MNC Strategy and social Adaptation in Emerging Markets

Question: Discuss about the MNC Strategy and social Adaptation in Emerging Markets. Answer: Introduction: The following essay is going to demonstrate key international business level analysis of MMG Mining, Australia and validate the company as a Multinational Corporation. Analysis of international business is done on the basis of different international business theories. Though there are three major international business theories, the main emphasis of this essay is going to analyse the international business of MMG Mining through Porters diamond theory. Different factors affect a business organisation in performing international business (Cavusgil et al.,2014) . These factors are political, social, economic and legal ones. The aforesaid theories are going to be related to the real practices of business sectors (Beck, 2015). MMG mining is one of the largest diversified base metals companies in Australia that was founded in the year 2009(MMG Limited, 2017). MMG Mining has extended its business and production i.e. mining in countries like Thailand, Bolivia, Peru, Angola and others. The major operations centres of MMG are in Thailand, Bolivia and Tasmania.It has its branch offices in Angola, South Africa and other African countries. The company looks forward to the expansion of its business and mining projects in Canada and Queensland (MMG Limited-Operations, 2017). MMG Limited owns the mines of Cotambus and Sepon. Future operation of zinc mining from Dugald River is one of the most awaited projects of this base metal organisation. Globalisation of Business and Production: Industrial boom and social cohesion has created a new market option for the business organisations to expand their operations. Market globalisation is a synergy that happens to be the key factor to cause the multi-dimensional products and services to impend and reach to the customers (Fillat, GarettoOldenski, 2015). Globalisation is interpreted both by the views of the customers and by the views of the sellers or he producers who witness the market demand.An article published by The National Bureau of Economic Research states that the ways of interaction among the nations are being changed and transformed by globalisation(nber.org, 2017). The immediate effect of globalisation has been foreign outsourcing that has further caused increasing demand for labour- both in national and international level- in order to increase the rate of production and enhance the variety of manufacturing products. The concept of production has quite changed in the twenty- first century. Production is not c aptivated within the concept of manufacturing or agricultural production. It has vastly extended to the realm of mining. Mining has become one of the key businesses of international production. Democratic Republic of Congo is highly potential for the availability of natural resources. The country has major contribution towards the global mining of cobalt and copper.After the contract signed between DRC and IMF (International Monetary Fund) in 2010, the Government of Congo passes a law of business and trade liberalisation in terms of mining- specifically mining of diamond (Morgan, 2009). Post 2010 period has opened a broad doorway for many of the capitalist countries to invest and perform production business in mining industry. Thus, MMG grabbed the opportunity to utilise the abundance of copper in DR Congo. International business venture of the case company, MMG Ltd. is going to be analysed through two major international business theories: Heckscher-Ohlin Theory and Porters theory of National Competitive Advantage (Diamond Model). Heckscher-Ohlin Theory: Democratic Republic of Congo has extensive mineral reserve whereas Australia does not have adequate resource on copper and cobalt. Hence, Australian mining organisations such as MMG Ltd. shows interest in venturing business in DR Congo. On the other hand, Democratic republic of Congo enjoys service sector engagement in the country. There lies the implication of Heckscher-Ohlin Theory of factors endowments. The theory of factor endowments includes the value of land, labour and capital. Abundance of hardworking labour in the Democratic Republic of Congo interests MMG Ltd. in investing capital for mining business. Due to the working ability of the workers, the productivity level is significantly increased thus ensuring higher extension of profit margin. Moreover, the availability of labour in the host country is cheaper than that in Australia. Therefore, labour cost of MMG Ltd. is automatically exempted. Since mining is labour and technology intensive, the production level is highly foc used on perfect utilisation of strong workforce. It thus ensures the global benefit of the investing company. Political Economic Challenges: The Government of Democratic Republic of Congo has highlighted few facts that demonstrate the challenges faced by the MNCs to initiate new business venture in the country. Poor business infrastructure in the country causes tough working environment for the new entry businesses. This is why the World Banks Ease of Doing Business Index (2015) has listed the country in 176the position out of 189 countries in the world. Less abundance of the middle class workers results in skilled and educated labourers who can carry out the performance in a competitive level (Davidson et al., 2014). Another huge challenge for a new entry is the lack of proper facility in the transportation. DRC has not gone up to the international level in terms of transport and communication Despite huge availability of natural resources, the country lacks the impression to invite the international companies to perform mining business. It happens because of local mafias and political corruption. Specifically, MMG