consignment 7

8/7/2019 consignment 7

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Role of the Multinational Enterprise (MNE) firm in the

process of Globalisation and critically evaluating issues

influencing the performance of retail and it

internationalisation agenda

1. IntroductionGlobalisation today has become a topic of serious discussion in the

academics. The key outcome of regressive theories has developed

isolation, and provincial views regarding globalisation. The terms and its

phrases of globalisation have become a ubiquitous and potential symbol

of the age, (Clark and Knowels 2003). Globalisation in the 21st century

has changed the visage of organizational values and performances.

Business environment today are facing dramatic transformations in terms

of their swiftness and the scale of operations. Every company today

visualizes itself as active runner in marathon of success finding,

competitiveness, and productivity. (Czinkota, 2002) defines Globalisation

in Czinkota and Ronakainen (2005) as, the increase in the frequency and

duration of linkages between countries leading to similarities in activities

of individuals, practices of companies, and policies of governments . This

report tries to identify and evaluate the role of the Multinational

Enterprise (MNE) firm in the process of Globalisation. The report on its

second half critically evaluating issues like socio -culture, technological,


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political, economic influencing the performance of retail firms and it

internationalisation agenda

2. Understanding Globalisation:Levy (2007) cites in this work that, Globalisation, widely cited as the

dominant international economic trend of the post-World War II era, that

is deeply connected with the opening of the world economy. Globalisation

today has promised success to many companies and business that are

acting multinational throughout the globe. At the same time with

increasing technological standards and with ease of getting connected

across the globe, companies are being deeply challenged to think

according to the geographical locations and impact on their va lues and

purpose. Czinkota and Ronakainen (2005) comments in their work for

globalisation that, Executives rank Globalisation always high amongst all

strategic agendas as they seek to utilize commonalities and influencing

resources across the border.

In context , (Kwok and Arpan, 2002) cites in Czinkota and Ronakainen

(2005) that, Its not only the executives but also the governments and

legislatures are also dramatically increasing their debate and involvement

in the international trade and investment issues and universities have

adjusted their business curricula and research to address international

business issues. At the same time International Business has combined

numerous factors to obstruct the emergence of wide-ranging views of

globalisation. (Levy, 2007) in his work has explained globalisation as a


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macro-level phenomenon which is of major importance to many others

like firms, governments and civil society. He supports these comments by

addressing that, government are initiating major global concerns like

poverty and their interface between globalisation, trade, social

development and the role of MNE cannot be put aside any longer.

3. Understanding Multinational Enterprise:

MNEs today play a major role in developing world economy. Since last

20 years an unexpected increasing number has been noted in firms

expanding globally. According to researchers, multinationals play an

optimistic role for countrys development. (Jennifer and Jonathan 2009)

cites (Caves, 1974; Lowe & Kenney, 1999; Teece, 1977; Rugman, 1981)

that, MNEs are important agents, they argue, for promoting economic

growth since they complement domestic savings, transfer technology and

management skills, increase competition, and stimulate

entrepreneurship. This in turn has resulted in offering a broad range of

products in all geographical operations allowing Multinational enterprises

to achieve competitive advantage with exploration of internationali sation

of market activities, (Harveston, Kedia, Francis 1999). At the same

customers at all geographical locations share the same benefits by these

MNEs with their products and services. Having wine from France, fruits

from Amsterdam etc are all result of globalisation with MNEs acting as

the media. Using laptop, iPods, cell phones and other electronic products


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are all result of globalisation, where MNEs identify the best resources

throughout the globe like, technology from Japan, workforce from India

and china and many more which helps in developing excellent product or

services at commendable prices. Also (Ghoshal 1987) comments that,

MNEs obtain subsequent synergies through their coordination of the

activities at different geographical locations and also help in sharing the

benefits of economical scale, scope and learning.

