Foreign Investment

Before entering into foreign markets, firms are expected to undertake thorough studies so as to ensure that their activities are appropriate and timely. Prematurely ventures are usually detrimental to the organizational performance, particularly for new entrants, i.e. organizations which are venturing into the international market for the first time. The margin for error for the new entrants is small, meaning that any mistake is costly and can result into the collapse of the organization. Mistakes are detrimental even where the organization in question happens to be an experienced multinational corporation, MNC. Indeed, the consequences of errors include the loss of funds and time, and these losses may deny an organization an opportunity to exploit a market; both in the short as well as the long-term (Torres, 2011b).
In most instances, the decision to venture in a foreign market is informed by the size of the organization. Organizations turn to the international market once the stakeholders feel that the domestic market does not avail an adequate room for growth (Peng, 2014). Once the decision to go global has been arrived at, strategic managers have to make a number of decisions; particularly with regard to the timing, location, as well as the mode of entry. These decisions are collectively referred to as when, where, and how respectively.
A series of strategic considerations underlie each of the decisions (i.e. the determination of when, where, and how) relating to a foreign investment. This fact has prompted observers to term the determination of when, where, and how as the strategic tripod. The strategic tripod represents what is commonly referred to as the Comprehensive Model of Foreign Market Entry (Peng, 2014). This paper explicates the manner in which the Comprehensive Model of Foreign Market Entry is employed by General Motors and McDonald's Corporation. While doing so, it assesses the reasons which inform the two corporations' determination of the most appropriate foreign markets.
Statement of the Problem
While investing internationally, firms consider a number of factors; particularly with regard to the selection of the most appropriate market. In most instances, organizations have multiple options, and it is upon the management to settle on the one that appeals the most; putting the aspects of when and how into question. As noted by Murray, Ju, and Gao (2012), however, there are instances when firms fail to capture the information pertinent to the intended investment endeavors; a scenario makes them ends up settling for unsuitable markets. Such a mistake constitutes what is commonly referred to as the liability of foreignness. The impact that the liability of foreignness has on business operations can be mitigated through appropriate strategic planning (Murray, Ju, & Gao, 2012; Peng, 2014).

