Growth of Firms and Multinational Corporation
In the modern rapid-developing business world it’s important for a firm to develop in order to meet the requirements of the changing economical and social conditions. To research the phenomenon of the firm growth we should at first define the notion of economical growth. So, the Pension Boards Website defines economic growth as “increased production levels of goods and services. If measured in monetary terms, the increases must occur after adjustments for inflation have been made.
The enterprises grow and develop to satisfy their clients and to stay competitive in the business environment. If the firm is successful, than, sooner or later, it begins to grow and expand, and after the market is won in one particular country the need to expand the enterprise’s agency onto the foreign markets appears. Thus the firms organize affiliated societies in the countries where the economic climate is the best at the moment. Of course there are many factors that help the marketologists and analysts to define when and where to expand, and among those are the existing demand on this product in the chosen area, the taxes, social and political conditions in the society etc.
When the firms expand and organize their filial branches in other countries, they are called Multinational Corporations. The glossary on the Idiana University Website says: “A multinational corporation is a business enterprise that retains direct investments overseas and that maintains value-added holdings in more than one country. A firm is not really multinational if it just engages in overseas trade or as a contractor to foreign firms. A multinational firm sends abroad a package of capital, technology, managerial talent, and marketing skills to carry out production in foreign countries.”
There are two patterns of the firms’ growth, which are external and internal growth. The study called Finding the Formula for Growth, written by Dr. Burkhard Schwenker, Felicitas Schneider, and Dr. Christoph Kleppel, internal growth is told to be the growth strategy that can be implemented using the company’s own resources, without having to acquire a lot. Of course the small acquisition are embedded in these strategies, but there is little spent on them, and they’re not the focus of the attention. Internal growth usually is less risky than any other kinds, but the profit, got from it, is also usually lower. The important thing is that internal growth makes the organization more effective, thus preparing new changes. In order to implement the internal growth strategy the manager might try to increase the efficiency of their employees’ work in order to make the goods or services better and to lessen the amount of time needed for accomplishing their tasks.
The authors of the study say the during the external growth “companies “buy size” through M&A (merger and acquisition) activities.” This pattern lures the owners of the firms by the merits they can get in case of the successful merger or acquisition. If it turns to be the right decision, the profits of the enterprise increase a lot, but the statistic shows that only 50%-30% turn to be successful, while the others fail. The example of the external growth is when the big company buys the smaller one in order to use the resources their purchase possesses.
Researchers say that there are three routes of the firm growth, which are horizontal, vertical and diversified. Howard S. Rasheed, the author of the article about the economical growth, says that: “Vertical growth occurs when a firm takes over a function previously provided by a supplier or a distributor”. For example, the seafood restaurant that previously bought the products from the intermediary firm, organizes their own enterprise that works directly with the fisherman. The “horizontal growth occurs when the firm expands products into new geographic areas or increases the range of products and services in current markets.” For example, the seafood restaurant has so many clients, that the owners decide to open a couple more in other city districts, or even in other cities. Diversified growth is the way of developing when the company uses all the available opportunities in order to grow and continue it’s expansion, it’s when our seafood restaurant uses both ways described simultaneously.
The increase of the profit is the ultimate goal for most of the businessman, thus they do their best in order to increase the efficiency of the use of the resources they possess, and, of course, they promote and sell their products on the existing foreign countries. To do this they create the affiliated societies in the countries where they sell their products, and that’s how the Multinational Corporations are created. For example, when the owners of the McDonald’s firm understood that the market of this kind of services was overcrowded at the moment in their native country, that’s why they decided to expand to the foreign markets.
Becoming a multinational corporation brings lots of advantages to it’s owners. The first is, as we’ve already noted, is the increase of the market, so that there are more people eager to buy the products of this firm. The second is that in many countries the cost of the working hour of the employee is much less than it is in the USA. And, of course, the profits of the Multinational Corporations increase soon after the enterprises create them.
Unfortunately, most Multinational Corporations need a lot of economical knowledge and managerial skills in order to keep them profitable. It requires lot’s of managerial skills to coordinate the work of the parts that are situated in other countries. And, of course, one of the main hardships is in the mentality of the representative of various nations. If the new country has social or religious customs much different from those that exist in the maternal state, than the corporations have to put lots of efforts in order to adapt their products to the new clients. For example, in some of the countries the economic bay, for which was the targeted one for the McDonalds Corporation, is already occupied by the cafes that serve quick folk food.
As we see, the only way for the enterprise to increase its profits is to grow. When the domestic market of the country is occupied by the company, the leaders begin to create the filial branches in the other countries, and that’s how the Multinational Corporations appear. Transforming into a Multinational Corporations has its risks and merits, and it is the decision the leader of the company should take.
1. Spero, J. Hart, J. Multinational Corporation. Glossary. Indiana University Website, 2005
< http://www.indiana.edu/~ipe/glossary.html >
2. Economic growth. Glossary. Pension Boards Website, 2004
< http://www.pbucc.org/pension/tools/glossary.php >
3. Schwenker, B. Schneider, F. Kleppel, C. Finding the Formula For Growth. Roland Berger Website, 2004
< http://www.rolandberger.com/pdf/rb_press/public/RB_study_Formula-for-growth_20050420.pdf >
4. Rasheed, H. Growth or Retrenchment Strategy Choices for Declining Entrepreneurial Firms: The effects of Performance and Researches. Coba Website, 2004 <http://www.coba.usf.edu/departments/management/faculty/rasheed/GrowthorRetrenchment4pdf.pdf>
Cite this Growth of Firms and Multinational Corporation
Growth of Firms and Multinational Corporation. (2017, Jan 26). Retrieved from https://graduateway.com/growth-of-firms-and-multinational-corporation/