On the other hand contradictors lay an negative impression by stating

that, MNEs more likely to congest out local firms, incorporate technology

inappropriate to local practitioners, actively constrain potential

technology spillovers, and reduce (rather than complement) the domestic

capital stock and tax basis due to transfer price manipulation and

excessive profit repatriation, (De Backer & Sleuwagen, 2003; Go rg &

Greenaway, 2002; Haddad & Harrison, 1993) cites in (Ghoshal 1987).

Also in an another research, (Clapp and Dauvergne 2005) comments

that, MNEs functioning in developing countries may suffer with

inadequate safety standards, child labour employment as in India, tan,

China and many others, Polluting the developing countries environment

and creating sweatshop conditions in their factories.

Many academic researchers define the role of MNEs in globalisation as

an increasing interdependence relationship between developed and

developing countries, which contributes to common or individual interest,

(Ghauri & Buckley, 2006; Ghauri & Cao, 2006, Stiglitz, 2002; Dalgic,

2005, Eden & Lenway, 2001). At the same time MNCs are built upon


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diverse and geographically disseminated subunits, that encounter

problems on language, culture, economical confronts when interacting

with the local business community, (Triandis, 1982; Adler, 1983; Herbert,

1984; Ronen and Shenkar, 1985; Hofstede, 2001; Brannen, 2004). Also

according to some research trails, in spite of different barriers posed by

geographical constrains, MNEs act as an diagnose for up building

globalisation and developing low developed countries into a stringer

echelons b providing subsequent resources, training and development of

employees, pan-demising the language barriers and strengthening global

relationships.

4.Role of MNE in globalisation:Over the last few decades, countries or so called the rulers of

international economic game are working enormously to develop these

economic relations. With help of rapid developing Information Technology

and other communication technology at the global echelon are changing

the worlds economic nature and has tuned the globalisation processes. In

this context, (Baldwin and Gu, 2004) cites in (levy, 2007) that,

Globalisation and the spread of new technology appear to be correlated;

exporting leads to greater use of more advanced technologies and

increased process innovation through the acquisition and transfer of

foreign technologies. In a wide view, the facilitators of the globalisation

are politics, economics and technology where the major actors are


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governments, MNEs and international organizations. Here in this report

we mainly focus on the role of MNEs in the process of Globalisation

Multinational Enterprises along with the technological advancements

have been the key for global activities. Where of technology identifies the

centres and the extent to which technological activity becomes

geographically, the international industries practice these technologies

where there is competition between MNCs operating in different centres,

(Cantwell and Janne 1999). (Cantwell and Dunning, 1991) suggest that,

there exists a strong inclination for technological capacity to interlink

geographically for MNEs to establish network linkage between all. This has

pushed the MNEs to far much globalize the operations. In this context,

other researchers like Luo (2005), comments that, in the recent decade

Multinational Enterprises have extended their operations all around the

globe. They are incorporating multitude of activities for a multitude of

purposes. With this extensions in operations MNEs have managed a

range of geographic-forces, markets, products and far more technological

differences which are very complex in global scale. Also with the proper

mix usage of all three important channels if economic globalisation,

foreign direct investment (FDI) and trading modes, MNEs have effectively

benefited by knowledge transfer. With these performances that require a

suitable equilibrium of transparency and efficiency in connecting all the

geographical locations are carried on by MNEs.

Connecting the globe in one strong relationship needs an excellent

balance between al multiple forces like product, language, technology,


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geography, markets etc. Has been a matter of concern for the MNEs. In

this connection, (Nobel and Bikinshaw, 1998; Govindrajan and Gupta,

2001) share a common view that, Accelerated globalisation as well as

attempts to capture higher synergies form far-flung operations has called

attention to the communication network and internal knowledge flow

within the MNC . At the same time MNE emerge from diverse and

geographically scattered subnets that face language barriers in their

communication with local business community as well as inside their

network (Triandis, 1982; Adler, 1983; Herbert, 1984; Ronen and

Shenkar, 1985; Hofstede, 2001; Brannen, 2004)

