The Multinationals Failure in Emerging Economies

Topic: Marketing
Words: 849 Pages: 3

Introduction

The unexpected increase in the competition in the emerging markets, which occurred due to the enhanced activity of local enterprises, poses a threat to the business of multinational organizations. Currently, their survival significantly depends on the capability to readjust operations with regard to the new conditions and adopt new methods to compensate for the financial losses similar to those of successful companies. This complex initiative is to be conducted with respect to the economic conditions of regional marketplaces; hence, a careful analysis of differences between home countries and target settings is required. In order to perform it, one should pay particular attention to previous failures of international businesses to eliminate the accompanying risks. Therefore, the development of appropriate solutions for multinationals is possible if all the factors determining the existing challenges are taken into account.

The Failure of Multinationals: Causes

The first aspect of the matter is the reasons why the enterprises based in advanced economies failed after entering less developed foreign markets. According to Santos and Williamson (2015), they are related to the fact that product adaptation is insufficient for increasing their share since the competitors’ offers are now underpinned by comparable capabilities. Thus, local businesses have evolved over time, and this process led to enhanced access to high-qualified workforce and innovative solutions (Santos & Williamson, 2015). Consequently, the advantage of multinational corporations became limited to their ability to integrate their products into the well-developed system consisting of small companies of the target market. This outcome was supported by the fact that the environment is rapidly changing and, therefore, cannot be relied on when elaborating long-term initiatives (Narula & Pineli, 2019). Thus, in the context of ongoing globalization, these conditions prevented the companies with initially favorable positions from increasing profits due to the growth of their rivals.

Another circumstance leading to adverse outcomes of regular operations of multinationals in emerging economies is the focus on selling the most popular goods as opposed to those required in the country. This practice reflected the gap between the perceived value of products by manufacturers and actual demand conditioned by local cultural specificities (Santos & Williamson, 2015). In other words, applied global strategic thinking was restricted by inappropriate priorities in the absence of sufficient evidence. In addition, the decision to outsource activities to local businesses was detrimental to the outcomes since it allowed them to gain the lacking experience and thereby improve competitive advantage to become more independent (Santos & Williamson, 2015). The specified issues, in combination with better awareness of small companies registered in their home countries regarding conditions and their possible shifts, determined the unsatisfactory results of multinationals’ market entry and their low share.

Addressing the Challenges: Solutions

Considering the analysis of the previous failures conducted above, one can formulate a number of solutions to be adopted for overcoming them. As a CEO of one of such multinationals, I would recommend developing a comprehensive plan addressing the gaps in a firm’s capabilities and the requirements of the market of operation. First, the activity should be reorganized with respect to the needs of citizens and entities to integrate into the field for improving competitive advantage in the long run (Santos & Williamson, 2015). This decision should rely on a careful examination of the environment and customer feedback.

Second, the strategic course of development of the affected multinational corporations should be reconsidered for establishing the proper patterns of cooperation with local businesses. As follows from the article written by Narula (2018), limitations in this area in the past caused serious problems to the outcomes of the activity. The historical evidence can be used for justifying this measure, and the fact that only companies investing in smaller enterprises in the country of operation managed to increase profits implies the need to address this issue (Narula, 2018). Therefore, it is reasonable to suggest that allocating funds for assisting other entities while negotiating their contributions is critical.

Third, the cross-country experience can be enhanced by partnerships between state bodies and multinational corporations. This idea seems feasible from the perspective of the creation of a favorable environment for sustainable business activity because monitoring political situations is crucial for timely detecting the circumstances which can be detrimental (Santos & Williamson, 2015). This suggestion is supported by Narula (2018), who claims that the neglect of this aspect correlates with the failure to adapt. Therefore, it should underpin other solutions discussed above to increase flexibility.

Conclusion

In conclusion, the failure of multinationals to promote their products and increase their market share in emerging economies was conditional upon the presence of several problems. They included the evolution of local companies due to their interaction, limited capabilities in integrating the offers, and the sole focus on items expected to bring substantial profits. These issues were critical for determining a less advantaged position of international companies, but the situation can be changed by modifying the strategic course. Thus, to address the challenges, it is necessary to cooperate with the government, timely conduct market analysis, and invest in partners from the country of operation to make a gradual change and become profitable.

References

Narula, R. (2018). Multinational firms and the extractive sectors in the 21st century: Can they drive development?. Journal of World Business, 53(1), 85-91. Web.

Narula, R., & Pineli, A. (2019). Improving the developmental impact of multinational enterprises: Policy and research challenges. Journal of Industrial and Business Economics, 46(1), 1-24. Web.

Santos, J. F., & Williamson, P. J. (2015). The new mission for multinationals. MIT Sloan Management Review, 56(4), 45-54. Web.

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