Multinational entities (Essay Sample)

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The role of Multinational entities in international trade
Introduction
Multinational entities have played a major role in international trade for several centuries. A number of multinational corporations (MNCs) from developing economies are becoming key players in the global economy. Multinational corporations engage in very useful and morally defensible activities in Third World countries for which they frequently have received little credit. Significant among these activities are their extensions of opportunities for earning higher incomes as well as the consumption of improved quality goods and services to people in poorer regions of the world. Compared to local firms, multinational corporations provide developing countries with critical financial infrastructure and enormous resources for economic and social development.
These institutions are able to overcome challenges that are faced by local firms. The challenges include; lack of managerial training and experience, inadequate education and skills, lack of credit, national policy and regulatory environment, technological change, poor infrastructure and scanty market information which diminish their ability to contribute effectively to sustainable development. Multinational corporations like local firms in recent years have been faced with increasing competition arising from various sources including other multinationals. They also have the challenge of unfamiliar business environment and unfriendly laws. While local firms often find it difficult to compete with these firms, MNCs appear to be doing very well in spite of the competitive challenges faced.
There are many multinationals in Africa and some of them are based in East African region which is centrally located in the continent. Kenya has been hosting most of these multinational corporations (MNCs) including homegrown and internationally recognized ones. The MNCs based in Kenya have dominated the market both in the continent and also in the East African region because of the favorable conditions and business environment in Kenya.
This dominance has been there for more than a decade and the main factors that contribute to this fact are mostly related to economical capacity and opportunities of the country compared to other nations in the region. Kenya has been on the front line in marketing itself as one of the most favorable centre for setting up big corporations and being a strategic hub for MNCs. The government has spent a lot of resources on improving the relevant infrastructures in the country to enhance the growth of these MNCs.
There are many reasons why Kenya has been at the top in terms of its ability to host many MNCs and they include the following:
a. Efficient policies and Strategic planning
MNCs in Kenya use different strategies to position themselves in a very competitive market. Most of these strategies follow under the categories below:
-Cost Leadership Strategy
A firm producing at the lowest cost in the industry enjoys the best profits. Producing at lower cost is a strategy that can be used by various firms so as to have a significant cost advantage over the competition in the market. This in effect leads to growth in the market share. This strategy is mostly associated with large businesses offering standard products that are clearly different from competitors who may target a broader group of customers. The low cost leader in any market gains competitive advantage from being able to many to produce at the lowest cost. Factories are built and maintained; labor is recruited and trained to deliver the lowest possible costs of production. Cost advantage is the focus. Costs are shaved off every element of the value chain.
Products tend to be 'no frills.' However, low cost does not always lead to low price. Producers could price at competitive parity, exploiting the benefits of a bigger margin than competitors. Some organizations, such as Toyota, are very good not only at producing high quality autos at a low price, but have the brand and marketing skills to use a premium pricing policy. A low cost leader’s basis for competitive advantage is lower overall costs than competitors. The need to manage cost is nothing new, yet surprising number of organizations struggles to successfully control their operating expenses overtime. Successful low cost leaders are exceptionally good at finding ways to drive costs out of their business.
-Differentiation Strategy
Differentiated goods and services satisfy the needs of customers through a sustainable competitive advantage. This allows companies to desensitize prices and focus on value that generates a comparatively higher price and a better margin. The benefits of differentiation require producers to segment markets in order to target goods and services at specific segments, generating a higher than average price. For example, British Airways differentiates its service.
The differentiating organization will incur additional costs in creating their competitive advantage
(Porter, 1996).These costs must be offset by the increase in revenue generated by sales. Cost s must be recovered. There is also the chance that any differentiation could be copied by competitors. Therefore there is always an incentive to innovated and continuously improve. Targeting smaller market segments to provide special customer needs is a strategy widely used in the corporate scene. It involves identification of the needs of the customers in the market and designing products that can fit their needs. Companies can pursue differentiation from many angles. Varian (2003, p.454) notes that firms may find it profitable to enter an industry and produce a similar but distinctive product.
-Cost Focus Strategy
Lower cost advantages to a section of the market segments with basic services offered to a higher priced market leader is a strategy acceptable in the corporate world. It results to similar products to much higher priced products that can also be acceptable to sufficient customers in the market. A focused strategy based on low cost aims at securing a competitive advantage by serving buyers in the target market niche at a lower price than rival competitors. This strategy has considerable attraction when a firm can lower costs significantly by limiting its customer base to a well defined buyer segment. Focused low cost strategies are fairly common (Porter, 1996).
-Differentiation Focus Strategy
MNCs in Kenya aims to differentiate within one or a number of target market segments. The special customer needs of the segment means that there are opportunities to provide products that are clearly different from competitors who may be targeting a broader group of customers. This demands that the customer’s different needs and wants be recognized. A company that makes a strong and unwavering commitment to one of the generic competitive strategies does it stands much chance of achieving sustainable competitive advantage that such strategies can deliver if properly executed. Many companies for example, have entered a market as a niche player and gradually expanded. Combination of differentiation and low cost might be necessary for firms to achieve a sustainable competitive advantage.
b. Geographical and strategic location
Kenya’s position in East Africa is considered as the gateway to Africa and specifically the East Africa region thus making it appropriate for all businesses. The country has the advantage of being located along the coast line and this ensures that importation and exportation of important commodities is convenient and cheaper compared to other countries in the region and this makes it have the upper hand in the growth of the multinationals.
The country is the entry point to Africa and it offers direct link to the East African nations. This makes it easy for it to have a competitive advantage because MNCs spend less on transportation within the country especially for imports and exports.
Most MNCs have their head offices in Nairobi which is the capital; city of Kenya and it happens to be strategically located in the whole continent compared to other cities in more developed areas in Africa like those in South Africa. Most MNCs are opting to invest in the country because it is easier to access almost all the other region in Africa from Nairobi and Kenya as a whole. The city is easily accessible and it can be used as a central point for distribution and management by the MNCs.
c. Favorable legal system and framework.
The country has managed to adjust the legal system in such a way that the investors are both secure and confidence when making the investment and expansion decisions. Kenya has well set statutes that are aimed at safeguarding the investor’s interests and also ensuring that the government and all stakeholders are confident with the prospective investors. The government has been encouraging the improvement of the business environment by formulating and implementing favorable laws and policies. This helps in ensuring that the MNCs takes root faster than expected because they can undertake their commercial activities in a liberalized economy without the influence from the government. Statutes regulate to some degree most commercial activities and dealings and it is therefore recommended when considering legal issues arising in Kenya to establish whether any statute governs the relevant transaction before placing reliance on common law principles. By way of example, there are statutes governing, among other matters, companies, banking and insurance business, capital markets, land law, taxation, local government, shipping, competition law and intellectual property.
c. Effective Role by the government
The Kenyan Government has acknowledged the role played by the private sector through the par...