5.Retail Industry profile:Retailing is one amongst the worlds largest industries. With globalizing

of the retail sectors, firms in this area have witnessed an increased

competition. To add worse, the gob economic downturn, has forced the

retailers to interface increasing challenges which also includes i ndustry

consolidation and even business continuity. Over past few years, few

parts of world have experienced retail businesses dominated by family -

run or regionally targeted stores thereby taking over billion -dollar from

multinations like Wal-Mart etc. Also according to the Global Retail Trend

(2010) reports key finding, decline has been noticed in the US and UK

markets while China witnessing emerging market growth. At the same

time Asia is viewed as the best growth for retailers. According to Global

Economy Report 2009, retail has faced some worst year for economic


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performances but as for the worlds retailers, economic recovery will

return the industry to a growth path- but the nature and geographic

distribution of that growth will be quite different than the recent path.

According to Journal of Retailing (2010), modelling the retail

phenomenon need perspective thinkings on many facts as of political,

technological, economical and social factors. Retailing on some definition

is a very complex field that requires sophisticated organization of

phenomena which includes pricing, promotions, customer loyalty

programmes, fair-trade, merchandising, price matching and return

policies, private labels, products categories, e-tailing, retail manufacturer

reactions, product assortment, stock outs and globalizing of all these

policies. A conceptual thinking and pre-designing for the above

mentioned area are vital and beneficial for retail firms in

internationalizing. At the same time, with upgraded technological factors

at cheap cost like computers usage, internet and data storage systems,

retail has opened great opportunities for firms in this industry to operated

globally rather than locally.

Relating to the financial turmoil and credit churches that forced the

entire global economy into threat, retail has been one amongst that still

sustained without huge losses and downfalls. Focusing on the UK retail

market, in spite of the financial turmoil and credit crunches, UK retail

sales have crossed over 285 billion in 2009 and by now have created

12.750 full time jobs alone in the UK. Moreover in 2010, the retail units


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have crossed over 286,000 in the UK, making it as UKs largest private

sector employer, (Prospects Report, 2011). Today large supermarkets and

Convenience stores have dominated the UK retail market. Supermarkets

account to three-fourth of the sales while convenience stores taking rest

of the pie. Convenience markets have been on rise in terms of numbers

and the revenue generated, in past few year s, due to which the mass

Produces today are focusing the Convenience stores. (RNCOS, Industry

Research Report 2010). The UK retailing today has developed a relatively

large and compact market which closes proximity of the major urban

centres. Whilst, larger firms have not felt too constrained and

development have occurred in many towns and cities (Guy 2010 cites in

Schnedlitz 2010).

6. Evaluating issues influencing the performance of retail and itinternationalisation agenda:


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The internationalisation agendas of retail have been debated from

variety of perspectives. There has been more focuses on the entry modes

of the market and subsequent development of the operations in the

nondomestic markets. Academic researchers have debated in all aspects

of internationalisation, its direction of investment, motivation and the

barriers to internationalisation, (Hollander 1970, Hamill and Crosbie,

1990, Myers and Alexander, 1997, Williams, 1991, Quinn, 1999, Muniz-

Martinez, 1998, Burt, 1991, 1993; Alexander, 1990, 1995, Williams,

1991, Quinn, 1999, Simpson and Thorpe, 1995, Helferich et al., 1997,

Alexander and Myers, 2000). In the case of retail internationalisation, all

most every well established retailer, competing with strong retailing offers

and customer franchisee often tend to move to expand their business by

conjugating across the national borders.

7. Economic Agenda in Retail Internationalisation:Foreign direct investments on the other hand play major role in MNEs

globalisation. With increasing word wide economic integration the

parameters of FDI flows have widened give more room to investments on

global relations. The change or increase in the worlds FDIs and real

industrial productions by 60% is shown in figure 1. Also with an increase

of 2% in annual growth, a drastic increase for international trade is an

impressive


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Figure 1. World Industrial Production, World Trade and Foreign Direct (Source: Siebert

1999)

