The global market is undergoing one of its worst shakeups in the history of the world. This has been caused by the effects of the global recession that the world had been experiencing in the last few years. The effects of this recession have changed the way companies endeavor to make profits. Over the next few years, we are bound to experience an increase in the number of emerging markets. Over the same period, we are bound to experience a season of decline in the developed world. This apparent decline in the developed market has made multinational companies to turn their focus from the developed markets and instead set their sight in the emerging economies.
Today, we are experiencing a massive exodus of MNC from the developed world to other global markets, which are viewed as having favorable market conditions. This has even been made easier by the decision to relax regulations required for multinationals to invest in these emerging economies. Most of these multinational companies having found favorable working conditions are establishing themselves and taking a large portion of the market share in their host countries. In this effect, multinationals from emerging markets are bound to become key force in the shaping of the global competitive landscape over the next few decades. (Pacek, 2009)
One emerging economy where multinationals are bound to become a key force in shaping the global competitive landscape over the next few decades is China. China is considered one country with the fastest growing economies in the world. Over the last few years, the country’s stock of internal overseas investments has increased by over US$265bn. This is one of the biggest increases in the stock of foreign investment ever recorded in the world.
Over the same period, China’s exports increased two fold making it one of the largest exporters in the world. The country’s economy also grew by more than 50% over the same period. Today, the country is headed by fourth generation leaders who are keen with making the economy grow. Attracted by this growth, many multinationals have found their way in to the Chinese market. (Pacek, 2009)
This growth is partly because of an increase in the number of multinationals in China. Over the last few years, China stood out as one country with the biggest markets for various products. The country also boasts of having one of the top multinationals in the world. Although China cannot be compared to places like El Dorado, it is a market that is slowly coming of age. For the last few years, China has been experiencing a growth in the middle class.
This has created a strong need for consumer goods. The country has also experienced a strong business-to-business (B2B) market. This B2B growth has been because of the relaxation of regulations that are demanded for multinational companies to set up businesses in China. This relaxation has made it easier to access the markets in the country. The Chinese infrastructure is one of the best in the world making it a great attraction for investors. These changes have seen an increase in the number of multinational companies, which are viewing China as a key global market. (China-Window.Com, 2008)
One area that has seen a big influx of Multi National Companies (MNC) in China is the automotive industry. The country’s automotive industry is perceived to be the fastest growing in the world. Over the last ten years, the industry has been selling more cars than any period in history. This has been occasioned by a rise in personal income and the rapid fall of automobile prices. In 1995, the annual car sale was 300,000 units a figure that has grown close to 3m units today.
The growth prospects for the future are even looking better. With the current economic meltdown affecting most of the world-developed markets, foreign automakers have been making a wild rush to China. Most of these companies have even become the biggest in the country overshadowing the local companies. (China-Window.Com, 2008)
One MNC that has made its presence known in China is VW. The company came in China at a time when the government had stipulated that all foreign companies joining the automotive industry enter in to a joint venture with the local companies. Many foreign companies felt that this stipulation checked their operations and decided to stay out of the Chinese market but not VW. Upon entering the market, the company made two successful ventures that made it a dominant player in the Chinese market.
One of this was with Changchuns’ FAW while the other was with SAIC a Shanghai based company. At that time, the only other foreign-based automotive company was Tianjin Auto that was working under the license of Daihatsu a local company. The other foreign companies present at that time presented no challenge to VW and soon they went under. These included Guangzhou Peugeot and Beijing Jeep all of which ended in a disaster. By 1995, these foreign companies controlled more than half of the local market. (China-Window.Com, 2008)
By the turn of the twentieth century, the Chinese government felt that not much was being done in bringing more technology in the automotive sector. In 1997, the government granted GM a license of operation under SAIC. Upon entry in to the Chinese market, GM brought in the latest technology making it a favorite over VW. With the dream of joining the World Trade Organization (WTO) in sight, there was the need to allow more foreign companies to invest in the country and reduce the tariffs. The government consolidated the small firms around the largest firms namely FAW, SAIC and Dongfeng.
Foreign automotive firms were then allowed to coalesce around these domestic firms. This has seen VW/GM working together under SAIC and VW/Toyota being forced to work together under FAW. On the other hand, Renault, Peugeot and Nissan have had to content working together under Dongfeng. This partnership has worked miracles pushing the annual car production from 400,000 in 1995 to almost 5m today.
