Emerging Economies free essay sample

Multinational corporations (MNC’s) are consistently looking for new unsaturated markets to tap into in optimisms of expanding their business and capitalizing on future industry trends. General Electric Healthcare (GEH) is one of these MNC’s trying to capitalize on the incessantly rising healthcare industry. In 1878, Thomas Edison founded General Electric (GE), which is the corporation that established GEH in 2004. GE was the first company to invent the household light bulb and has successfully ventured forwarded in the electric industry through its innovations and manufacturing of household appliances, lighting fixtures, light sockets, to founding one of the nation’s largest computer companies. The company recently established GEH in 2004 to tap into the expanding healthcare industry and in 2005; GEH innovated and manufactured the world’s first high definition magnetic resonance (HDMR) system (â€Å"About Us†, 2013). GEH has recently expanded its operations into India and China; their India operation is developing new drugs for the healthcare industry and their China location is busy manufacturing X-ray equipment for the healthcare industry. This paper will discuss GEH business operations and the following: Two trade theories that explain why GEH has expanded operations into India and China An explanation of the trade theories and an evaluation of GEH’s reasoning of utilizing the theories Potential pitfalls in GEH’s strategy An evaluation of GEH’s human resource strategy in China and India A proposal for training and preparing expatriates for their assignment overseas in India and China Trade Theories The two trade theories for discussion are Comparative Advantage and National Competitive Advantage. Comparative Advantage Comparative Advantage was introduced in 1817, by David Ricardo in his book ‘The Theory of Political Economy and Taxation’. According to Ricardo, the Comparative Advantage is when â€Å"two nations and two commodities, even if one nation is less efficient than the other nation in the production of both commodities, there is still a basis for mutually beneficial trade† (Gunawardan and Khorchurklang, 2007, p. 1). If one country specializes in the production and manufacturing of a particular product and then exports it whiling having the comparative advantage and then imports the goods due to the comparative disadvantage (Gunawardan and Khorchurklang, 2007). According to Landsburg (n. d. ) having a comparative advantage is not the same thing as being the best at something, it is the ability to produce a good at a lower cost. Different countries have different comparative advantages. For example, China has a comparative advantage in its labor-intensive manufacturing industry (â€Å"What are the U. S. and China’s Current Comparative Advantages? , n. d. ). GEH has moved its X-ray business quarters overseas to China. According to Burkitt (2011), the reason GEH moved its headquarters was to â€Å"accelerate sales in the country’s fast-growing health-care market† (para. 1). There is also an abundance of cheaper and skilled labor in China. GEH can utilize China’s labor-intensive manufacturing industry and tap into an emerging market. GEH understands that China governments are beefing up their spending on healthcare (Burkitt, 2011). This alone provides China a comparative advantage because it has the demand for healthcare that the U. S. has already saturated. Therefore, the U. S. picked China for several reasons: 1). Emerging market for healthcare 2). Cheaper and more efficient labor resources 3). More skilled labor; employs approximately 700 engineers (Burkitt, 2011). These reasons enable GEH to not only innovate but also produce at a cheaper price and a quicker rate, and in addition, tap into an emerging market. Although GEH’s international strategy seems a win-win situation there can be potential pitfalls when moving operations overseas and tapping into an emerging market. The corporation might be excited to find they are utilizing the First-Mover Advantage by moving into an emerging market to set up shop (Kokemuller, n. d. ). The company may even anticipate building success by becoming a recognized brand in the industry but there is risk that this can back fire and a second corporation may come in and steal that anticipated success through better innovation and even cheaper product and labor. In addition, the country that is manufacturing the product could decide to make a similar product forcing the other country out. National Competitive Advantage Hill (2008) describes Michael Porter’s â€Å"Competitive Advantage of Nations Theory of posits that within specific industries, clusters of expertise result from highly competitive national environments† (p. 616). Michael Porter created the theory of competitive advantage when he began to realize the economic reality could no longer be explained based on the comparative advantage theory only (Laurentiu, n. d. ). The competitive advantage theory is based on several determinants: Factorial determinants: Porter realized there were other important factors that should be considered besides the classical economic theory of labor, land, and capital such as natural resources, human resources, knowledge, capital, and infrastructure (Laurentiu, n. d). Demand: â€Å"structure of the domestic market which determines the quality level of the goods,† (Laurentiu, n. d. , p. 3495), predominant domestic buyers, and needs of domestic buyers (Laurentiu, n. d. ). Up and downstream industries: if a company has a strong position in the international market and are more concentrated and specialized in a horizontal and vertical industry with lots of information to bring forward this will provide a competitive advantage (Laurentiu, n. d. ). The structure and strategy of companies and their rivalries (Laurentiu, n. d. ). This relies heavily on the form of ownership, the goals and strategies of the company, and the motivation of everyone involved including the employees. The government and