Global Business Today: Asia-Pacific Perspective 5th edition by Charles W. L. Hill Solution manual
Shifts in the world economy can also be seen through the shifting power of multinational enterprises. Since the 1980s there have been two notable ongoing trends in the character of the multinational enterprise. The first has been the rise of non-US multinationals, particularly Japanese multinationals. The second has been the emergence of a growing number of small and medium-sized multinationals, called mini-multinationals. The fall of Communism in Eastern Europe and in the republics of the former Soviet Union have brought about the final shift in the world economy. Many of the former Communist nations of Europe and Asia seem to share a commitment to democratic politics and free-market economies. Similar developments have occurred in Latin America. If these trends continue, the opportunities for international business are enormous.
Implications of the shifts
The implications of these shifts are different for North America, Europe, Australia and Hong Kong. The US once had the luxury of being the dominant player in the world arena, with little substantive competition from the developing nations of the world. That has changed. Today, North American–based companies must compete with competitors from across the world to win orders. Australian-based companies face similar competition but have the advantage over their American rivals of being readily able to tap into the growth of Asian-sector industrialisation due to their location in the region and their access to a relative abundance of natural resources (by contrast to created resources).
The changing characteristics of the world economy also favour a region like Hong Kong. Hong Kong as part of China is well located with easy access to markets not only in China but also in Japan, South Korea, Indonesia and other Asian markets. Hong Kong has a vibrant labour force, an established industry and commercial infrastructure on par with the industrialised nations of the world. The decline in the influence of the North American companies on the global economy provides opportunities for companies in Australia and Hong Kong to aggressively pursue export markets and foreign investment opportunities in one of the fastest-growing regions of the world.
Comparison of the implications
On balance, these shifts in the world economy need to be viewed in context. It is not so much about the former dominance of the West and emerging dominance of the East, as that is too simplistic. Companies engaged in international business are not necessarily engaged in global business. Countries also differ in their size, culture, political systems, economic and legal systems and levels of economic growth and development. This ‘uneveness’ creates an us/them mentality by default and does not bode well for increased trade and, moreover, economic integration (see Chapter 3).
Companies are also intensely competitive and do not operate on a level playing field. Consequently, a small new start-up has nowhere near the resources, skills and experience of MNCs. In terms of production activities, offshoring and outsourcing by MNCs to lower-cost countries is done to minimise costs and maximise value to shareholders and customers. In contrast, small companies lack economies of scale and economies of scope in strategy and operations to compete in the same way. Additionally, choosing which foreign markets to enter and which to avoid is not simply about costs (see Chapter 9 on country market analysis). Several important issues arise depending on the country chosen to invest in, including the size (scale) and timing of the venture and the mode of entry decision. See Chapter 11 for more details.
2. ‘The study of international business is fine if you are going to work in a large multinational enterprise, but it has no relevance for individuals who are going to work in smaller companies.’ Evaluate this statement.
Answer guide: People who believe in this view, and the companies that they work for, may find that they do not achieve their full potential and may ultimately fail because of their myopia. As barriers to trade and investment decrease and state-of-the-art technological developments take place throughout the world, new opportunities and threats exist on a worldwide basis. The rise of mini-multinationals suggests there are global opportunities even for small companies. But staying attuned to international markets is not only important from the perspective of seeking profitable opportunities for small companies; it can also be critical for long-term competitive survival. Companies from other countries may be developing products that, if sold internationally, could wipe out small domestic competitors. Scanning international markets for the best suppliers is also important for small companies, for if a domestic competitor is able to tap into a superior supplier from a foreign country, it may be able to seriously erode a small company’s competitive position before the small company understands the source of its competitor’s competitive advantage and can take appropriate counteractions.