International businessDiscuss how operating in different nations impacts investment decisions within the multinational enterprise
Investment decisions by multinational companies include many different variables. For example, where can you get the greatest growth for your product? Many American-based companies are finding that they are achieving greatest growth overseas. On another front, for manufacturing companies based in America, it is cheaper to have labor overseas, so companies are deciding to build a new factory overseas. However, what many companies have found that even though it is "cheaper" to manufacture overseas, there are problems with quality control, shipping costs/delays, and potentially, local government issues. Service companies who set up their call centers overseas are now finding that an American customer does not wish to speak to someone overseas who: 1) does not speak English fluently and 2) Does not understand the nuances of the English language and therefore, cannot hold a conversation about a problem. So, although it was "cheaper" on paper, it cost the company in goodwill and customer satisfaction.
There are so many variables when a company is multinational. Let me give you a few of them.
First, a company would want to consider political and social stability. This will be important for any investment decision. Second, a company would also want to consider future growth. It is always good for a company to capture a growing market. Third, a company would also want to consider other geopolitical variables such as the possibility of war and the like.
Different countries might also expect a certain amount of investment in return for the ability to operate there. This is not the same as an outright bribe, but customs officials might be persuaded to lower import/export tariffs or give bulk rates if they know that they are facilitating local investment. If you choose not to invest locally, you might find your costs increasing beyond what you saved on the investment.
Our globalised world offers potentially massive opportunities for capitalising on the global market that is now on our doorstep. However, this also involves a huge number of decisions based on a bewildering number of variables. The context of each individual country in terms of its economy, politics and stability needs to be carefully assessed before making any decision regarding investing or not.
Political situation, exchange rates, local labor laws and regulations on business, tax policy. All of these things and many others enter into the decision-making processes of multinationals. Frankly, another aspect of multinational business is lobbying governments to pass favorable legislation and lobbying your own government to put pressure on them to do so.
It makes it so that the company has to make more decisions than it otherwise would. The company has to decide which nation or nations has better prospects for the investment to make a good return. It has to pay attention to the political climate in many countries. Basically, it just has to think about more variables when deciding how to invest.
Just deciding on what kind of market a company may have in a foreign country is a huge consideration. What is the local competition? What are the economic realities of the potential customer? What is valued in the foreign country? There are cultural aspects of this topic that can be very challenging.
Operating as a multinational company can have both advantages and disadvantages. Operating in stable nations, with strong traditions of the rule of law, means more advantages than disadvantages. Operating in unstable nations, in which one's investments may be expropriated, means many risks.