Why would a firm want to become a multinational Essay Example for Free

Why would a firm want to become a multinational Essay permits be clear about what we mean by a multinational. This is a firm that extends beyond the borders of an individual nation and operates with affiliates and branches in at least two countries. A multinational organizes phases for producing goods and services to sell in contrary countries.For example, many car companies pack mastered the so-called international segmentation of production, which work like this A Toyota vehicle assembled in San Antonio may have been designed at the Toyota design center in Australia the vehicles aluminum-wheel components may have been produced in Delta, British Columbia and its other components may have been produced in yet another location. Other multinationals replicate entire production processes in assorted countries. Consider Coca-Cola.If you are visiting Poland, the Coke you drink probably was produced in a plant in Lodz, Poland, not in the United States, although the brand and the accompany hail from the U. S. International business scholars and economists have observed that firms become multinationals to exploit three broadly defined sets of advantages. The first is ownership advantage. Multinational firms usually gird and own proprietary technology (the Coca-Cola formula is patented and kept extremely secret) or widely recognized brands (such as Ferrari) that other competitors cannot use.Multinationals often are proficient leaders and invest heavily in developing new products, processes and brands, while usually keeping them confidential and protected by intellectual property rights. Maintaining stronger trade protection of these elements helps firms enjoy greater profits from innovation. Second, consider localization advantage. Multinationals usually try to build facilities that produce and sell their products in locations near the consumer (the Polish consumers of Coke in our example). This helps reduce transportation costs or helps the company fit in better with local tastes and needs.Proximity to demand also helps firms adapt their products and services to different markets. At the same time, they also may take advantage of lower production costs (for example, labor costs, energy, sometimes even lower environmental standards) or more abundant production factors, such as expert engineering or greater raw materials). For example, the Polish affiliate of Coca-Cola also owns bottling plants in the Beskidy Mountains realm of Poland, which is rich in mineral water for making other beverages.Finally, multinationals want to internalize the e benefits from owning a particular technology, brand, expertise or patents that they find in addition risky or unprofitable to rent or license to other firms. Enforcing international contracts can be costly or ineffective in countries in which the rule of law is weak and court procedures are long and inefficient. In these cases, the company also may risk losing its ownership advantage, which it ha s created at a square(a) cost.