Global Business Operations Individual Assignment

Discussion Title: Over the next several decades multinationals from emerging economies are likely to become a key force in the shaping of the global competitive landscape. Discuss the validity of this statement using company examples from at least three emerging economies.

Introduction

Global Business operations have become more competitive nowadays; the primary reason

which comes into mind is “Globalization”. If we have a look in the past several decades, we see

the footprints of some highly developed economies such as USA, western European Countries

and Japan in making the business operations truly global. These countries marketed their

national brands internationally; even the notion of multinationals was linked with their

respective national brands for example, Toyota and Sony (Japanese), McDonalds (American),

BMW and Mercedes (German) etc.

In the midst of this wave of globalisation, one thing is worth noticing, the rise of multinational

companies from emerging economies. If we look at the present scenario, multinationals from

emerging economies are not niche players but they work on some form of competitive

advantage (Goldstein, 2009). Another reason could be the liberalization in trade conditions of

domestic market which gives them a ground to explore and expand the export of goods. This

approach will allow to them to move in clusters of countries irrespective of their geographical

locations, if they offer them comparative advantages in their business (Bhattacharya, et al.,

2004).

In this discussion, we will be discussing the validity of the above mentioned statement by

discussing about some multinationals such as TATA from India, CEMEX from Mexico and LUKOIL

from Russia thus will try to validate the situation of their key involvement in global competitive

landscape and can be considered as important players in post-recession market.

Discussion and Arguments

Emerging Economy: India

Indian Economy is tenth largest economy internationally by nominal GDP and the purchasing

power parity is third-largest as per international monetary fund’s information. It is a member of

BRICS which is developing into an open market economy through economic liberalization.

Deregulation of industrial policies, transition to privatization of state owned enterprises and

reduced controls on foreign investments and trade are paving its way towards emergence and

allowing national multinationals to groom and influence the businesses globally (IndexMundi,

2013).

Multinational: TATA

Perceived as India’ Largest business group with its businesses enfolding in 7 sectors such as

automobile, telecommunication, information technology, retail, consumer goods, power and

financial services. Its operations are truly global, operating in over 80 countries with product

and services available in over 85 countries. It is impossible to cover whole group’s business

operation in few words, as a result, through one of its flagship business i.e. Tata Motors, we will

try to gauge the scalability of its operations. Established in 1945 and considered as India’s

largest automobile industry, it became a motor of economic growth in this sector for country

promoting outward FDI in Europe, Africa, Latin America and Middle East. It is doing great not

only in India but also acquired some of the big automotive companies such as Daewoo in 2004

and Jaguar-Land Rover in 2008 and get involved in joint ventures with Spanish automotive giant

Hispano in 2005 and Latin American Bus Manufacturer Marcopolo in 2006, which is the

evidence of its robust business operations (Editor, 2013). The reason, why it can be considered

as a key force in global competitive landscape is its blend of Extender and contender approach

to expand its business. Tata Motors focuses on Upgrading capabilities and resources to match

multinationals globally, often by keeping niching markets through Joint Ventures and

Acquisitions. Its strategic process benchmarking, service management and cost competitivenes

through manufacturing high quality products at lower costs are its competitive advantages over

major competitors such as Ford motor company and General Motors. Moreover to it, it also

focuses on expanding into markets similar to those of the home base, using competencies

developed at home, expanding into Thailand, Africa, Brazil, Eastern Europe.

The consequence of becoming a key force stems from the fact, how are they positioning

themselves i.e. International Strategy Based on Competitive Advantage, Choosing countries with

highest market potential in customer segments conscious of overall value and Creating

products to be amongst the top 3 players in each chosen segment, for instance their new

product, Tata Nano – Worlds Cheapest Car waved a new segment of cars where expansion

needs to be done in future which earlier almost seemed impossible to other market rivals.

