Free «McDonalds, Microsoft, Google, Yahoo, and Many Other Multinational Corporations (MNCs)» UK Essay Paper
Table of Contents
Multinational corporations (MNCs) are business entities that have assets and facilities in at least one nation, other than its headquarters. For example, Yahoo, Google, McDonalds and Microsoft have branches in different countries. The daily operations of multinational corporations involve exploration or scanning of potential markets, learning new cultures, and developing products that fit in such markets. Porter’s Five Forces of competition is a model created for business strategy development and analysis of the level of competition within the industry. These forces determine an entity’s level of competitiveness and its change strategies. Based on Porter’s Five Forces of competition and theories relating to organizational change, the current paper highlights how the efficiency of MNCs, as well as their corporate and organizational culture, are influenced by efforts or strategies of entering new markets.
Porter’s Five Forces of Competition and MNCs
According to Hebron and Stack (2011), multinational corporation enterprises manage production and offer services in more than one nation state, in other words, they control or own service or production assets and other facilities outside the country they are based. Globalization has forced and enabled more entities to venture overseas in order to increase market share, launch new products, achieve more profitability, obtain cheaper raw materials and lower their labor costs (Hebron & Stack, 2011). Competitive advantages of MNCs can be sustained in global markets. In the same context, challenges are met, as the business environments change. The main aspect of the changed business environment entails cultural, legal, political and economic dimensions (Capon, 2008). All the changing aspects of the business environment generate problems to MNCs. Precisely, problems linked to cultural environment are critical hurdles to the operation of MNCs. Multinational corporations in different industries face various challenges, which could be enlightened with Porter’s Model, where all the hurdles are embodied.
MNCs outline how to venture in new markets, sustain their competitive advantage and improve their profitability through strategic management (Lynch, 2008). Strategic management at a global scale entails incorporation of frameworks, theories and tools for formulating and implementing strategies (Capon, 2008). Formulated strategies provide MNCs a structure, alignment, determination and direction. To enter into a new or existing market and formulate a strategy, MNCs are intricately interested in the understanding of the market conditions or the level of competition and its strategic step. As a remedy to this need, Porter’s competitive analysis framework uses five forces of competition to shape competition, markets and industries. Porter conceptualized the five forces of competition as the threat of new entrants, the threat of substitute products, rivalry among the existing competitors, suppliers bargaining power and the bargaining power of buyers (Porter, 1980). In this model, industry attractiveness conceptualized as the overall profitability in the market. According to Stonehouse and Snowdon (2007), Porter’s Five Forces affect the profitability of MNCs collectively through their effects on costs, price and investment requirements. Typically, the more influence they have on an MNC, the less attractive a market gets and vice versa.
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MNCs draw upon industrial organization economics to derive the forces that determine their competitive position and the attractiveness of the global markets. In this context, attractiveness refers to the profitability of the industry in general (David, 2009). An attractive industry is one in which Porter’s Five Forces of competition act to improve the net profitability. Normally, a change in any of Porter’s Five Forces of competition requires MNCs to re-asses their marketplace, since there is a change in the global business environment. Profitability differs in an attractive global industry because MNCs apply their business model and core competencies to achieve profits above their competitors. An apt example is the software technology industry; the competition is high and yet individual multinational corporations, such as Microsoft and Oracle have been able to sustain their competitive advantage, by applying unique business models to make profits above the industry average.
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Whether an MNC is planning for new ventures, contemplating the launch of new products or reviewing the strength of its new marketplace, Porters Five Forces of Competition can help it understand its position. Under the threat of new entrants as a force of competition, the underlying rationale is that markets that yield high returns attract new MNCs (David, 2009). This leads to many new entrants that in the end decrease the profitability for all the MNCs. Unless incumbents blocks new entrants, profit rates will decrease. The existence of products and services outside the sphere of common product and service boundaries increases the propensity of customers to shift their preferences to alternatives. For example, android phones serve as a substitute for iPhones and Blackberry. Increased preference for android smartphones might shrink the market for both Apple and Blackberry. While increased advertising for iPhones is likely to increase the sales of all smartphones at the expense of the incumbents. Threats of substitute also entail products in other industries that can deliver similar functionalities. Substitute products transform MNCs strategies because they influence the price elasticity of the existing products subject to the fact that elasticity of demand is proportional to the availability substitutes. Switching costs declines placing a ceiling on product pricing. This increases the rivalry amongst the MNCs (David, 2009). The success of substitute products such as android smartphones can be illustrated by their gained market share and growth. With the technology becoming affordable and accessible, consumers have the option of switching easily.
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