government policies plays a significant role (Laurentiu, n. d. ). The National Competitive Advantage can help analyze why GEH has currently moved its pharmaceutical development to India. The pharmaceutical companies in India are the largest generic medicine providers in the world (Kumar, 2013). This is due to India’s government refusing to recognize certain pharmaceutical patents, which enables them to produce generic drugs at low costs which other countries are unable to compete with (Kumar, 2013). Avoid Pitfalls A potential pitfall for GEH moving their pharmaceutical development to India is the dependence on another country. Although India currently produces generic drugs because their government refuses to recognize pharmaceutical patents does not mean that they can always refuse to recognize those patents. GEH needs to have a back-up plan in place if the India government decides to acknowledge the patents in the future and expenses increase. GEH can avoid potential pitfalls by: Planning and strategizing Predicting future variables such as analyzing the: Resource allocation Location Marketing Raw materials Labor expenses Transportation expenses Technology Environmental factors Appropriate forecasting GEH’s Human Resource Strategy Human Resource Management is a crucial component to the success of an MNC. According to Glinow and Milliman (n. d. ) many MNC’s have not kept up with the persistent and constant changes in an increasingly competitive global economy. GEH has, and they have developed some human resources strategies for their India and China. GEH has developed a Human Resources Leadership Program (HRLP) to help develop and challenge their employees. GEH believes that their people and HR is their competitive advantage. GEH is recognized for their number one leadership development program. They train their employees to gain global leadership skills and business acumen. The HRLP program is a two-year program that provides job assignments and global business projects. The program also provides the opportunity for candidates to complete international rotations due to GEH’s massive global business ventures. According to Glinow and Milliman (n. d. ) â€Å"it is much easier to prescribe what organizations should do then it is for firms to implement effective IHRM practices within the framework of their global strategic thinking† (n. p. ). Preparing Expatriates for Assignments As discussed previously GEH has an extensive leadership program for their employees to learn about the business, management, and appropriate handling of international business. Their program consists of sending candidates overseas for rotations pertinent to the company’s operations and success. This is crucial prescription for their international business success. Expatriates are employees in the U. S. working for MNC’s that send them overseas to handle international business operations. In order for them to succeed, the right candidate must be selected; terms of the plan must be documented and reviewed; and proper preparation of the employee for relocation must be conducted. In order to prepare and train expatriates for their overseas assignments these are the following recommendations: Provide a structured program for a year or two for potential candidates that involves understanding the MNC’s business operations, culture, and management practices. For example, LG Electronics has developed an MBA program specifically designed for their company. Depending on what countries the MNC’s operate in or want to penetrate, courses can include those countries cultures and business practices. For example, some countries value being on time more than they do building personal relationships with potential business partners. It is important to understand what is considered important business procedures in that particular country so an expatriate does not lose business prospects. The legal issues of doing business with other countries. For example, the U. S. has laws against bribery but some countries will accept briberies for business deals. Compensation information such as how much they will be paid while overseas, what the currency is equivalent to in that particular country. Housing and transportation concerns. How to respond to any emergency situations during natural disasters, crisis, or death. Liability issues regarding employment laws in the other countries. Medical, vacation, and holiday leave and pay. Employment taxes. When markets in developed countries are approaching a saturation level and consider moving into untapped markets in emerging countries such as China and India, there is much planning and strategizing in order to successfully penetrate the market and make a profit. As discussed previously, figuring out what your country’s competitive advantage is in the market and the other countries competitive advantage in the market is key to bringing both countries together to provide the best product/service at the lowest cost. For example, one country may be known for their excellent and abundant cheap labor resources while the other country may be known for their innovation and technological resources. Although a company can have the best plan to penetrate into an untapped market in another country, they must find the right candidates to conduct business affairs overseas. AS discussed previously education and training are vital for the success of a company moving operations overseas. In order to have the right candidates, much is involved in training and developing the right program is essential. The program must cover key pieces such as the other countries’ culture, business policies, procedures, laws, and regulations, employment laws such as child labor laws, their compensation and taxes, housing and transportation. It is vital for the MNC to find the appropriate market to tap into and find the right country that will help benefit their operations along the way. Cheap resources and labor are not the only factors an MNC needs to look at when considering moving overseas.