Question

Studies show that MNCs from emerging economies (EMNCs) are a bit different from MNCs originating from advanced countries in terms of some key features. Compare recent MNCs from emerging economies (EMNCs) to MNCs from advanced economies in terms of the following features (make sure to clearly state the differences): (5 points each)

1. The motivation for investment abroad
2. Adversity Advantage
3. Ownership advantages
4. Location (regions) of investmen

Answer 1

Motivation for Investment Abroad:

Every nation aims to achieve sustainable economic development through the most effective utilization of its resources. Though every nation has its unique possessions in terms of both natural and man-made resources, it often finds itself dependent on the world for balancing the changing needs of its environment. Many MNCs from emerging economies are rich in resources but lack the necessary technology to exploit them. By setting up centres abroad, companies find better opportunities in Research and Development, which further increases the chances of enhancing productivity that can be utilized to compete internationally, leading to more investment abroad.

Another factor could be lower costs of production. Different countries are endowed with different resources, leading to differences in prices of factors of production. Poland, for example, is categorised as an emerging economy which has been found to take advantage of lower costs of production abroad.

Greater market access is also a motivating factor in international investments. Sometimes national policies relating to foreign investment are more favourable in a particular part of the world. Favourable regulatory environment means more opportunities for business which leads to greater market access, a crucial factor in sustainability.

Adversity Advantage:

Emerging economies often lack proper infrastructure needed for efficiency in production. However, this seeming limitation often leads to strengthening of MNCs in emerging economies. They learn how to work in an adverse environment marked by corrupt bureaucracies, underdeveloped educational system and the like. As a result, initial setbacks, if any, are not a threat for EMNCs and they are able to strategise even under adverse circumstances.

The keen interest in learning about latest technological advancements often drives EMNCs to foreign countries. The knowledge gained may be utilised for development at home. Haier, for example is one Chinese company that set up R & D centres in the USA and Europe to learn more effectively.

Ownership Advantages:

Ownership advantages means the right over proprietary technology that cant be used by anyone other than the creator. Intellectual property rights come into play here. EMNCs often do not possess such technologies but acquire it by entering into partnerships or by taking over an existing technology. Tata Group, for example, acquired Jaguar and Land Rover in the automobile segment.

EMNCs might also expand operations for gaining access to new inputs .

Location of investment:

Many EMNCs started experimenting with international operations by investing in countries that were geographically closer to them. Many Chinese companies, for instance, figured Malaysia and Indonesia were more profitable markets for them and used the markets to gain more knowledge about international markets. Soon, companies like Haier expanded to the USA, after gaining confidence in Indonesia, Malaysia and Philippines. By targetting developed markets, companies can assess their productive efficiency quite easily; if a product is acceptable and profitable in an advanced economy, it must be technically efficient and hence marketable in any part of the world.