INTRODUCTION

Globalization is one of the most important factors in today's business. A global perspective is
consider a matter of survival for business. This new field is a blend of strategic management and
international business that develops worldwide strategies for global corporations. Strategic
management is the process of specifying an organization's objectives, developing policies and plans
to achieve these objectives, and allocating resources so as to implement the plans. Additionally,
global strategic management includes acknowledging and handling the challenges of going global.

Global competition has become an important part of today’s business activity and demands a new
way of thinking that incorporates strategic management. However, there are many unique strategic
resource management challenges associated with going global. It is important to develop an
international business strategy to deal with a rapidly developing global economy. In this paper I will
address the advantages of international expansion as well as identify the challenges associated with
expanding from the US to Mexico, France and Turkey.

ADVANTAGES FOR A MULTINATIONAL CORPORATION

There are several advantages that a multinational company (MNC) can benefit from. Those
advantages are described below.

Increasing sales and finding new markets

By expanding operations to an international scale means that business can increase their total
sales by supplying product to multiple companies.
The product may vary in its life cycle in other the company’s other countries. It is quite possible
that a mature product in the US is an emerging product in Mexico, France or Turkey. Businesses
can take advantage of expanding the product’s life cycle. The Product Life Cycle is the cycle a
product progresses through from introduction to growth to maturity and finally, to decline. This
cycle is associated with market demand. Many other factors contribute to market demand as
addressed below.
Acquiring New Raw Materials / Resources
An example includes the availability of clay in France versus the availability in Mexico. If the
company manufactures pottery, a plant in Mexico would produce this final product for a less
expensive cost compared to France since the raw material for pottery is readily available in
Mexico.

Diversification
Business may engage in expanding its operations internationally in order to diversify.
This cushions unpredictable swings in market prices and sales in any one particular market thus
allowing their other markets to support such occurrences. If a business has a range of suppliers
from different countries, then the business is less likely to come under threat from supply
shortages or price increases.

Minimizing Competitive Risk

The operation of a business in many countries means that it is less likely that a competitor will
have a crucial impact on the business operations in one particular market area. Example: if the
company manufactures tennis shoes in all four of its countries, US, Mexico, France, and Turkey,
it has a known presence in these four countries. Therefore, it does not have to compete to get its
product in those countries since it already has a presence.

Gaining Economies of Scale

The business experiences cost savings by increasing the scale or size of its operations. Through
international expansion, businesses obtain a better economies of scale by selling worldwide or
establishing production opportunities in low cost labor localities. Although, other obstacles need
to be considered as mentioned below. Through this increase in the size of the market, the price
per unit of output decreases, allowing for a reduction in price or an increase in profits.

Cushioning the Economic Cycle

If a business has operations in a variety of countries (markets), then it can lessen the impact or
cushion the natural progression of the economic cycle. The economic cycle includes the phases
 the economy experiences over an amount of time. The economic cycle moves from a booming
economy - where sales and employment is high to a recession - where sales have declined and
unemployment increases.

Regulatory Differences
Some countries of the word have more lenient stances towards regulations involving
environmental emissions and/or wages for workers. Business may use this to their advantage,
and set up operations where it will cost them less to operate due to the nature of government
regulations in a particular country. However, this can also be an obstacle as listed below.

Minimizing Tax
Taxes in various countries around the world differ. Therefore a business may take advantage of
countries with lower taxation rates, saving on the costs of production.

CHALLENGES FOR A MULTINATIONAL CORPORATION

There are several challenges faced by multinational companies (MNC). Those challenges fall under
the categories of Commercial, Legal, & Regulatory, Market, and Environmental factors and are
discussed in detail below.

Commercial, Legal, & Regulatory (CLR) Factors

Competition Law – Addresses how government regulates competition in country.
Some industries government says the more the merrier because the consumer will get a better
product for a better price. On the other hand, certain products do not yield this thought process –
like energy. Fewer competitors and greater regulators examples include healthcare, insurance
companies, etc. If insurance companies belly up the government will have to pick up the tab.
What are the barriers of entry? What obstacles will make it difficult for a firm to enter a specific
market? Some countries do not competitors in their markets because the resident market will
suffer eventually putting the locals out of business. A company must understand the competition
of the market they are entering or they could exhaust endless funds figuring it out.
 Tax Law – tax regulations. Tax law affects every aspect of your business. It
determines whether you buy or lease equipment. Local governments can grant you a tax hiatus or
corporate tax break or use a competitor’s tax rate. Or a manufacturer could use an existing
facility that closes at night to manufacture their product. This will allow them to produce without
the liability of a plant. This is efficient use of money and capital.

Labor Law - Of course these vary by country. How you pay employees will vary by
job. Categories of employees like Exempt vs Non-exempt and Skilled and Unskilled labor. In
Mexico there are low wage ratings but benefits may cost you more. 70-75% of a company’s
expense is dedicated to labor and benefits so knowing the boundaries beforehand is crucial.

Accounting & Financial Regulations – In every country accounting and financial

regulations are different. Depreciation/amortization and tangible assets are capitalized
differently. As an example, accounting for laptops vary by country. Some countries allow you to
write down interest some don’t. US has FAASB that apply only to US. Europe has their version
of Sarbanes-Oxley named BASEL II.

