new brands that are superior in aspects of design, value and quality. The high domestic savings rates, support from governments and willingness of companies to make high profile mergers and acquisitions and big-ticket partnerships has been useful in fueling the expansion of multinationals and globalization.

 Since most of investments have been reported to vary widely across regions as well as sectors, the MNCs from emerging countries have relied on mergers and acquisitions in the industrialized countries in a bid to get access to skilled human capital, technologies, know-how, market opportunities and globally recognized brands.  There are three main issues that arise from the emergence of MNCs from developing countries which are: the existence and nature of competitive advantage, nature of motivations to invest abroad, and modalities of investments.

While the multinationals from developed economies possess the advantages founded on ownership of key assets which include intellectual properties, technologies and brands, the MNCs from Pacific Asia and other emerging countries depend on advantages emanating from production capabilities, organizational structures, and network and relationships. Furthermore, a country specific factors that enhance idiosyncratic competitive advantages play a significant role in the globalization strategies of these firms.

Following the openness of the global trade and foreign investments promoted by the world Trade Organization (WTO), which in turn are responded to by national authorities, has enable the MNCs from Pacific Asia to expand rapidly with much less obstacles. In addition, the advancement of transportation and communication technologies has given a considerable boost to the growth of multinationals from emerging countries in the global economy (Yang & Huang, 2011). 

Corporate Case of Asian Pacific Multinationals

An Overview of Lenovo Multinational Strategy

Lenovo is a Chinese owned MNC that is involved in the manufacturing of PCs with its headquarters in Beijing and the U.S. The technology industry is confronted by fierce competition. This follows from the ever changing technological change that in turn redefines the .market and leads to a shift in the competitive landscape. In addition, the competitive advantage of an organization erodes and there is emergence of threats. Consequently, maintain a competitive edge in such an environment becomes challenging leaving only the strongest innovators to thrive. Being one of the world’s dominant producers of PCs and tablets, Lenovo has demonstrated consistency in outpacing its competitors and subsequently achieving significant growth and enhanced market share globally through employing innovation as well as strategic acquisitions. Lenovo’s business plan endeavors to sustain its competitive advantage through innovation and growth and staying ahead in the industry remains core in the company’s strategy (Wang et al., 2008).

Globalization has invariably had a significant to world-wide companies in such a way that these companies are compelled to market their products to many varying markets with different classes and types of consumers with varying needs. Lenovo has the advantage of producing and exporting products at relatively cheaper process that their competitors (Guojonsson, 2009).  Nevertheless, rising production costs and instances of inefficacy at home as well as stiff competition from domestic competitors, Lenovo has sort to embrace globalization for the sole purpose of becoming effective in today’s global business environment.  The pertinent efficiency changes being experienced in local market has led to a conflict with conventional business model.

The strategic management process of Lenovo is indicative that its formulation has significantly relied on the evaluation of the external environment as well as internal environment in the identification of its threats and opportunities and the potential of the industry and the projected performance in the niche market.   Having strategic planning process at the Business Unit level will establish the broad planning system in identification of the markets that are likely to grow in the future as well as entering the market if the firm deems it is in possession of relevant core competencies adequate to acquire a competitive advantage in the global market.

Strategic Overview of Canon Inc. as a Multinational

Starting of a small laboratory devoted to the production of high quality cameras in 1933, Canon Inc. can trace it inception to its setting up in an unpretentious apartment room situated in the Roppongi area of Tokyo. At its foundation, all commercially available high quality cameras were produced in Europe with a considerable bulk originating from Germany. Operating from this small apartment, the founders industriously began the production of high quality Japanese Camera.

With its world headquarters are situated in Shimomaruko 3-chome, Ohta-ku, Tokyo, Japan, Canon has regional headquarters in the Americas, Europe, Middle East, Africa, Japan, Asia and Oceania which includes Australia & New Zealand. There are two primary subsidiaries for Canon Europe which are Canon Europa NV operating from Amstelveen, Netherlands and Canon Europe Ltd. based in Uxbridge, UK.

The firm is structured into three principal business segments: Office Business Unit, Consumer Business Unit and Industry and Others Business Unit. The Office Business Unit deals with products such as copying machines, digital printers, laser printers, large format inkjet printers and multi-function devices.  The Consumer Business Unit involves products which include calculators, broadcasting equipment, digital cameras, digital video camcorders, compact digital cameras, image scanners, inkjet multifunction printers, single-function inkjet printers, and interchangeable lenses. The Industry and Others Business Unit operations deal with products such as LCD lithography equipment, magnetic heads, medical imaging equipment, handy terminals, ophthalmic equipment, micro-motors, and semiconductor lithography equipment. 