Emerging Economy: Mexico

Mexico, a free market economy, is 13th largest in nominal GDP and the 11th by purchasing

power parity, according to the World Bank data. It is a blend of modern and outmoded industry

which is rapidly coping up with international industrialization with a dominance of private

sector. Its economy is export oriented and has free trade agreements with lots of countries

which promise its emergence. Policies such as modernizing labour laws, fostering investments

in sectors such as energy and upgradation of infrastructure are bringing it into global picture

with some of its companies impacting global competitive landscape. (IndexMundi, Mexico

economy Overview, 2013)

Multinational: CEMEX

CEMEX, founded in 1906, one of the world’s largest building material suppliers and third largest

cement producer company, after Lafarge (French) and Holcim (Swiss) and the largest in Latin

America (UNCTAD, 2005). Operating with production facilities in around 50 countries makes it

one of the prominent companies in capital intensive businesses. They started expanding

themselves from mid of 1970’s through organic growth thereby encouraging foreign direct

investment (FDI) with a proper risk management (Internationalization Strategy). Earlier they

applied aggressive strategy during crisis of 1982 in Mexico by consolidating and acquiring

cement plants thus strengthening their position in national market through its efficient

manufacturing and focussed customer service by providing best value proposition (Vargas-

Hernández & Noruzi, 2010). Trade liberalization policy in Mexico changed the business aptitude

of large Mexican firms thus encouraging them to internationalize their activities.

Acquisition of Southdown in USA and RMC in UK made its operations more profound, globally,

having a reach in Europe, America and Asia, though still they have to position themselves in

India and China. According to sources, they have completed around 40 overseas acquisitions in

all continents. They have a strong cash flow in United States and Europe (Economist, 2004).

If we compare CEMEX with its main competitor, LaFarge, its low cost production and IT

processes which match all the processes with consumer demand and their multicultural

adaptability across the organisation is pretty strong whereas, Lafarge has personalized products

according to the region though low cost (an added advantage over CEMEX) and research is

based on sustainable development.

Being a global player, CEMEX is becoming key force in global competitive landscape which is

evident from the strategies followed in past. The present strategies in focus as presented in a

research paper are:

“To concentrate investments in developing countries where the profits are higher because the

small levels of purchase of bags for self-construction and small-scale building. Also, the strategy

of CEMEX relies heavily on a just in time delivery system of distributing concrete. CEMEX is

implementing the franchise Construrama, a strategy of low prices for low quantities to cater

and provide access to the lower economic segments by selling inexpensive bags of cement for

the self-construction market” (Vargas-Hernández & Noruzi, 2010).

Apart from this they believe in acquiring bungling cement companies in other markets and

educating them with their business, production and IT skills which, without any doubt bolster

their position as a key player globally from Mexico.

Emerging Economy: Russia

Russia, member of BRICS, is 8th largest economy by nominal GDP and purchasing power parity is

sixth largest in world according to CIA World fact book. Since the breakdown of Soviet Union, it

has progressed to market based and globally integrated economy. With abundance of Fossil

fuels (natural gas, coal and oil) and metals they are moving towards privatization with

exceptions to energy and defence related sectors. It has started cementing economic ties with

different countries and joined WTO in 2012 in order to decrease trade barriers and enter into

foreign markets thus encouraging some of its big companies to expand and share the profit pie

in this rapidly evolving global business scenario.

Multinational: LUKOIL

LUKOIL, Established in 1993, is Russia's leading oil company and the second largest oil and gas

company worldwide with proven reserves of oil and gas. Global operations in oil and gas

exploration, refining, production and end-user sales accounts for over 1.5% of global reserves,

2% of production globally and 1/5th of Russian production (Euromoney, 2004) with and annual

turnover of $ 139.2 billion. Its production and refining units and assets are spread over Western

Siberia and Perm Region. Global empire of company comprises of 12 international exploration

and production projects in Kazakhstan, Azerbaijan, Egypt, the Middle East, North Africa,

Columbia, Ukraine, Bulgaria and Romania.

Like the companies discussed above, in order to expand, LUKOIL also followed a policy of

acquisitions e.g. Refineries (Neftohim, Bulgaria), fuel distribution company (Getty Petroleum

Marketing Inc., USA), oil company (KomiTEK) etc. It also entered in joint stakeholdership with

PETROTEL.

Their strategy of modernizing production units, enhancing the existing infrastructure thus

exploiting resources optimally gave them a competitive edge in the fluctuating market (Ciopi,

2010).

