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Abstract: This discussion will seek to assess the benefits of globalization and FDI to MNEs on the one hand and
host countries on the other. Various organizations will be used to highlight and delve deeper into the impacts,
benefits and also threats that globalization has presented.
FDI (Foreign Direct Investment) has presented increased opportunities over exporting as it opens more gateways to
opportunities by enabling ownership of operations in host countries. As opposed to exporting in the market place,
with FDI, MNEs are allocated entire profit margins that in an export/ import relationship must be shared between
the two parties (Shenkar, O. & Luo, Y., 2007).
One of the obvious benefits that MNEs are able to take advantage of is the ability to be profitable and
competitive via location specific advantages, especially in developing countries such as Brazil, India and China.
These include opportunities made available by liberalized economic systems such as cheap labor, drastically
reduced operational costs, transportation costs and government policies (Shenkar, O. & Luo, Y., 2007).
Apart from cost benefits, structural discrepancies between host and home countries can also present increased
benefits to MNEs. These factors would typically apply mostly to established firms in developed countries that are
sophisticated and knowledgeable about the opportunities that they are able to exploit in foreign countries. These
may include core competencies that are not competitive enough in home countries but can be exploited in foreign
countries, thus finding new competitive market opportunities. The sophistication, quality and brand equity that
established firms in developed countries have gives them tremendous growth potential in developing countries that
are brand-aware and also have not yet been tapped into by competitors (Shenkar, O. & Luo, Y., 2007).
Incentives that trigger MNEs to rethink their business strategies to benefit from global markets have increased
substantially especially for firms that come from and operate in developed countries. For example, the reduction
of soda drink sales in the US for PepsiCo Inc due to cost increases in commodities triggered their business
strategy to take advantage of liberalized economies and invest in other countries to boost their business outside
of the US. In 2008 The Company was planning to make investments of $500 million to expand its operations in India
with the goal of tripling in Revenue and becoming a leader in India’s consumer products market (Zubko, N., 2008).
The company had also highlighted the host company gains that will be benefitted from this investment, including an
expansion of over 50K new direct and indirect jobs in addition to the 64K that the company employs both directly
and indirectly in India since 1989 (Zubko, N., 2008).
Flash forward to 2013, India is one of PepsiCo’s largest global markets, continuing to make plans for expanding
its range of products and increasing operations and distribution. The company has predicted that such investments
and growth will continue to increase job opportunities by creating now more than 100K jobs to add to the 200K it
has helped since first investing (BBC, 2013).
The dispersal of core competencies touched upon earlier represent the benefit of ‘ownership advantages’ that MNEs
can strategically use in order to exploit global opportunities. FDI enables MNEs to strategically select the right
market that will make use of its core competence in the most profitable way. This scenario benefits both MNEs and
host countries because it provides the platform for MNE competence to flourish in a market that demands it and it
benefits the host country with an asset that was not previously available (Shenkar, O. & Luo, Y., 2007).
Organizational learning and knowledge in general as highlighted by Shenkar, O. & Luo, Y., ( 2007) as another
fundamental benefit that both MNEs and host countries can take advantage of with the integration opportunities
that globalization makes possible. On the one hand, MNEs are able to learn from host markets in order to identify
potential market growth and opportunities as well as learn about domestic cultures, competition, nature and more
in order to tap into the country in the most effective and efficient way possible. On the other hand particularly
in the case of established firms from developed countries operating in emerging markets, developing countries and
domestic firms are able to learn from their foreign competitors and improve their own quality and productivity via
alliances, joint ventures or on their own (Shenkar, O. & Luo, Y., 2007).
Procter and Gamble for example, made some tremendous strategy decisions that enabled them to continually achieve
superior return on investment. CEO, Lafley has credited P&G’s “Transnational” global strategy for the MNE’s
continual success. By exploiting knowledge and learning about different cultures, countries and markets they
strategically specialize and localize their brands for multiple marketplaces. The use of integration and strategic
alliances to support their global strategy has enabled P&G to gain competitive advantage quickly by catering
to local needs using local strategies (Warren, S., 2013).
As highlighted in P&G’s example, through strategic global alliances and effective knowledge management, FDIs
can enable MNEs to acquire distinctive skill sets from foreign host country competition and domestic firms. This
also makes possible, low-cost fast access to new globalized competencies, developments, and market opportunities.
Globalization and FDI is increasingly making benefits apparent to both MNEs and host companies, from tremendous
cost benefits and market opportunities for MNEs (especially from developed countries) to new job opportunities,
increased economy, increased jobs and learning for growth and global competition for domestic firms in host
countries (mainly coming from emerging markets) (Shenkar, O. & Luo, Y., 2007).
Whilst some countries typically in the US, Finland and the Netherlands do not find FDI threatening in most
circumstances, there are countries in particular those consisting of emerging markets that do. Obvious reasons
such as new international competition could lead to profit and market share loss and closure of facilities for
domestic firms (Shenkar, O. & Luo, Y., 2007).
Another factor is the inability of firms in emerging markets to succeed to the extent that established firms can
on a global scale in developed countries. This is primarily due to the fact that emerging markets do not have the
sophisticated skills, expertise and quality value chains that established MNEs from developed countries do
(Shenkar, O. & Luo, Y., 2007).
Considering these threats to emerging markets, it is valuable to consider and question if it is FDI that creates
such threats to firms or if it is local infrastructure, government policies, culture and most importantly
organizational strategy and entrepreneurship that makes or breaks a firm’s global success. For example, the
massive flow of FDI into China has enabled the exportation to developed and developing countries of products such
as appliance maker ‘Haier’, as well as establishing plants abroad – something that would not have been possible
without the success of FDI inflow in China (Shenkar, O. & Luo, Y., 2007).
Another example by Shenkar, O. & Luo, Y. (2007) is emerging market firm BIMBO from Mexico that used its
supplier relationship with US Mc Donalds to piggyback on the US firm and grow supply units throughout Latin
America.
So to conclude, my personal opinion is that taking advantage of such benefits highly depends on the extent that
domestic firms take advantage of the opportunities before them. It also depends on a number of factors, including
local infrastructure and government policies. The various relationships that are built between domestic firms and
MNEs are in most cases beneficial for both, where one is strengthening the other in a sort of symbiotic
relationship.
Competition is inescapable in today’s turbulent environment; it is in the power of firms globally to make the
right strategic decisions that will enable them to take advantage of global opportunities. With that in mind,
globalization is what presents the challenges, benefits, threats and tremendous growth opportunities all at the
same time, it is the strategies that firms employ that will make all the difference – do you agree?
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