Regulatory Environment – every industry for all foreign market are governed by
regulators. If selling a car regulators exist for the width of windshield. If food, then the
temperature for which it is transported is regulated. 220 countries in this world and there are 220
ways to regulate. As a result, a company is building many different “versions” of the same
product.

Environmental Regulations – some countries do not care about the environment.

They only want cheapest source of energy which is coal. Whereas other countries do not allow
the use of coal because of its pollutants. OSHA may only exist in US by name but there are
governmental agencies exist based on functions. How a company handles its waste products also
effects the bottom line due to disposal fees for the product and/or the packaging for the product
as disposal fees for the cardboard it was shipped in. This determine inputs of cost that will be
passed on to consumers or absorbed by the company.

Market Factors
 Availability of Skilled Labor – based on the need from the market. If building cars
you need people that can read or that can operate computers. Employees may need to be bi-
lingual depending on the skill set needed for the job skill. Some countries do not have a formal
secondary education system. If this is the case, where do you find the skill set to perform the jobs
needed to produce your product? Some corporations actually develop the skill set of the locals to
build “home-grown” labor pool. They actually breed the graduates to meet their labor demands.

An example: for every 100 employees you can only have 1 ex-patriot. Ex-patriot (“ex” meaning
external in Latin) should only be 1% of labor force. Some countries limit the number of external
workforce you can bring in because you will be taking work away from the locals. This ties into
Labor laws which ties to competition law which ties to regulatory environment.

Market Demand/State of Competition – consider the market before establishing

existence in country. Do you need to create a demand? Can you change labor, competition or
regulatory laws? Although no market demand will the government create a market demand to
create revenue? what is the local state of competition? Can the company gain market share?
Does it make business sense to make the move?

Macro Economy – What is the state of economy – is it in a recession or growth stage?

A company does not want to introduce a new product or may want to limit the number of new
products if the state of the economy is poor. Economic forecasters an forecast the economy of
the future for the market the company is considering entering.

Cost of Money (interest rates) – what is the cost of money? What are the interest
rates? How have they fluctuated in the recent years? What is the exchange rate?

Corruption Index: Every country has some type of corruption. A company will need
to train its employees to identify corruption and setup financials so not subject to corruption. But
the bottom line is every company will have deal with some degree of corruption.

Environmental Factors
 Language – Operating in US, Mexico, France, and Turkey demands four native
languages be known. When considering transferring or training local staff this language barrier
must be considered.

Culture – It is obvious with operating in four different countries there will be varying
religious beliefs, national holidays, cultural beliefs will have to considered and accommodated.

• US: mixing pot with many different religions.

• Mexico: Roman Catholic 77%, 6% Protestant, remaining: Other

• France: Roman Catholic 83%-88%, Protestant 2%, Jewish 1%, Muslim 5%-10%,
unaffiliated 4%
• Turkey: Muslim 99%, remaining: Other

Availability of Raw Materials (inputs): Does the company have to import materials
to build/create their product? If so, this cost will have to be passed on to the consumer.

Physical Infrastructure – bridges, roads, harbors, docks, but not limited to

transportations. Also includes hospitals, clinics, grocery stores, and gas stations. Operations and
employees require these resources so they must be considered.

Telecommunications Infrastructure - Limitations in IT advancement due to economy,

equipment, IT readiness will hinder the growth of any corporation. If you are not competitive
technology-wise in your field your are behind the game. Information technology (IT) is a
revolutionary force that will continue to restructure corporations and drive economic growth.
Information technology is the way MNCs communicate across bodies of water and miles of land.
This revolution will wire the global world into a single communication network; the central
nervous system for the business world. However, the gap between information technology of the
haves and have-nots of this world is likely to persist. If the country does not have the
telecommunications infrastructure in place how can a company do business?
 Energy Infrastructure – What limitations does the country have regarding energy
supply. What resources are needed to generate power to the manufacturing plant and how
efficient is the energy supplied? Will the plant have limitations as a result of the lack or type of
energy supplied?

Trade barriers – Are there trade barriers in place? A trade barrier is any government
policy or regulation that restricts international trade. Company’s rely heavily on importing and
exporting goods. Knowing the trade barriers will save a company money and improve
efficiencies.

Continued Crime and Terrorism– More likely to happen outside of the US

disgruntled individuals, groups, and nations may hold a corporation responsible for taking jobs
away from the locals or religious lines crossed. And may result in a variety of crimes and
terrorism against the corporation.

CONCLUSION

Our world is becoming integrated into a connected community known as a global economy,
driving a competitive need for multinational corporations (MNC). The challenges faced by
MNCs as outlined in this paper prove to be barriers. However, these are obstacles that are
conquered by companies such as Coca-Cola, McDonald’s, and other well-known corporations –
all of which are profitable. Strategic management plays a roles in their successes. It integrates the
knowledge and experience needed to allow companies to make business decisions for all
functional areas; near or far.
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http://tutor2u.net/business/strategy/global-business-introduction.html

http://www.allaboutmexico.com/

http://www.allaboutturkey.com/

http://www.discoverfrance.net/France/fact_sheet.shtml

http://www.state.gov/r/pa/ei/bgn/35749.htm

Morales, D.A. (2010, February 27). Senior Vice President of Sales, BT Global Services. Telephone
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