Why would a firm want to become a multinational Essay Example for Free

Why would a firm want to go a multinational EssayLets be clear about what we mean by a multinational. This is a firm that extends beyond the borders of an individual nation and operates with affiliates and branches in at least deuce countries. A multinational organizes phases for producing goods and services to sell in different countries.For example, many car companies collapse get the hang the so-called international segmentation of production, which works like this A Toyota vehicle assembled in San Antonio may have been designed at the Toyota design center in Australia the vehicles aluminum-wheel components may have been produced in Delta, British Columbia and its some other components may have been produced in yet another location. Other multinationals copy entire production processes in different countries. Consider Coca-Cola.If you are visiting Poland, the Coke you drink in all likelihood was produced in a plant in Lodz, Poland, not in the United States, although the brand and the company address from the U. S. International business scholars and economists have observed that firms become multinationals to exploit three broadly defined sets of prefers. The counterbalance is ownership advantage. Multinational firms commonly develop and own proprietary technology (the Coca-Cola formula is patented and unplowed extremely secret) or widely recognized brands (such as Ferrari) that other competitors cannot use.Multinationals often are technological leading and invest heavily in developing new products, processes and brands, while usually keeping them confidential and saved by intellectual property rights. Maintaining stronger protection of these elements helps firms enjoy greater profits from innovation. Second, consider localization advantage. Multinationals usually try to build facilities that produce and sell their products in locations near the consumer (the round off consumers of Coke in our example). This helps pare transportation costs or helps the company fit in better with local tastes and needs.Proximity to beseech also helps firms adapt their products and services to different markets. At the same time, they also may take advantage of lower production costs (for example, labor costs, energy, sometimes even lower environmental standards) or much abundant production factors, such as expert engineering or greater raw materials). For example, the Polish affiliate of Coca-Cola also owns bottling plants in the Beskidy Mountains region of Poland, which is rich in mineral water for making other beverages.Finally, multinationals want to internalize the e benefits from owning a particular technology, brand, expertise or patents that they find too unassured or unprofitable to rent or license to other firms. Enforcing international contracts can be dearly-won or ineffective in countries in which the rule of law is weak and court procedures are longsighted and inefficient. In these cases, the company also may risk los ing its ownership advantage, which it has created at a substantial cost.