The Need For A Multinational Enterprise Commerce

Essay add: 20-10-2016, 18:02   /   Views: 11

Multinational Enterprises (MNEs) means "a corporation that has production operations in more than one country" to acquire resources, markets, reduce costs and risks.,

In economic recession, many countries like European, Asian, and African were affected by global financial downturn. British manufacturing MNEs were badly affected especially in the last quarter (Q3, 2008), where UK GDP fell 0.5% (see appendix 1). Innovation, creativity and use of technology are the only hope for MNEs to survive during recession.


Macro-environment analyses for British MNE will enable them understand key drivers favourable or unfavourable and how to explore different strategies that suit their businesses.

The effect of each variable to business is examined by this analysis and how it might in turn affect company's demand and supply as well as managerial decisions. PEST is a strategic business measurement tool that gives companies a broad overview to analyze and focus on the most important business issues. The macro-environment factors are; Political, Economical, Social and Technology.

Scanning the business environments would help the British MNEs to understand the current situation of the environment in order to make the decision whether to invest or disinvest.

Figure 1: "Macro-environmental forces" (Thompson and Strickland, 2004, pg 74).


New laws, policy changes and government regulations affect the profits and ways of operating business. The economic system of the UK is a free market economy, but manufacturing to some extent is under the government regulations and intervention, for example, European Union (EU) rules and regulation on green house issues (carbon emissions); the MNEs must comply on it, which in turn bears more expense to them and creates threats to their business growth.

Early 2008, Gordon Brown, former British Prime Minister, stated the intention to help out car industry, this shows the positive support from the government. In recession the UK continues to be politically stable, but terrorism is a threat for MNEs profitable operation, especially in Arab countries after the former British Prime Minister Tony Blair supported the former US President George Bush in Iraq war in the early 2000s, which fuel terrorism growth. This leads to fear of smooth business operations even in subsidiary companies outside Britain.


"Economic factors affect how easy or difficult it is to be successful and profitable at any time because they affect both capital availability and cost, and demand. E.g. if demand is buyout and the cost of capital is low, it will be attractive for firms to invest and grow with expectations of being profitable"

During recession, Gross Domestic Product (GDP, see appendix 1), investment spending, capacity utilisation, employment, disposable income, and business margin both decline while unemployment (see appendix 2) and bankruptcy rates rise, this is a threat to companies growth as British MNEs might have experienced a decrease in profits following their products' demand fall .

On the other hand, recession helps in curing the inflation effect, which in turn creates opportunities for MNEs, for example, reducing interest rates will encourage companies to have more confidence to borrow since the cost of mortgage is much reduced. Enough capital will allow them to invest in new/existing businesses hence creates demand for more workers, national income growth while boosting aggregate demand for firm's products.


Social factors include; cultural aspects, demographic (see appendix 3), income distribution, lifestyles, education, health consciousness and age distribution. The social factors affect the demand for British MNEs products and how they operate. E.g "an aging population that may imply a smaller and less-willing workforce and hence increasing labour cost"

In recession, people tend to regulate their lifestyles to match the prevailing economic hardships. E.g. spending is much reduced for luxury commodities i.e. global demand falls from the use of luxury goods (e.g. cars) and other goods to the cheaper ones while considering only the necessity (i.e. food and health products, fuel efficient cars or other factors) and even more people opting to the use of public transport services. As a result those companies manufacturing luxury products end up with much reduced turnover that lead to big losses whereas weaker companies closedown.

Even individual households/people get affected by not being able to meet costs of social service needs like healthcare and education. Because of reduced earnings from unemployment, companies may be forced to restructure various management strategies and streamline their production levels to match with reduced sales resulting from change in consumer income levels.


Technology influences the advancement of product range for MNEs. Advanced technology creates opportunities for strong and survivors of recession, and enables them to become more innovative and at the same time cut costs to reduce entry barriers. Providing online services through its subsidiaries will increase productivity and market share while the weaker companies shutdown. No company could be strong and survive during recession without using a modern technology to sustain its market share. It is the right time to innovate the production process so as to increase productivity hence meet customer needs. Technology is the key for success during recession periods. E.g. Technology makes life easier to customers as it increases convenience and comfort. In the UK, emerging technologies enable advanced manufacturing to some extent grow faster and at the same time offering new employment opportunities.


During recession, British manufacturing MNE could possibly employ the four growth strategies in Ansoff's matrix depending on the strength and capabilities of the company. It is true that in recession people lack sufficient money to spend on luxury products, but necessity needs remains constant. Being innovative is crucial for MNEs since production, demand and profit margins all fall.

During these tough moments, is a time to streamline operations, and it is the right time to innovate in order to cross the bridge and grow. In reality, human needs do not disappear just because of recession; what happens is, purchasing behavior change. MNEs need to be very innovative to fill these unmet and emerging needs. This means there is an opportunity to market their products and grow during recession.


The Ansoff matrix is a marketing tool that enables companies to align their marketing strategies to its growth development strategies using its existing/new products to existing/new territories.

BProduct Development

With existing capabilities

Beyond current expectations

With new capabilities


Existing New



MarketsAMarket Penetration



CMarket Development

New territories

Beyond current expectations

New users

New segments

With new capabilities


With new capabilities

Beyond current expectations

With existing capabilities

Figure 2: "A strategic development direction" (Ansoff growth matrix ,Johnson et al, 2006, pg. 341)

Market Penetration

British manufacturing MNE would focus on selling their existing products into existing market. In a recession, companies could increase or maintain the current product's market share through a price-cut strategy, advertising, promoting and repositioning their brands whilst demonstrating the benefits and effects of not using it to non-users and convince existing users to start and consume more. E.g. necessity and health products, this would stimulate consumption.