The main objective of this paper is to assess and evaluate how corporations employ the strategic tripod as they endeavor to exploit the international market. While seeking to achieve this goal:
' It is assessed why General Motors consider markets such as China, the United Kingdom, Brazil, Germany, and Canada as being favorite foreign market destinations;
' The strategy that is employed by McDonald's Corporation while entering into a foreign market is evaluated and analyzed; and
' The liability of being a MNE from an emerging economy is assessed.
The above steps facilitate the analysis of the manner in which organizations lay their strategies while seeking to address the threats and opportunities associated with particular markets. They do also help in outlining how managements assess the capacities that their organizations have with regard to the exploitation of the markets in question.
General Motors' International Endeavors
General Motors international endeavors are accomplished through joint ventures, establishment of subsidiaries, or even affiliate productions, as opposed to licensing or exporting arrangements. Joint ventures, subsidiaries, and affiliate production appeals since the markets being targeted by the corporation are associated with such intangible assets as trained manpower, technologies, as well as individuals with adequate managerial skills. By engaging in any of these three strategies, activities in a new foreign market do not diminish the level of distribution of motor vehicles, and/or the related services, in any of the current markets (Dunne, 2011).
Through joint ventures or subsidiaries, General Motors is able to partner with organizations which have complementary resources and abilities; particularly with regard to technological advancement, distribution channels, and financial capabilities. While forming joint ventures, for instance, General Motors ensures that the partnering organizations are keen on sharing the project objective (Gall, 2011). In essence, the following is the list of the factors which prompt General Motors into establishing joint ventures with firms operating in the targeted markets, establishing subsidiaries, or even coming up affiliate productions:
' Sharing the liability of foreignness with venture partners;
' Facilitate the maintenance of oligopolistic competition;
' Achieve a safe departure from non-essential business undertakings;
' Achieve flexibility; and
' Enhance access to such resources as specialized staff and technology.
General Motors has strong presence in markets such as China, the United Kingdom, Brazil, Germany, and Canada. In China, General Motors is in a 50:50 Joint Venture with FAW Group, and the two forms FAW-GM Light Duty Commercial Vehicle, i.e. FAW-GM. The association was founded in 2009 for the purpose of manufacturing light commercial vehicles and Jie Fang pickups. In the United Kingdom, General Motors UK Limited manufactures and distributes vehicle units on behalf of General Motors. General Motors UK Limited is what used to be known as Vauxhall Motors, a car manufacturer that was acquired by General Motors in 1925 (Barofsky, 2010).
General Motors do Brazil represents the biggest subsidiary that General Motors operates in the entire Latin American region. Indeed, the operation in Brazil is only second to that in the United States. In the Germany, General Motors operate under Opel brand name. Opel distributes a range of vehicles in markets across Europe, and this means that the parent company in the United States is saved the challenged associated with the liability of foreignness (Crumm, 2010; Barofsky, 2010).
In addition to the advantages explicated in this section, the strategies employed by General Motors facilitate the separation of the activities at hand from the rest of the organization. For instance, GM can manage to delegate much the role of distributing cars in the European market to Opel, and this enable the parent organization to continue with such activities as research and development (Crumm, 2010).
McDonald's Corporation's International Strategy
McDonald's Corporation's international business endeavors are informed by three main categories of factors:
' Industry-based factors, especially with regard to the level of competitiveness;
' Resource based factors, a category that constitutes factors which are firm-specific; and
' Institutional-based factors. These are factors which define the risks of investing in a certain market.
The management of McDonald's appreciate that competition in the United States' market is increasingly getting stiff. For instance, there has been a significant level of competition from such organizations as Subway, YUM Foods, Burger King Corporation, Wendy's/Arby's Group, as well as, Starbucks, and these organizations curtail the rate of growth of the corporation in the US. McDonald's is also motivated by the fact that delays would prompt investors from the rest of the world to grab any opportunity that may be available (David, 2011; Luo, 2008).
Resource based factors include those capabilities and resources which are firm-specific. For instance, it has been observed that McDonald's Corporation has better per-capita performance in such markets as Japan and France than in the United States. In France, the number of traditional cafes and brasseries has been dropping steadily with that of fast-food restaurants continue to double every five years. According to Kuisel (2012), the annual turnover within the French market has been growing at a rate that is twice that observed in the American market. The next sub-section explicates how McDonald's employed the strategic tripod while settling on the French market.
McDonald's as a Model of International Success
McDonald's venture in France was among the earliest international endeavor by the corporation. The corporation set up shop in France in 1972. This was about the time when the organization was opening a new restaurant a day. The venture in France was a significant milestone, having been the first time when McDonald's had launched operations in Europe. At the moment, it is noteworthy that McDonald's has succeeded where organizations such as Burger King have failed (Dess, Lumpkin, & Eisner, 2010).
McDonald's Corporation succeeds due to its persistent determination and willingness to set-up shop in down markets as well as in areas where, say, civil unrests are common. The organization endeavors to be the first in the industry to venture into markets abroad. Upon establishing itself, the management lays out strategies which enable it to outlast its competitors. The management does also believe in corporate social responsibility. For instance, McDonald's Corporation buys local raw materials, provide construction as well as service jobs to the locals, and also support programs such as education through its foundation; Ronald McDonald House (Dess et al., 2010; Griffin & Pustay, 2010).
In most of the foreign markets where it operates, McDonald's add special local treats in its offers: beer is offered in Germany, while salmon is offered as a treat in Norway. Nonetheless, much of the rest of the offers is uniform. Uniformity is ensured by having employees attend special burger schools. In such markets as Russia, McDonald's employees are considered to be more enthusiastic and polite than those of other restaurants. Such attributes enable individual McDonald's restaurants to continue winning an increasing number of return customers (Luo, 2008; Needle, 2010).
Some of the reasons which prompted McDonald's Corporation to persist in spite of the anti-globalization campaigns are that France:
' Is still highly attractive to foreign direct investments;
' Is a leading tourist destination;
' Has a dynamic population growth;
' Has highly skilled and productive manpower;
' Is among the most favorite destinations for international students; and
' Is an appropriate incubator for innovation and start-ups
This means that as much as the French prefer to retain their traditional way of life, a growing number of consumers who may not identify with that tradition. These consumers do not have a strong attachment with the French traditions and/or nationalism and do, therefore, represent a unique clientele. These include foreign expatriates, tourists, the local youth, as well as visiting students. At the moment, France represents the best performing market for McDonald's Corporation (Hitt, Ireland, & Hoskisson, 2012Kuisel, 2012).
MNEs from Emerging Economies
With the increasing capacity of such markets as India, China, Brazil, Russia, and Indonesia, there has been a host of emerging multinational enterprises which are based in the emerging markets. Whenever they venture in the international market, most of these MNEs seek to exploit opportunities in other emerging markets. For instance, a Malaysian corporation referred to as Malakoff Berhad has been focusing on working on projects in such economies as Bahrain, Oman, Saudi Arabia, Australia, and Algeria (Chio, 2013).
At the moment, most MNEs in the emerging markets engage the exploitation of raw materials; notably oil, minerals, and timber. Few engage in manufacturing or specialized service delivery since the corporations since such fields are highly competitive, and the reputation of the firm(s) contributes significantly to the winning of tenders and/or markets. Most of the specialized manufacturing activities taking place in developing economies are through joint ventures, or other forms of association, with major multinationals based in the developed world (Kuisel, 2012).
In essence, multinational enterprises from emerging economies are faced with such challenges as inadequate resources, insufficient capacity to handle specialized activities, as well as lack of experience in exploiting foreign markets. Nonetheless, this is bound to change with the continued growth in the emerging economies as well as the associated capability building. It is predicted that the number of multinationals based in the emerging economies of today will out-number those from the developed economies by 2030 (Torres, 2011a).
In most instances, organizations seek to invest in foreign markets for the same reasons that they expand operations in the domestic market. As it has been indicated in this paper, there are four primary reasons why corporations go global: the search for an expanded market, resources, strategic assets, as well as efficiency. Whatever the case, the most important thing is for the management to ensure appropriate studies are undertaken, particularly with regard to strategic tripod. The organizations must establish which of the options represents the most appropriate market as well as the best time when an investment should be made (Peng, 2014).
Once the above decisions have been arrived at, the management must then determine the best strategies which can be employed during the exploitation of the market in question. Indeed, the liability of foreignness may be whelmed if key data is captured during the study of the foreign market in question. The strategic policy ought to be versatile so as to avail room for addressing issues which emerge in the course of undertaking business activities (Torres, 2011a).

Source: Essay UK -

Not what you're looking for?


About this resource

This Economics essay was submitted to us by a student in order to help you with your studies.


No ratings yet!

Word count:

This page has approximately words.



If you use part of this page in your own work, you need to provide a citation, as follows:

Essay UK, Foreign Investment. Available from: <> [21-02-19].

More information:

If you are the original author of this content and no longer wish to have it published on our website then please click on the link below to request removal:

Essay and dissertation help