Kleinert (1995), in his book, claims that, since mid-1980s, the

world witnessed a new era of economic integration. Since then, the

perceived economic distances between countries are diminished and as

international reactions have drastic affected the economic and national

policies. Globalisation as defined earlier in this report as a practice of

mounting economic relations is also defined by (Siebert and Klodt 1999),

as the process of converting separate national economies into a world

economy. Thus globalisation is the process that converts the individual

economies around the world into an integrated world economy. This is

mainly with the deepening of economic integration where of MNEs acts as

the transducer in linking all factors. With proper utilization of the three

main channels by MNEs of foreign direct investment, technological


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advancement, and trading channels have introduced new era of

globalisation. MNEs act as source in driving internationalised economic

activity. According to Kleinert (2001), At least 80% of all international

trade is related to at least one MNE. A third takes place within MNEs. A

large share of it is intra-industry trade between developed countries. That

includes a large share of trade in intermediate goods . Also with

increasing intra-industry investment and strategic alliances multinational

enterprises have turned individual focus into one which helped all around

geographic locations with products, services, employments, knowledge

etc. With appropriate utilization of technological flows, MNEs have

contributed towards internationalisation of knowledge, thereby uplifting al

geographical areas up to one standard. Kleinert (2001) comments that,

The dominant role of large players in the globalisation process calls for

an explicit modelling of MNEs in the globalisation process. Academic

researchers also support that; the role of MNEs in Globalisation is

incomparable. MNE have rolled off all barriers around the globe, thereby

increasing relations between all cultures with different language, believes

and knowledge into a single insight which shows a common goal and

incentive.

8. Socio-Cultural Agenda in Retail Internationalisation:Facing the histories noted financial turmoil; firms in all industry types

have notices a remarkable shift in the consumer/customer behaviours.

According to the retail industry analysis, consumers have become more


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value conscious, expecting for more product details for value, less

expected to purchase discretionary products on large scale. In some retail

worlds customers are now very value for money cautious. These prime

concerns of consumers have forced retail firms reformulate themselves to

a world class emerging retailers. Firms in these sectors are getting well

equipped to contend the global giants in their own home markets. With

major retailer moving to global market retailers have obtained successive

amount of profit in all regions. The detailed report of profit and sales

growth can be seen in the figure below.

Figure 2 Saes Growth by Country/Region 2008

At the same time with internationalizing, some firms have

experienced great successes in markets like East-Asia, Africa, and South


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America. In context to internationalisation of retail, Global Power of

Retailing report (2010) says that, The global playing field of retailing is

becoming more level. Many emerging markets now have sufficiently large

middle classes to support the efficient operations of a rage, sophisticated

home-based retailer. Such retailers are now able to tap into global

expertise, often hiring reverse expats who have spent time in affluent

markets gaining valuable knowledge and experience. To add up this

retailing strategy, the retailers licensing or franchising the retail chains

have benefit of easy access of domestic and global market capitals. The

top 10 internationalized retailer and their economic standards are shown

below.

Figure 3. Economic Concentration of top 10 retailers


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On geographically analysing the retail industry, firms not only

convert 100% of sales from their home country but also contribute a

major segment from the outside region. The internationalisation of retail

firms can be supported by the figures shown below.

Figure 4 Share of Top 250 retailers by region/country, 2008 (Source: Global Power of

Retailing 2010)

Thus with the increasing globalisation of retail firms, this industry

has witnessed an increasing scope of international investments. With

internationalisation, foreign operations have continued to aggregate a

large share of sales. The average number of countries operating also

increased slightly to 6.9 from 6.9 in just one year which has presented a

truest global scope.


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Figure 5. Shares of Top 250 saes by region/country, 2008 (Source: Global Power of

Retailing 2010)

According to Huang and Sternquist (2007), retailers have to face

different aspects when compared other firms while expanding globally.

Its mandatory for the retailers to have a physical presence in the foreign

market while other firms can even operate from home country. Also

retailers need to build up direct relationship with the foreign customers

which require a highly cultural inclination for every geographic customer.