Market Development

During economic slowdown, companies may opt to sell their existing products into new markets e.g. by creating new market segments or using different price strategies to attract different customers. Being a "niche player" the British manufacturing could succeed in a long-run by taking advantage of weaker pound to acquire high market share and margins e.g. they could produce at low costs and export to new territories as customers perceive the British brands as of high quality and durable.

Product Development

MNEs could launch new products into the existing market by targeting emerging customer needs. They need to listen to their customers to discover the unmet needs and satisfy them effectively by producing the right products. The use of new technology in process innovation i.e. designing and styling more appealing or innovative products will gradually turn away clients from their rivals' products (brand switching). E.g." in recession, if your product or service is not extraordinary, your customers will be more likely to delay purchasing it". (Andrew R. 2008).

In reality, new products could help in increasing consumption while innovation gives MNEs competitive edge over its international competitors.


Firms can market completely new products in new territories. This is the riskier strategy but more promising since the product and market are new. Recession is a unique opportunity for MNEs to start new businesses, launch new product range and build customer loyalty usually at discounts using related or unrelated diversification.

British MNE may diversify through licensing, exporting or joint venture particularly using its brands; this could be part of them to enter and learn the markets and other business strategies in adapting to and acquire local knowledge during and after recession.

In economic downturn, many weak companies shut down and others do merging and acquisition (M&A) e.g. "in early 2008, Tata motors had acquired Jaguar Land Rover company from Ford Motors Corporation" (In details see appendix 4).


Technology refers to scientific methods and materials like computers, machines etc used in order to achieve a company's objectives. The benefits of new technology help to smoothen the way of conducting Research and development (R&D) as well as business processes, hence enabling companies to reduce costs of R&D.

In reality, large firms invest a lot of money in R&D each year, this reduces their revenues. For example, "Pharmaceutical companies such as Merck & Co, invest in R&D (14%), Norvartis (15.1%), and engineering companies like Ericsson (24.9%) from their revenues". According to Robert Hertzberg, big technology companies spend about $9.70 on every $100 they take in, eg. Microsoft spent 12.8% of its 2007 revenue in R&D, by use of new technology, they are able to save a lot of money. Other benefits of technology are;

Technology is the driving force of globalisation as it fuels its rapid expansion by narrowing the world using an advanced means of information and communication. Technology and R&D need to be realigned so as to get full advantages brought about by new technology in R&D during the 21st century, where the business environment is uncertain and competition is intense. Those who have invested highly in R&D would survive. Technology and R&D won't thus be separated or neglected.

Cost and time saving

Employing new technologies in R&D makes business life easier and more efficient compared to the traditional way of doing R&D, which requires a number of researchers to travel, spending a lot of time and money in assembling data (visibility study). However, using search engines, mobile phones, or other handheld devices like notebook in communication, within a shorter period of time they would have vast information required, hence reduce cost of traveling and save time. For example, international firms needing to diversify there businesses would have to scan the country understanding, saving, consumption pattern, employment policies and investments. Research of the markets will show entry timing, scale of entry and strategic commitment. Through new technology, international firms could therefore make the right decisions according to the strength and capabilities.

Discover unmet and emerging customer needs

R&D helps companies to discover unsatisfied and emerging needs, their consumption behaviors as well as competitors' techniques, while new technologies support redesign or new business processes. For example, innovating using computer aided design (CAD) will emphasize in designing the right product which is of high quality to satisfy those needs.

Improve supply chain

The use of internet Improves companies' distribution networks by making them shorter and more efficient. Suppliers can therefore have a direct contact with their customers, while giving customers a freedom to press orders online and thus minimize lead time to save costs of intermediaries.

Build competitive edge

In today's business environment, particularly during recession, no company can achieve development growth and sustain its international competitive position without being innovative. Using advanced technology in R&D is highly recommended to develop new products which will meet the dynamic needs of customers and cope with the rapid environmental change. For example by adding value to new products increase productivity, lowering cost, managing time, while enjoying the fast-mover advantages, at the same time enhancing relationship with customers (CRM).

As a matter of fact, the benefits accruing from the deployment of the use of new technologies are obvious for the sustainability of businesses. Therefore, R&D is very crucial especially for companies wishing to realize emerging technologies for their better future business operations, domestically and internationally.


Economic growth is not a guarantee because there are some years when the economy does not grow at all, as it had appeared in the UK in the late 2000s. This is a challenging moment when country's GDP falls. Countries and companies are striving to reduce the effects in order to move forward.

Innovation is the only hope for the industries during recession when there is great need to employ the new and advanced technology, especially in R & D. Companies need to invest highly in R& D so as to come up with new ideas for developing new products which will be marketable in the existing or new markets.

In this situation, managers need to be proactive. They have to conduct a thorough PEST analysis to understand the true picture of a nation/industry. Analysis enables the company to understand the trade cycle and choose the right strategy.

In an era of globalization, competition is very intense; companies must acquire a competitive advantage through innovation for survival. In that manner, advanced technology could improve R&D to make it more efficient.

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