Ltd might face the same challenges while entering into the business of resource mining and procurement. Resource mining and procurement needs huge back up from the host country. The mining companies undergo several laws, rules and regulations in order to perform one of the most complex businesses. Mining industry, in particular, has huge risk in terms of adhering to the international policies designed by the United Nations. However, the government of the host country and the investing country fall in a trade and business deal that is considered to be the international business deal. Congo is only fulfilled with natural resource as it mere has any other strength to contribute in a developed economy. However, the companies opting to do international business in a country are bound to give some authentic commitments, which are observed by both the signatories. MMG Ltd. is to provide employment opportunities to the people of the host country. However, lack of skilled la bourers and inadequate labour supply in the labour market causes business deficit to the company (ForsgrenJohanson, 2014). Exchange Transfer: Democratic Republic of Congo belongs to LDCs (Less developed Country). Due to huge difference in currencies most of the Multi National Companies investing in the country face a problem with currency rate.Difference in market value and currency creates turmoil while making payment to the employees. MMG Ltd has huge strength of workers.Due to lack of trained workers in DR Congo, the company often hires workers in for managerial and administrative post from other countries. Hence, payment becomes an issue. In case of new business entry, investment and payment to the government (through taxation and other mode ) is often hindered by difference in currency. The problem lies in the fact that currency value vary regularly. It is highly complex to be updated and carry on with the payment transfer. Huge bulk of loan makes a government obligated to put pressure upon the investing companies. In order to ease the burden of loan, the government often impose high rate of taxation upon the investing companies. MMG Ltd. being a new venture in mining industry undergoes certain business trauma in course of performing business in the foreign countries. The company initially aims at the countries with huge resource availability. However, other factors like taxation or post imposition of taxation i.e. revised taxation policies after investing in the country. Post taxation is more awful for MMG because it has not become as established as other mining companies are. Since MMG in involved in its mining business in not more than eight countries and it does not focus on any other business sector, Congos policy of taxation threatens smooth business dealing of the company. Congo has huge burden of loan from the World Bank. It is obvious for the country to channelize the burden through increasing the rate of FDI. Political Direct Interference: One of the most favourite African countries of foreign investors is Nigeria. Nigerias international trade policy is quite friendly to the investors to venture new business plan. However, the scenario is quite different in DR Congo. The revised trade policy of 2010 remains quite old and conventional in nature. Though the trade policies are moulded following the instruction of WTO, it is quite stringent for the big marketers and investors. Free trade is unavailable in DRC thus creating complex relation between the country and the investors. The only reason of showing business interest in the country is the abundance of raw materials. However, how far MMG would exploit the potential presence of those resources depends on the permissible performance rate. Entry Mode strategies: Franchising option is one of the key strategies of a foreign investor. MMG Ltd looks forward to spread its franchising in different countries so that the business is moulded according to the government regulations and the mother company is not affected hugely by discrepancies (Zhao, Park Zhou, 2014). MMG Mining has acquired one of the largest mines in the world in Democratic Republic Congo in 2012. The main objective of doing is to ensure the firm expansion of business. Since the company is not always able to comprehend of the local consumer market and labour market, it distributes the responsibilities of market analysis to the third part that performs the task extensively. In order to expand international business, an MNC ought to review the business environment of the host countries. The company fully exploits the potential of resources in six to seven countries across the world. Overseas business of MMG has been strictly captivated into those places that are highly resourceful. Within a very short period the company has notably utilised the foreign policies and strengthened international trade relation with the host countries.The essay is particularly going to analyse the international business challenges faced by MMG while extending its business in DR Congo (Enderwick, 2013). However, a brief overview of the international business challenges for a new entry is highlighted in the essay. Different market scholars have viewed that globalisation has caused integration of people in a closed place. This has entailed huge reduction in the cost of transport and communication. It has also facilitated the labour market with adequate abundance of labour. Ease of flow of goods and services, capital and human resource has created a huge room for the MNCs to examine availability of best business opportunity. However, most of the Multi National companies were found to have faced challenges because of cultural differences. Such demarcation of cultural practices even in the working environment has cost the companies. An Australian or US manufacturing company always struggles