Page 110 - Introduction to Business

84 PART 1 The Nature of Contemporary Business

billion in five manufacturing plants for cameras, chemicals, and film, Kodak
has more than 8000 stores in China. Also, Groupe Danone (France) has suc-
cessfully manufactured and marketed biscuits, beverages, and dairy products
in China. Procter & Gamble (United States) and Siemens (Germany) have been
success stories in China and India.
4. Minimizing compliance cost: Industrialized countries generally impose strin-
gent regulations, especially as they relate to environmental quality, worker
protection (safety and health), minimum wage, zoning, and so on. In addition,
corporate tax rates may be high in the home countries of MNEs. All these fac-
tors add to the cost of conducting business in industrialized countries. For
these reasons some MNEs relocate operations to developing countries where
the regulatory environment is less rigorous and enforcement of regulations
may be lax. Several U.S.-based MNEs have been accused of taking advantage
maquiladoras The Maquiladora of Mexico’s lax environmental standards by investing in maquiladoras along
program allowed factories (primarily on the U.S.-Mexico border. These issues have become contentious, and various
the Mexican border to the U.S.) to nongovernmental organizations (NGOs) like Greenpeace have resorted to
temporarily import supplies, parts,
machinery, and equipment necessary to massive protests and economic disruption in recent years whenever there is
produce goods and services in Mexico an international gathering or conference that deals with globalization (e.g.,
duty-free, as long as the output was IMF, World Bank, or WTO meetings). At times these protests have turned
exported back to the United States
violent. The perception of these organizations is that MNEs (e.g., Nike) are
exploiting workers (using child labor, providing unsafe working conditions,
and paying substandard wages) in poor countries and polluting the environ-
ment (and the health of citizens) in developing countries. 5,6 Such protests are
likely to continue until these concerns are adequately addressed.
5. Pursuing a politically safe business environment: Like all businesses, MNEs
dislike uncertainty, since uncertainty, implies risks. When MNEs venture over-
seas, they are more prone to invest in countries that have a stable political
environment, that is, where the “rule of law” is transparent and enforcement is
swift and evenhanded. MNEs try to shy away from countries that are prone to
coups and where political succession is not well defined. They prefer to invest
in countries where the risk of expropriation (government takeover of assets
without compensation) and nationalization (government acquisition of MNEs
without adequate compensation) are minimal. Industrialized countries and
others with well-established legal systems and professional law enforcement
agencies, for example, Singapore, Malaysia, and Chile, attract sizable numbers
of MNEs.

mergers and acquisitions The process The two main avenues by which MNEs enter foreign countries are mergers and
of identifying, valuing, and taking over a acquisitions of existing operations, and the establishment of new subsidiaries.
foreign firm to meet a company’s growth
objectives
Cross-Border Mergers and Acquisitions. Multinational enterprises often
enter foreign markets by merging or acquiring (buying) well-established firms over-
seas. The advantages are obvious. An existing firm in a host country may already
have a well-developed production or marketing operation along with a good distri-
bution network or valuable technology. By merging activities with the host country
acquisitions Purchase of established firm, the new firm will become more competitive internationally. In acquisitions,
firms abroad with the goal of utilizing the home country firm will buy the host country firm outright and implement its
the existing production, marketing, and
distribution networks and of having own international business strategy (as the acquiring company sees fit). However,
instant access to foreign markets that fit in mergers, the management of both companies will play an active role in business
the purchasing firm’s global strategy development. Cross-border mergers and acquisitions will enable MNEs to have
instant access to foreign markets that fit their global strategy. Along with the
acquired company comes goodwill and market share. When Coca-Cola acquired

Copyright 2010 Cengage Learning, Inc. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.