Multinational Enterprises Engage In Foreign Direct Investment Economics Essay

A multinational venture is thought as an organization that engages international immediate investment (FDI) and is the owner of or handles value adding activities in more than one country (John H. Dunning, 1992). Today all big multinational organization was once a little organization with a less amount of employees. After the firm started processing the product regarding to customer needs and satisfaction, then the firm can achieve high success in the market. To start a company a firm needs a capital amount. In the beginning stage of business the company does not learn how to market the product and who are the whole customer's and what actually the buyer want.

The main reason that companies outsource the merchandise is to know what actually the buyer really needs and also to understand the marketplace conditions. Outsourcing helps to decrease the overall costs in an organization. So the cost factor becomes less. After the company satisfies customer needs and satisfaction then your business and market can be globally expanded. To attain high success in business, the firm has to design products according to consumer needs and satisfaction than market conditions.

Market conditions are also a key point; the firms ought to know how well the merchandise is playing into market and how long it will last on the market. Customers are the king source running a business. To reach our product to all types of customers is through advertising, the advertising costs are costly. So if the organizations outsource the merchandise then there is no problem to get worried about advertising costs. To increase the business globally the firm has to produce products with good quality.

A national venture is one which will business within the country and it does not have any foreign immediate investment (FDI) and no exchange value. The difference between nationwide organization and multinational venture is national organization has less variety of competition and multinational business has more volume of competitors. Once the business began growing globally the multinational venture contributes 50 percent of money to its business.

To do a business in a particular product, the product must be patented. The cost of obtaining the patent license is expensive. So if the organizations outsource the products then your patent cost becomes less. If the patent certificate is obtained, then the business can be broadened internationally and export cost is also reduced. "Globalization is the flow of goods, services and capital, but also information, ideas and folks. It has designed all of the twentieth hundred years, albeit with large cyclical versions and is becoming an increasingly obvious force in recent decades" (World Loan provider, 2000).


Local Packing & Assembly

Export through own Supply representative or sales subsidiary


Representative or sales subsialary

Export via agent or distributor



Depth of engagement in overseas market

Fig: 1 Entry into overseas Market

Source : Rugman A. M. , and Collinson S, 2009

Once the business starts growing globally, the competitive benefit also starts off increasing. We will come to know about latest technology in the market and more organizations on the globe. In the initial stage the firm should target only 1 country to advertise the product. Once the companies become success in that country then the firms can target a great many other countries. If the firm exports the merchandise through agencies or through vendors then the organization will come to learn about the marketplace conditions and the competitive benefit of the merchandise.

The important things is that businesses should concentrate mainly on quality, customer's need and satisfaction and market condition of the product. The reason that companies export the merchandise through agencies or through vendors is the exportation cost. The exportation cost is less. Once the level of customers is increased, then the firm can achieve high earnings. Then slowly but surely the firm can increase its production and globally the market is also widened. The businesses can exchange ideas and information, enhances communication and networking is developed.

Initially the key reasons for outsourcing the business are the cost factor. Cost can be an important factor to design an enterprise. While doing business the firms should know how to regulate the overall costs and costs. The main goal is to make products with good quality and low costs. The raw material costs are high and the option of raw materials is very low. Once the volume of consumers is gained the business is expanded internationally and the firm itself can immediately market the merchandise.

The main reasons for multinational enterprises are responsiveness to environmental causes such as competition, customers, suppliers, financial institutions and federal government. Attracts common pool of resources including resources, patents, trademarks and human resources. More range of competitors begins increasing after the companies become multinational enterprise.

"The level of development of every country vis- -vis these prerequisites clearly varies" (Patrick, 2000). Central European countries is advanced in terms of infrastructure and privatization than south-west European countries. Mainly european countries give tax benefits and the federal government itself provides cash for the companies which are sick. Foreign immediate investment takes an extremely important role in the restructuring process which depends on a number of variables. The main reasons that companies go for multinational business is the job opportunities.