For example the Playboy magazine in late 80s did launch its editions in

Thailand which caused massive problems to the company as it resembled

some anti cultural impact on the market. With some other incidences, it

has been cited by the researchers that, social behaviour and culture are


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the major matter of concern for every retailer when expanding across the

national border (Scott 1995). It needs a great understanding of the

religious believers and does and dont of the geographic region for the

retailers. At the same time, to survive and prosper in the social

environment, retailers need a great understanding of social credibility and

look for legitimacy and acceptance confirming the rules of every

geographical region. DiMaggio and Powell (1983), cites in Huang and

Sternquist (2007) that, the three main pillars on which a successive

internationalisation of retail stands are, legal, social and psychological

elements. Retailers operating in every geographical location need to

show great amount of social responsibility into its marketing activities. At

the same time international expansion of retail leads to the transfer of

retail management technology or establishment of international trading

relationships across regulatory, economic, social and cultural boundaries ,

(Alexander 1995 cites in Huang and Sternquist 2007). According to this,

the external environment combines with all factors like cultural, legal,

political and economic factors that affect the decisions made by the

retailers as of how, when and where to expand in foreign market.

9. Political Agenda in Retail Internationalisation:While focusing on the legal issues in internationalisation of the retail

firms, companies have to face far more complicated issues when

comparing to any other agendas. Its only the legal agenda of

internationalisation which fall outside the controlling bon of the retailers


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and they accordingly need to adjust and reframe their operations in every

foreign market. Both legal and political factors are different and specific

for every country. In this context, (Scott, 1995 cites in Huang and

Sternquist 2007), that Legal regulations in the home and host country

represent the strongest environmental pressure faced by retail

organizations. Every government formulates the laws and foreign policies

according to the goodwill of its citizens for which the retailers have to

subsidise their profits. For example, European government has different

rules for retail pricing, opening times and plannings when compared to

that of UK. Even in the home country persists a different law for

operations for a retailer which becomes mandatory for the firm to operate

at. For example, the Scottish Government follows under 25? Policy for age

restricted products where as England follows Under 21? Policy. Also two

regions have different operating times of the age restricted products like,

Scotland follows 10 AM to 10PM where as England follows 8 AM to

Midnight. Retailers also face different import and export charges and also

subsidies depending upon the countrys economic factors and the cartel

membership. Like for companies with origin of Europe feel easy to expand

business amongst the European cartel countries rather than expanding

into middle east or in south-east.

Contrarily, countries with weak governance systems strive to attract

international retailers for foreign investments. In this context Tse et al

(1997) cites in Huang and Sternquist (2007) that, In the past two

decades, China has introduced dozens of laws and regulations that reduce


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the level of risk and Uncertainty for foreign firms. These rules increase the

confidence level of foreign firms Investing in China. In context to foreign

laws, (Grewal and Dharwadkar 2002) comments that, for every retailers

there are two types of primary regulation forces, that is imposition and

inducement. Imposition in its context is coercive in a way as it forces

retailers to follow the law. For example (Evans & Mavondo, 2002) cites,

the Large-scale Retail Store Law (LSRS) in Japan significantly impeded

the expansion of Toys R US. Germany on one side follows four major

laws then India on the other hand Restricts foreign retail direct

investments thereby instructing Wal-Mart, Tesco and many others. These

factors give low governance or control on the operations of retailers in

global norms of businesses.

10. Conclusion:The purpose of this report is to provide an insight to the role of

Multinational Enterprise firms in the globalisation process. To far extent

the report draws the facts that, retailer today have some major

advantages like technology to expand across the borders which over time

provide economic benefits to stakeholders. Though retail

internationalisation is not an easy process still firms and stakeholders

have identified the benefits of connecting the geographical area through

retail expansions. On the other hand this report also critically analyze the

major issues of political, economic, socio-cultural and technological issues

that influence the performance of internationalized retailers. Though some


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of these factors like economic and technological can be controlled by the

retails, factors like culture and political constrain the operations of these

firms in globalizing. To conclude, academic researchers like Hyman

Minsky and Keller have made major predictions on future of retail, which

certainly has provided a strong support to internationalisation processes

and also attracting firms to enter every corner of the global market.


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