Market research shows that Canon generated total revenues of US$45,608 million in 2011. Out of this 53.9% was by the Office Business Unit, 36.9% by the Consumer Business Unit and 11.8% by the Industry and Others Business Unit. A total of 31.3% of revenues was generated in Europe, 27.0% in the Americas, 22.2% in Asia and Oceania and 19.5% in Japan in the same year. It should be noted that Canon invested a total of US$3,946 million in research and development in 2011 a figure that translates to an equivalent of 8.7% of sales (Canon, 2013). This same year Canon was allowed a total of 2,813 patents in the United States making it the third-highest number of any company below IBM and Samsung Electronics.

An analysis of Canon’s external environment involves the assessment of various environmental factors which including market size and growth, number of rival firms, market segmentation and number of consumers, and product innovation. Relying on the fact that that Canon Inc. provides business solutions together with products meant for private consumers, it becomes apparent that analyzing the ICT market is fundamental in understanding the market volume as well as the growth for business solutions and innovations meant for consumer electronics (Elgar, 2009). Over time, the Information Technology and Communications business operations have demonstrated resilience against looming financial crises.  For instance, the investment in the global IT market increased to 983 billion euros in 2009 despite the evident economic downturn.  

Competitive Advantage of Asian Pacific MNCs

An array of impressive technological advances has increasingly made global business easier and effective.  These developments coupled with efficient airline transportation have served to make the business world become gradually smaller.  However, there is still a persistence of competitive forces that does not seem to change. Awareness of the pertinent competitive forces can aid emerging a MNC in venturing out a position in its respective industry that is less susceptible to attack (Flannery, 2011).  This is helpful in determining how structurally attractive an industry is and seeks to illuminate on Asian Pacific MNC’s relative position within the industry in question. It is vital to note that the ultimate profit potential of an industry is subject to the collective strength of the industry forces. Every industry has structural underpinnings in terms of a set of fundamental economic and technical characteristics that result in the competitive forces (Yoshida et al, 1992).  The Porter Five Forces Model is instrumental in comprehending and weighing the structure of the business environment of an industry, as well as assessing the threats of competition to a given multinational. The model breaks an industry into logical parts, analyses them and puts them back together in a bid to provide an understanding of the structure of an industry business environment as well as the competitive threats into an industry.

Porter’s Competitive Model accentuates how the competitive structure in an industry is affected by five fundamental forces. The forces are; Suppliers bargaining power, threat of potential new entrants, bargaining power of buyers, threat of substitute products and services, Intra-industry rivalry. The degree of competitive rivalry of an industry forms the core of the model with the other four forces branching from it. The supplier power is encapsulated in their ability to offer products that are unique or products that are differentiated (Lima, 2006). The supplier ought to provide benefits through geographical proximity to the consumers, and warrants a long time working relationship. In addition, building up switching costs is vital in enhancing the supplier’s bargaining power.

On the other hand, a buyer’s bargaining power is subject to their ability to gain volume discounts and special terms of service. Multiple alternative sources and availability of standard and undifferentiated products and services is a culminating in the bargaining power of the buyer.  A new entrant can be considered as startup or an existing MNC that has not prior competed with the Strategic Business Unit in its geographic market (Porter, 1985). In addition, an existing company can also pose as a new entrant threat if it shifts its business marketing and growth strategy in a manner that begins to compete with the SBU. Substitute products and services encapsulate the alternative to doing business with the SBU. However, formulation of substitute products is dependent on the willingness of the buyers to substitute, the relative price of the new substitutes and the level of switching cost.

Conclusions and Recommendations

Most of Asian multinationals place less emphasis on the formal aspects of formulating marketing goals and strategies and more on the implementation and human relations aspects. The marketers in the USA and Europe emphasize more on the formulation of marketing goals and strategies and fail to check on the relations aspect. While American advertising tends to be more verbal, direct messaged and logical, Asian advertising is emotional, suggestive, and indirect. The effective emotional appeals of soft music, beautiful scenery, and soft voices among Japanese are well-documented, as is the emotional tendency of Asian consumers to choose products and brands because of a manufacturer’s good works and favorable image (Flannery, 2011).  In contrast to the American and European markets, the salesperson and more broadly the principle of selling are more widely respected in Asian Pacific.  Japanese executives, for instance, tend to be more intuitive, subjective, communicative, and human relations oriented in setting marketing goals and determining strategies.

 Asian consumers are very choosy and demanding in their purchases. They have a penchant for quality and reliability which encourage manufacturers to embrace the zero defects manufacturing philosophy. The Japanese are interested in new and more sophisticated features for cameras and other photographic equipment. This stimulates Asian MNCs to incorporate many features that competing foreign products do not have. In addition, because of space restrictions and costs, Asian consumers encourage manufacturers to adopt a compact design and resource efficiency philosophy which has proved to be popular with many global markets. American companies often approach Asian markets as an extension of their domestic markets to be served by current product lines, which is hardly in tune with the precepts of the marketing concept.

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