These multinationals in the Chinese automotive industry are sure to become a key force in the shaping of the global competitive landscape. Although skeptics feel that these multinationals are over investing hence creating an uncertain tomorrow, these sentiments remain to be proved. Trends show that the demand for cars has been on the rise hence creating the need for more production. Today, almost all the major automotive companies in the world have set base in China making the industry one of the most established in the world. (Pacek, 2009)
Another field that is slowly experiencing an influx of MNC in China is the financial and professional services. Although the growth of these multinational companies has not been phenomenal, the prospects have been promising. A good example is Citigroup, which is slowly making an impact in the country. Although the company admits that the market remains low, they have great hopes for the future. This is the same case with the American International Group (AIG), which feels that their company in china is going to be the biggest in five years. There is a common belief among all major foreign financial and professional services companies that the Chinese market is bound to become one of the largest international markets. This has been deduced by looking at the level of demand in the country. (China-Window.Com, 2008)
Despite the financial and professional services sector looking dismal now, foreign-based companies are still finding their way into the country. This is because these companies have decided to look at the market in a long-term way. According to financial analysts from Citibank, China, India, Brazil and Russia are one of the most promising countries in terms of financial growth. This has made large foreign companies to turn their attention in to these countries.
The banking sector is not the only one that is experiencing this excitement. Financial analysts from AIG feel that given the high number of people in China and their saving trend that surpasses that of most other countries, the insurance market looks bright. This optimism is shared by KPMG an accounting firm, which feels that their operations in China will be one of the most established in a few years to come. (The Economist, 2004)
This optimism has reached its peak and today there are over 40 foreign insurance companies in china. This number has also been in the increase even for law firms that were at first skeptical about the growth. The attention being accorded to the Chinese Market shows that over the next several decades, multinationals from China are bound to become a key force in the shaping of the global competitive landscape.
The country’s phenomenal growth in population and its saving patterns are bound to see this dream happen. Recent happenings in a number of financial service markets attest to this belief. In the last ten years, mortgage lending grew from US$1.6bn to almost US$142bn. The same growth was also witnessed in the insurance industry where insurance premiums grew threefold over the same period. This growth shows that the foreign companies entering the Chinese financial and services markets are not taking a leap in the dark. (The Economist, 2004)
With China having opened its distribution and logistics markets in accordance with WTO, many foreign companies have taken that opportunity to enter the Chinese market. With the Chinese market of transporting goods in the country growing by leaps, foreign companies have grabbed this opportunity and are beginning to establish themselves in the relatively new market. This has been made easier by the government’s decision to shelve its dominance and allow competition from foreign logistics providers. (The Economist, 2004)
Another field that is expected to yield high growth in the coming years is the pharmaceuticals firms. Although the sector has not been experiencing a phenomenal growth, the future looks promising for multinationals operating in this area. The Chinese government has been doing everything within its power to protect intellectual property something that has encouraged foreign investors to enter the Chinese market.
Proposals by the Chinese government to introduce reforms in the hospital system are expected to propel this growth further. Although these changes are not expected to be implemented any time soon, once they are effected the growth is expected to be enormous. In the last few years, a large number of foreign pharmaceuticals have made an entry in the Chinese market. With the reforms being made on hospitals by the Chinese government and the reduction of tariffs, more foreign companies are bound to find their way in to China. Some of the foreign pharmaceutical companies in china include Pfizer, GlaxoSmithKline and Aventis/Sanofi. These companies take up almost 50% of the total global market. (The Economist, 2004)
Another area where foreign companies have established themselves in China is in the fast moving consumer goods (FMCG) sector. This has been advanced by an increase in the annual income per person. This increase in income has given consumers more purchasing power. This has helped to create a consumer market that is more able and more informed. The other thing that has given foreign companies more ground in China is the low restrictions placed in this sector. Some of these companies include Procter & Gamble, Colgate, Carrefour, and Wal-Mart among other big companies.
The other notable foreign presence in the Chinese market is in the telecommunications industry. Today, China is considered the center of telecommunication in the world. In the present, china boasts of having one of the most phenomenal markets for overseas telecommunications products. The high investment in the telecommunications sector has provided a ready market for the purchase of products made by foreign companies. Some of the foreign telecommunications companies in China include Motorola, Nokia Siemens, Ericsson and Alcatel. This deep investment in the Chinese market shows that multinationals are fixing their attention where the action is. (The Economist, 2004)
Apart from China, India is another emerging economy where multinational companies are turning their attention. Today, India is considered as one of the countries with the highest number of multinational companies.
