Question

5. List and explain in detail two strategic motives why firms become multinationals and provide one motive why firms may not become multinationals and give an example of each motive.

Answer 1

2 Strategic motives behind why firms become multinationals are explained below -

1. Market Seeker - Many firms who wish to expand their consumer base , take their products and services to global market to go multinational and register themselves in other countries and offer their products. They identify new unsaturated markets, which help them increase their revenue and brand building globally. For Example, Amazon which was offering its services in US only , has entered in India in search of Markets and enable them to expand further.

2. Knowledge Seekers - Firms which are in search of knowledgeable workforce at a reasonable cost often become multinational. Also , many firms which are into intense Research and Development in the product line which they are offering, often become multinational to get the adequate knowledge and skilled workfore required to execute the desired tasks.Example - Infosys, an indian company has recently opened their R & D faciility in US to explore new areas of IT services they can provide.

Motive Why firns may not become multinational -

Increased Legal Compliances - Going global however seems tempting, but it is a mammoth task in terms of paperwork needs to be done to get entry in the global market, the compliances with the norms of multiple governments, Complexities in consolidaton of Financial Statements and their reporting etc.

Because of which firms hesitate sometimes in going multinational.