Job opportunities will be broadened and a large amount of employments are provided to large numbers of people. The countrywide organization face pressure from trade union activity to avoid company multiply their bases surrounding the world; therefore weakens the company's growth and market. One of the important reason firms go multinational is to increase sales and also to expand development activities. National organizations effortlessly do not become multinational companies; the company has to expand its creation, make good quality products and really should solve the problems. There should be a smooth circulation in running the organizations. Then only the business has better in its production, income, technology and expansion.

The benefits of multinational company are as follows:-

Marketing opportunity: If they grow over different countries their market expands. The merchandise can be sold world-wide in different parts of the globe and the exports can also be increased. Joint -enterprise with abroad countries also makes a national firm multinational.

Research and Development: This helps us to make products with good quality. If any inability occurs, while designing a product, this helps us to rectify the mistakes. And immediately the challenge is fixed.

Export campaign: Export and import plays an integral role for the countries income. Lot of foreign exchange is attained through supply of raw materials, technology and various other product.

Growth of industry: The growth of multinational companies are considered to stop wasting time in comparison with others. In addition, it helps the local companies to increase by giving job opportunities. They also help them enter into global market through their network.

Gives latest technology: it plays the role of developing good quality products and reduces the price of production. Multinational companies are in essence rich. It solves the bridge between developed countries and producing countries.

Optimum usage of resources: this helps us to utilize the natural and man-made source of information in a preserved manner. Uses natural and manufactured resources of the house country. Home country gets benefited by the progress of these companies.

Help to local industry: This provides a ready market to home suppliers of raw materials or semi-finished products

Management opportunities: Opens management opportunities to management students that can be appointed as professional professionals to earn a attractive salary and build trustworthiness of the business.

National development: Producing countries are highly benefited by the multinational companies. It can help these to increase their efficiency and enhance the technology & most importantly foreign immediate investment. It helps the producing country improve financially as well by providing financial and tech support team.

Monopoly: When multinational company enters in to domestic market they contend with existing opponents and break the monopoly of chosen few companies.


Firms go multinational as they are destined to have many advantages such as cheap labour, cheap recycleables which will help them in expense cutting. They enter a competitive market and make an effort to increase their sales. There are three important stages to become a multinational organization. They greatly hinge through to export and expansions of export sales to justify building new crops from the countries. Secondly overseas production, there has to be a limit to abroad sales that is being halted by a multinational company. Lastly the firm needs to start their research, planning, arranging, coordinating, production, marketing and financial support which is reported to be R&D (Research and Development) to go multinational. In deciding whether the reasons for becoming multinational have altered, considering the buzz term has only been with us to discover the best part of forty years it is good to say that it hasn't. If we look back again by the end of the last century the only difference would be that the huge petroleum companies, silver mines and fruit growers only became multinational. To get closer to their market, the move of such goods are difficult than it is today. Indeed, as lately as it might still be taken as axiomatic that it was both advisable and simple for firms that were varied both by product and to develop multidimensional strategic capabilities. To create broader organizational capacities those transcend formal structure.


Artisien. P and Maksimenko 2000. Multinationals in Eastern Europe. London: St. Martin's Press Inc. pp. 11-35

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http://www. indiastudychannel. com/resources/125324-Advantages-Multinational-Company. aspx. [Accessed 24th March 2011]

John H. Dunning, 2000. The eclectic paradigm as an envelope for economic and business theories of MNE activity, International Business Review 9 (1), pp. 163-190.

Needle, D. 2004. Globalization: Paoli, L. and Cooke, A. Business in Context. 5th ed. Hampshire: Rennie, T. pp. 11-46.

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World Loan provider. 2000. Poverty in Era of Globalisation. [ONLINE] Offered by:http://www. sph. umich. edu/symposium/2004/pdf/povertyglobalization. pdf. [Accessed 29th March 2011]

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