International Business for Multinational National Corporation.

Question: Discuss about theInternational Businessfor Multinational National Corporation. Answer: Introduction With increased globalisation, there is an increase in the number of multinational companies expanding in the overseas regions. For developing the global economies, these MNCs play a vital role as they are the intermediaries are involved in international businesses. Multinational National Corporation or a MNC can be defined as a big corporation with considerable resources which undertake several business functions by the means of a network of associated subsidiaries which are established in various overseas regions. These MNCs analyse and evaluate the potential markets specifically in the overseas regions which can offer them high revenues, sales, brand recognition and sustainability. But expanding in other countries is not an easy job. Along with the opportunities and advantages, there are several challenges and risks which are associated with international businesses (Delios, 2012). The essay will focus upon one of the recognized MNC i.e. PETRONAS which is planning to expand its bus iness and roots in Iraq. Such global expansion comprises of numerous challenges which the company will have to face. The essay will also highlight the key arguments and discussion relating to the host country Iraq, the decisions related to foreign strategies and the impacts and contributions of the international businesses. Key Challenges for an MNC in the IB arena Petroliam Nasional Berhad, better known as PETRONAS is petroleum, gas and oil based MNC which is established in Malaysia. In the year 1974, the organization was grounded and owned by the Malaysian Government. It is recognized as the Malaysian national gas and Oil Company. With the efforts and efficient leaderships of its owners and the key persons, the organisation has successfully transformed in an international business entity via numerous joint ventures with partners in overseas countries and through exploration. With huge focus and efforts, presently the organisation stand among the worlds 25 top MNCs and has its business operation in around 35 nations with almost 103 wholly owned subsidiaries. For analyzing the status of the organization, there is a globalization theory called Theory of Liberalism (PETRONAS, 2017). It is the globalization process which is a result of modernization and it leads to market extension. At the basic level, as per this theory, the globalization in the organisation is for achieving political liberty and economic welfare. According to the liberalism theory of globalization, PETRONAS has practiced globalization in business for achieving technological advancements and business expansion in overseas regions. The primary work and operations of oil exploration of PETRONAS is performed in the nations like Iraq. Therefore it is one of the countries where PETRONAS as a MNC will expand and undertake its operational activities. But from the analysis point of view it can be understand that Iraq has several factors which restrict the successful business operations of PETRONAS (Elass and Jaffe, 2011). From the political point of view, it can be critically analyzed that there is political instability in the country as well as severe war probabilities which restricts the organisations performing businesses in these regions. In Iraq, there are extensive variations in the income levels of the individuals. But because of the high reserves of crude oil and the increased GDP, the nation is attracted by several oil and gas companies (Green, 2011). The key religion follows in Iraq is Islam, there are also present sizeable religious minorities in various regions of the country but Islam is the prominent one . There are several key challenges which are related to environmental analysis of Iraq. The first primary challenge is the political risk associated with Iraq (Subramaniam, et al., n.d.). There is a threat of nationalization in the country as at the time of economic crisis, governments used to opt out for exchange rate controls. The risk of war is very high in Iraq because of several fact ors and expanding operation in such arena of war can troublesome the sustainability and success of the organization. The acts related to sequestrations and assassinations may result in trade barriers for international business of PETRONAS. There are also other key challenges such as changes in the trade barriers. It is one of the reasons which make a company less competitive in nature. There is a possibility that the tariffs and other barriers can be increased because of the instable political condition. Thus, it can impact the smooth functioning of the business operations (Zawawi, Rahman and Atan, 2013). From the economic point of view, the key challenge of performing business in Iraq sounds to be much expensive in comparison with other Middle East countries. There are high transaction, trade and transportation costs in Iraq which doubles the costs of operations in the country. In the regions of Iraq, there are high expenses associated with Iraq because of the fact that there is a significant rise in the cost for obtaining a name reservation certificate (Hussain, 1999). As well as the costs of the lawyers area also very high but there is a demand of them for the drafting of the articles of association. The next key challenge in the rate of corruption, Iraq is highly recognized for its increasing corruption rate and corruptive practices. Because of increase corruption, the businesses i.e. the MNCs are required to have high capital for meeting u[p all the costs of expansion and trade (Delios, 2012). According to the Porters Diamond Model, there are five key factors which can be taken use of for analyzing the countrys external environment. There will be understanding of the various key challenges which appears in front of MNCs while planning to expand globally. The model helps in understanding the competitive advantages and risks possessed by the nation. There are basically four factors in the Porters Diamond Model i.e. factor conditions, demand conditions, related supporting industries and firm rivalry, structure and strategy. As per the first factor i.e. firm strategy, structure and