Establishment LITASCO Company (LUKOIL International Trading and Supply Company) in 2000,

led to the operation and expansion of international businesses and its strategic alliance with

ConocoPhillips led to integration of oil and companies with a broad base strategic investment

motive.

Its Major competitor is Gazprom Neft and LUKOIL has to depend on it only for selling gas; since

gas produced by LUKOIL is sold mainly to Gazprom since it has a monopoly and owns most

efficient Russia’s gas transport system. But application and innovation of latest know-how,

research & development and technologies are its competitive strengths.

Conceptualisation of LUKOIL as a key force in global competitive landscape is evident from the

fact that for expanding their market they are following Offensive strategy and fascinate new

customer base. Heavy investment in production facilities, upgrading refineries, increment in the

number of gas stations, enhancing fuel quality , implementing efficient production of lubricants

are some of the major plans in coming years which will not only improve the product quality

but also competitiveness as per International Standards.

Another important strategy is to invest in improvement of IT infrastructure and data centres so

that control over commercial operations and finances can be monitored strictly which is an

important factor for the expansion of operations globally and sustainable growth.

Conclusion

Although most of the industrial giants are domiciled in developed countries, but since last two

decades, it has been observed that multinationals from developing companies are rising thus

supplying a substantial share of world’s GDP. Establishment of foreign subsidiaries or affiliates

by organic growth and mergers and acquisitions through FDI outflows. It is also worth noticing

that there present and future is highly subjective to political and economic reforms flagged by

their respective home governments (SALEHIZADEH, 2007).

According to Buckely and Cassen (Buckley & Casson, 1976) OLI paradigm, “’O’—owner-specific

advantages in a MNC’s home market, ‘L’—location-specific—characteristics abroad and ‘I’—

internalisation, by which the firm controls the value chain in its industry” seems to be prevalent

in this scenario.

The companies we discussed here and the other emerging MNC’s from emerging economies

have embraced the unique management style and international corporate practices thus

differentiating products and services by becoming “market and efficiency seeking” and gaining

more global status in terms of assets, resources, sales and business development at a

competitive rate than their developed economies counterparts with a positive impact on global

competitive landscape (SALEHIZADEH, 2007). As a result, the above mentioned discussions and

arguments validates our discussion title, with an upcoming trends of more mergers and

acquisition, more FDI outflows, bigger share of products and services from companies which

are not only growing exponentially but also performing at a similar rate with developed world

contenders.

References: Bhattacharya, A., Young, D., Bradtke, T., Hamerling, J., Lebreton, J., XavierMosquet, et al. (2004).

Capturing Global Advantage. Boston Consulting Group.

Buckley, P., & Casson, M. (1976). The Future of Multinational Enterprise. London: MacMillan.

Ciopi, M. O. (2010). LUKOIL’s Market Strategy in Central and Eastern Europe. Economic Sciences Series, 103-110.

Economist. (2004, September). Cement: One gigant leap for Mexico. Retrieved April 2013, from www.economist.com: http://www.economist.com/node/3252455

Editor, W. (2013). TATA Motors: Company Profile. Retrieved April 2013, from www.tatamotors.com: http://www.tatamotors.com/know-us/company-profile.php

Euromoney. (2004, September). Emerging Europe: LUKoil Russia's Emerging company. Euromoney Institutional Investor PLC, p. 177.

Goldstein, A. (2009). Multinational Companies from Emerging Economies: Composition, conceptualisation & Direction in the global economy . The Indian Journal of Industrial Relations, 137-149.

IndexMundi. (2013, May). India Economy Profile 2013. Retrieved April 2013, from http://www.indexmundi.com: http://www.indexmundi.com/india/economy_profile.html

IndexMundi. (2013). Mexico economy Overview. Retrieved April 2013, from http://www.indexmundi.com: http://www.indexmundi.com/mexico/economy_overview.html

SALEHIZADEH, M. (2007). Emerging Economies’ Multinationals: Current status and future prospects. Third World Quarterly, 1151-1166.

UNCTAD. (2005). World Investment Report. UNCTAD.

Vargas-Hernández, J. G., & Noruzi, M. R. (2010). An Exploration of the Status of Emerging Multinational Enterprises in Mexico. International Business and Management, 7-15.