ANALYSIS OF THE INTERNATIONALIZATION STRATEGY OF A MULTINATIONAL ENTERPRISE BASED ON DUNNING’S ECLECTIC FRAMEWORK
Analysis of the Internationalization Strategy of a Multinational Enterprise Based on Dunning’s Eclectic Framework
Executive summary 250
Introduction 300
Dunning’s Eclectic Framework I 400
Dunning’s Eclectic Framework II 400
Dunning’s Eclectic Framework III 400
Motivation for Internationalization 400
Ethical Considerations 400
Conclusion 300
Introduction
Wal-Mart Enterprise is an American based company which deals with the distribution and wholesales of various products ranging from household items as well as children’s items. The company was started by a retailer known as Sam Walton in the mid twentieth century. His business began to develop and he started the idea of developing the Wal-Mart name into a brand and soon became a corporate. The company has succeeded in opening different branches in almost every country in the globe. For instance, Wal-Mart has branches in 28 different countries all over the U.S, North America, Europe, and Asia. It operates under the brand name in some countries while it has changed slightly the name of other stores such as Walmex, Asda, and Best Price. The success of the company is derived from the management based on strategic planning on the market.
Wal-Mart has entered in the market of Asia specifically China. The company chose China (host) due to the emergence of technology development and the upgrading of China’s market globalization. Wal-Mart is a Multinational Enterprise and had the interest of extending their operations in other countries such as China. The operations in the foreign countries are similar to those offered in their parent home. Therefore, Wal-Mart operates as a Foreign Direct Investment in China as one of their market hosts. China was a place of interest because of their major economic power that had interested many investing companies. Similarly, China is recognized as one of the leading manufacturers of various products at a cheap cost giving the Wal-Mart Enterprise an advantage of accessing their products. Furthermore, the human resources, materials, infrastructure, knowledge, and capital are the resources available in China market that offered an establishment advantage of the Wal-Mart company.
The analysis of Wal-Mart market establishment in the Chinese region would cover the discussion of the elements found in the management of Wal-Mart Enterprise as well as the competitive advantage derived from China market. Furthermore, the analysis would incorporate the Dunning’s eclectic framework that has helped Wal-Mart to succeed in the Chinese region and the possibilities seen comparative and competitive advantages. Therefore, the paper would analyze the Wal-Mart success in a foreign market which is China and the process of the internationalization of the company.
Dunning’s Eclectic Framework
The Wal-Mart Enterprise decided to internalize their business in the Chinese soils instead of subcontracting because of the profitability that was to be obtained from the business. China had grown into a stable country businesswise that gave the Wal-Mart managers the need to do a foreign direct investment (FDI). The Chinese market has favored growth and development of the Wal-Mart Company in many ways. For instance, the growing population of the Chinese people offered an advantage on the size and value of their market share. Similarly, the low-prices offered in all the company’s products have attracted a large number of customers all over the country hence; being named as the best enterprise in China.
The Dunning’s theory explains the entry of the Wal-Mart business into the Chinese market through an analysis of their competitive advantage that started from having a low-priced strategy. Therefore, the Wal-Mart Company had collaborated with other leading manufacturers and producers of various products that offered enough resources made available to the consumers at discounting rates. The success of the company was based on the availability of equitable resources from their suppliers as the managed to outsource their products to other retailers under their brand name. However, China had had various companies with similar products services such as those offered by the Wal-Mart and had given the Wal-Mart Company a competition regardless of their superiority.
The Wal-Mart Enterprise had taken the lead in determining the location of implementing their foreign direct investment by choosing China. China has offered the company a basis for economic advantage as one of the location factors. For instance, the economy of China is rising and growing rapidly and could soon reach that of the United States level. The Chinese economy grows due to the availability of quality production, development of transport and infrastructure, as well as the growing market size. Furthermore, the increasing population offers cheap labor to the firms in the country. Additionally, the Chinese location factor includes the political stability and the government policies that could be helpful to the growing Wal-Mart industry. The government policies favor foreign investment where companies such as Wal-Mart are given priority in the investment policies. The social advantages experienced in China are the languages and interactions contributing to the relationship between the host country and the home country of the investing company. Therefore, the Wal-Mart management has employed staffs from the Chinese region for easy communication as well as understanding the cultural diversity of their people in the development of their company.
The Wal-Mart Enterprise in China has taken the consideration of employing Location Bound FSAs which have been adapted from the Chinese region. China has developed technologically and has various techniques that help in advancing the operations of a business. For instance, the use of online purchasing that was adapted by the Wal-Mart Company in improving the e-commerce business. Similarly, China has shown the innovation of products as they have been developed using the technology. Location based FSAs cannot be transferred from one location to another. Additionally, Non-Location bound FSAs such as brands could be moved from one region to another. Such exchange has been seen in the brand name of Wal-Mart that has been used in different stores all over the globe. Wal-Mart has a wide range of managerial skills obtained from different experts all over the world and they contribute largely to the development, advancement, and improvement of the entire cooperation. The managers and experts employ their skills in the company as they propose to expand their market value as well as reaching a maximum number of consumers by opening branches at different countries. Therefore, Wal-Mart is run by experienced personnel.
Dunning’s Eclectic Framework II
Location advantages means the alternative regions, which may have valuable raw materials, specific taxes or tariffs; thus an advantage of multinational companies for undertaking value adding activities. This second element of eclectic paradigm is concerned with the place of production and it attempts to explain why an industry may wish to produce products in a certain location. The advantage of this element is that the firm will be in a better position of producing commodities in their domestic country and export them to the foreign market; thus generating high revenues. The multinational company may participate in foreign production in case if finds the best location and combine it with ownership advantages or internalization gains with production in another region. The location choice of the international firm can be influenced by spatial market failure, which is the existence of trade barriers such as tax rates, high tariffs and poor environmental regulations or political instabilities.
The location advantages are categorized into three types. First, the access to and relative production cost factors, which require only an industry in a specific geographical location to exploit the resources. Language and cultural aspects can also be taken into considerations; thus it is vital for the firm to invest, as well as, consider business practices or customs before establishing the business abroad. Secondly, taxes and trade barriers are also taken into considerations. A firm should take into consideration government policies because they are subjected to change. Therefore, many multinational companies may consider government intervention, investments, political stabilities and control on imports before making investment decisions. Lastly, transportation cost and access to the market advantage. For instance, firms that produced commodities at high costs should attempt to locate their firm near to the market places. The goods should also be capital intensive meaning that the firm should employ skilled labor and advance technology in order to produce high quality products, which will be marketable.
Dunning’s Eclectic Framework III