After the economic liberalization of the early 90s, multinational companies have been growing by a big rate in India. Majority of these multinationals are from the US and other western countries. Although American companies account for the highest number of multinationals operating in India, this scenario has changed in the last few years. Today, European Union countries are investing in a large way in India. A good example of this is Finland whose mobile giant Nokia has its biggest base in the country. On its part, British are represented by multinationals like British Petroleum (BP) and Vodafone. (Business Maps of India, n.d)
In history, India is famed as having one of the largest markets for cars. This has seen an entrance of many multinational companies in this sector all seeking to benefit from this market. Some of these companies include Fiat, Piaggio, and Ford. Hyundai Motors has also been a force to reckon with in the mid segment car manufacturers in the country. The latest multinationals to enter the Indian markets have been French Alstom and Pharma major Aventis all of which are engineering companies.
The Middle East has also not been left behind in investing in India. The region has numerous oil companies and transportation builders which are seeking to make a mark in the Indian infrastructure market. The companies that have however made the biggest mark in the Indian market are electronics giants Samsung and LG. The operations of these companies have made India to be a leading exporter of electronic products in the world. (Business Maps of India, n.d)
Just like China, which has the highest number of multinationals in the world, India also has a wide Market. The country is one of the global economies growing at the highest rate. The Indian government has also come up with favorable policies towards FDI that are pulling multinational companies in the country. These policies were adopted during the financial liberalization that happened in the early 90s. Before this, the Indian government had set up stringent rules for foreign companies who wanted to do business in the country. This deterred many companies, which wanted to invest in the country. However, upon the relaxation of these rules, foreign companies are now finding their way in to India in large numbers. There are still many other companies, which have showed interest in investing in the country. (Business Maps of India, n.d)
As discussed earlier, there are many reasons why multinational companies are making their way in to India in large numbers. One of this is the huge market probability of India. Like China and Russia, India is viewed by financial analysts as one of the countries that are bound to experience a phenomenal growth in their economies. This optimism has made many foreign companies to set up operations in India in expectation of an economic boom. By the look of things, this is already beginning to happen since the Indian economy has been experiencing double-digit growth in recent years. The countries decision to relax policies for FDI attractiveness has also borne fruit.
Foreign countries are now finding it easy to set up their operations in India unlike in other countries where there are stringent restrictions. India is also considered one of the countries with the most competitive labor in the world. This has also contributed largely to the presence of multinational companies in India. By the look of things, multinational companies operating in India will soon become a key force in the shaping of the global competitive landscape. (Business Maps of India, n.d)
The other country that is slowly becoming a darling of foreign companies is Russia. Despite stiff competition from local players, multinational companies have been finding their way in to Russia in large numbers. Financial analysts view Russia as one of the countries with the most stable economies in the world. This has been accentuated by the country’s high growth in the people’s purchasing power. After the 1998-ruble devaluation that obliterated people’s savings, the Russian economy seems to be on a rebound. A few years down the line after this event, the economy has grown at such a fast rate to a point where the people’s purchasing power is now close to 50%. Multinationals like Nestle, Procter & Gamble among others are finding their way in to Russia to tap into this potential. (Belton, 2002)
By looking at the Russian economy, it is apparent that everything is in an upward climb. Multinationals have learned this fact and now everyone is in a rush to claim a share of the Russian market. This stake in the Russian economy shows that multinationals operating in Russia are bound to become a key force in the shaping of the global competitive landscape. Most of the multinationals in Russia are leading exporters of various products in the global market. Most of these multinationals are favored over the local companies because of their quality products. (Belton, 2002)
Multinational companies operating in emerging economies are slowly becoming a key force in the shaping of the global competitive landscape. This has been brought about partly by declining markets in the developed nations. This trend has caused companies to turn from their traditional role of making profits and have now decided to turn their attention in to the emerging markets. A good example is in China, India and Russia where multinationals are giving stiff competition to the local markets. This has been reinforced by the governments in these emerging economies who are offering less stringent rules for foreign companies to set up operations in their countries. This trend is bound to increase and in a few years these multinationals from emerging economies will become a key force in the shaping of the global competitive landscape.
Reference List
Belton, C. (2002) To Russia, with Love: The Multinationals’ Song. Web.
Business Maps of India. (n.d) Multinational Companies in India. Web.
China-Window. (2008) Multinational Companies Adjust Strategies to China. Web.
Pacek, N. (2009) Five Mega-trends facing in a large way international businesses through to 2020. The Insight Bureau Pte Ltd.
The Economist. (2004) Coming of Age: Multinational Companies in China, An Economist Intelligence Unit White Paper. KPMG, Hong Kong.