Why do MNEs go International

Question

why do MNEs go international

Answer

High level of competition in the business environment has led to some companies internationalising to enhance their competitive advantage. Modern day corporations may internationalise for a variety of reasons such as: • The Dunning Eclectic theory/OLI paradigm highlights the advantages of these multinational corporations going international. 1) Ownership advantages – competitive advantages firms possess when seeking to engage in FDI (returns to scale, trademark etc…) 2) Location advantages – low wages, special taxes and existence of raw materials 3) Internationalization advantages – advantages by own production rather than through a partnership arrangement. • Competition: Market entry can prompt not by the positive characteristics of the country identified in a market assessment project, but as a reaction to a competitors’ moves. A common scenario is market entry as a follower move, where a company enters the market because a major competitor has done so. Another frequent scenario is “offence as defence,” in which a company enters the home market of a competitor—usually in retaliation for an earlier entry into its own domestic market. In this case, the objective is also to force the competitor to allocate increased resources to an intensified level of competition (Briggs 2013) • Increase diversification: In order to diversify a company’s product line, they may choose to enter a specific international market. • To gain first mover advantage: This is a competitive advantage earned by a company by being first to enter a specific market. However, it should be noted that first mover status can present advantages, but it does not do so categorically. Much depends on the circumstances. While some well-known first movers, such as Gillette in safety razors and Sony in personal stereos, have enjoyed considerable success, others, such as Xerox in fax machines and eToys in Internet retailing, have failed (Suarez and Lanzolla 2005).

References

Brigg, R.P., (2013), “10 Reason to go International”, Available at: http://choosewashingtonstate.com/wp-content/uploads/2013/06/10_Reasons_to_go_International.pdf Suarez, F., and Lanzolla, G., (2012), “The Half-Truth of First-Mover Advantage”, Available at: https://hbr.org/2005/04/the-half-truth-of-first-mover-advantage