Multinational Enterprise - Establishing an International Business

Multinational enterprise, or MNE, is a form of internationalization. The MNE plays a very vital and distinctive role when establishing an international business. Not all companies that do business internationally will be considered an MNE. Companies must meet certain criteria, which has changed numerous times over the past decade, to be considered an MNE. The criteria established in 1984 to be recognized as an MNE are: the company must operate in two or more countries, operate a system that allows for more than one decision-making center, and one entity must act as the parent with the ability to share knowledge, resources, and responsibilities.

MNEs have an enormous influence on the global markets. The text provides us with an example of how a business traveler can have access to products made on all seven continents within one city. You don’t have to be a worldwide traveler to have access to products made abroad. If you look in and around your home today, you will find many products that were either manufactured or consist of parts made in a foreign country. MNEs account for almost 75% of trade on a worldwide basis.

There are several motivating factors companies must consider when expanding their operations to foreign countries. A few of the factors that companies may consider are proximity to their key suppliers, the demand for their product in the global market, and the overall cost of production and/or labor. It is thought that a company should consider doing business domestically before committing to the foreign markets. If a company does well domestically they may have a better chance of creating a demand internationally, and it also allows for companies to tweak their product.

Companies must do extensive research on the foreign country in which they plan to do business. You must understand their cultures, how they do business, how their foreign government operates, and the domestic competitor. People tend to use products that they are familiar with or have a reputation as being reliable. Companies must also establish relationships with foreign companies that are now going to serve as their local suppliers. For an MNE to exist it must meet the following three conditions. They are motivation, strategic competencies, and organizational capabilities.