to cope up with the new cultural regime prevalent in the host countries. Culture is often assisted by local politics. Therefore, amalgamation of these to human attributes might hinder the growth of th e MNCs while practicing profit making business. According to Wells, political challenges are basically generated through stringent government action or inaction in a particular country. While liberalisation opens doorway for the MNCs to show interest in a countrys consumer and labour market, nationalisation puts grotesque impact upon their business. Besides this major challenge, there are other minor challenges too for an MNC to enter into international business(De Loecke Goldberg, 2014). These are supply and procurement policies of the government, health and safety issues, certain frameworks of Governments SOP (standard operation procedure), and taxation policies and so on. The essay examines and analyses whether such challenges prevail in the democratic Republic of Congo and how it affects the business of MMG Ltd in procurement of natural resources from the country (Hall et al., 2015). Porters Diamond Theory: The international business level of MMG Ltd is going to be interpreted through Porters Diamond Theory of International Advantage. Porter has designed a model postulating how the national business organisations could advance their business in international arena. He supposed different situational advantages in international business. These are: Factor conditions, Supporting industries, demand conditions at home, strategic structure and rivalry, interventions of government and chance events. As far as factor conditions are concerned, Democratic Republic of Congo is highly equipped with natural resources. However the main challenge lies in this fact that there is lack of proper infrastructure and knowledge resource that can be utilised for advancement of business in the country. Related and supportive industry means the presence of suppliers in international market. DR Congo lacks the initiators in supply chain management however; thorough effort of improvement can easily overcome the s etbacks in no time. Demand conditions at home determine the success and failure of a market. Though there s no high demand for minerals in Congo, growing number of manufacturing industries in Australia and other countries inspire mining activity of MMG. MMG faces various political and economic challenges such as poor business infrastructure, less abundance of the middle class workers, lack of proper facility in the transportation and lack of international companies in order to perform mining business. The political scenario of DR Congo has also also possess a challenge to the company. The revised trade policy of 2010 remains quite old and conventional in nature. Lack of free trade in DRC has led to a complex relationship between the country and the investors. Honest supply chain is another important issue in international busineses. Since investors depend on local suppliers while investing in the countries, the company duly checks the honesty and credibility. The situation is same for Democratic Republic of Congo. Conclusion: Apart from all these efforts, the MNCs are to strategise skilfully in order to overcome the challenges for entry level business. MMG Ltd. ensures that its foreign business is highly equipped with resources- both natural and human. Proper chalk-out of the strategies helps the companies in business retention and professional welfare. Reference: Beamish, P. (2013).Multinational Joint Ventures in Developing Countries (RLE International Business). Routledge. Beck, U. (2015).What is globalization?. John Wiley Sons. Bodie, Z. (2013).Investments. McGraw-Hill. Cavusgil, S. T., Knight, G., Riesenberger, J. R., Rammal, H. G., Rose, E. L. (2014).International business. Pearson Australia. Davidson, C., Heyman, F., Matusz, S., Sjholm, F., Zhu, S. C. (2014). Globalization and imperfect labor market sorting.Journal of International Economics,94(2), 177-194. De Loecker, J., Goldberg, P. K. (2014). Firm performance in a global market.Annu. Rev. Econ.,6(1), 201-227. Enderwick, P. (Ed.). (2013).Multinational Service Firms (RLE International Business). Routledge. Fillat, J. L., Garetto, S., Oldenski, L. (2015). Diversification, cost structure, and the risk premium of multinational corporations.Journal of International Economics,96(1), 37-54. Forsgren, M., Johanson, J. (2014).Managing networks in international business. Routledge. Hall, B. J., Murray, S. M., Galea, S., Canetti, D., Hobfoll, S. E. (2015). Loss of social resources predicts incident posttraumatic stress disorder during ongoing political violence within the Palestinian Authority.Social psychiatry and psychiatric epidemiology,50(4), 561-568. Kentor, J., Sanderson, M. R. (2015). Foreign Investment, Political Corruption and Internal Violence.Overcoming Global Inequalities,34, 48. MMG Limited | Our Operations. (2017). Mmg.com. Retrieved 5 April 2017, from https://www.mmg.com/en/Our-Operations.aspx MMG Limited | Supporting our communities. (2017). Mmg.com. Retrieved 5 April 2017, from https://www.mmg.com/en/Sustainability-and-Community/Supporting-our-communities.aspx Moran, T. H. (2014).Multinational corporations and the politics of dependence: Copper in Chile. Princeton University Press. Oetzel, J. M., Oh, C. H. (2013). Learning to carry the cat by the tail: firm experience, disasters, and multinational subsidiary entry and expansion.Organization Science,25(3), 732-756. Zhao, M., Park, S. H., Zhou, N. (2014). MNC strategy and social adaptation in emerging markets.Journal of International Business Studies,45(7), 842-861. Morgan, M. J. (2009). DR Congos $24 trillion fortune.African Business,350, 52-56. nber.org. (2017). Nber.org. Retrieved 7 April 2017, from https://www.nber.org/reporter/spring01/hanson.html