rivalry, Iraq is well recognized in the petroleum, oil and gas industries. There are several technological innovations in the nation as these are the primary business sectors. But there is a key challenge for PETRONAS as there are increased and intense levels of firm rivalry because of extreme competition as there are several companies which perform oil exploration (Eicher, 2016). Thus, PETRONAS can achieve competitive advantages because of brand recognition but it will be difficult for the company to sustain the competition. The second factor is related supporting industries, as per this factor the suppliers and other related organisations are also vital for the organisation which is planning to expand its business. The primary business industry of Iraq is crude oil only; therefore, the oil and gas and petroleum industry has numerous firms and suppliers (Wei, 2015). There are several innovative ideas which these firms have invented for the development of the industry and the business. There is exchange of ideas between all the business, it is beneficial for PETRONAS but at the same time it is challenging also as because of the historical presence of the domestic companies, therefore there are more innovative and effective ways with the competitors. Thus, it will become difficult for PETRONAS to match the effectiveness of the domestic players. The third factor is demand condit ions, it refers to the size of the market, various costs such as transportation, etc. and economies of scale. The transportation costs are high in Iraq as well as the size of the home market is also not so wide (Al-Fattah, 2013). PETRONAS is a very large organisation which works on large economies of scale. All these factors are challenging for the company and it will be difficult for the organisation to manage its operations in Iraq with all such domestic factors. The fourth factor is the factor conditions, it comprises of elements such as capital investments, infrastructure, technological innovation and availability of skilled labor. From the capital point of view, there are required huge capital investments to have business expansion in Iraq. Presently the unemployment arte is at the weakest point, there is high rate of employment and there are also available competent labors. But the individuals prefer working in public sector only farther than MNCs and private sector. Thus, the availability of labor is an opportunity but squat interest in MNCs may result into lack of efficient labors. The company PETRONAS has taken use of licensing to enter in Iraq. Licensing can be understood as a legal agreement which authorize one organisation to take use of the private business practices of some other organisation. The production practices of the company offers brand recognition as well as revenues. The reason behind taking use of licensing is that there are several advantages and pros of licensing as a foreign market strategy. The advantages gained by PETRONAS includes that it is one of the easiest way to enter in any foreign market as there are no trade barriers because of tariffs and borders in licensing agreements (Cavusgil, et al., 2014). Licensing agreements also requires less capital investments in comparison with other entry strategies, therefore this was also one of the causes for PETRONAS behind selecting licensing. There are also low risks related to legal and financial perspectives and high return on investments in licensing contracts. There are also some of the co nstraints, limitations and drawbacks which are associated with this entry strategy. These constraints give rise to various challenges for the MNC to have operations in the overseas nation (HUSSAIN, n.d.). The constraints includes low level of control on the operations, the licensee in the future run can be a competitor for PETRONAS, there are chances of losing the intellectual property, the time period is also limited of licensing contracts and if the licensee take use of poor management then it may result in inefficiency of operations and deterioration of the brand image of PETRONAS (Ajami, et al., 2014). There are also several international business challenges for PETRONAS which will act as the key barricades in effective operations of the organisation. The first and the primary challenge were related to the foreign regulation and laws. There is a huge difference in Malaysian laws and Iraqi laws. Thus, it became highly challenging for PETRONAS to manage its operations. The second key risk is the political risk. Iraq is highly vulnerable to crisis and wars, it is threatening for the MNCs to initiate and expand their business in the states of Iraq. The third risk is of cultural differences and communication difficulties. In Iraq, the maximum of the population follows Islamic culture and communicate in Arabic language whereas which is much difficult for the employees of PETRONAS to have an effective communication with them because of cultural differences. There are other challenges also such as currency rates, international accounting, environmental issues, etc. (Nordin, Vassekaran and Grover, 2014). There are 10 principles of UN Global Compact which the organisations are required to follow for performing businesses in international regions. In a similar way, PETRONAS also has to follow the same. Therefore, the area on which the company is required to focus on the environmental issues. As oil exploration is highly related to environment. Thus, it must be atmen care that there is no damage on the environment. Secondly, there is also high corruption in Iraq, thus, PETRONAS must adopt anti-corruption practices and wok ethically without indulging in corruptive practices as well as unethical practices of business (Compact, 2011). Conclusion From the essay, kit can be concluded that in present scenario, there are several key challenges and risks which are present for the MNCs while performing international businesses. These challenges are in almost every sector whether political, environmental, economic, etc. therefore, it is essential that a proper analysis of the host country must be performed by the MNCs before expanding business in the foreign nations. PETRONAS is a well recognized organization but as a MNC it has also faced numerous challenges but now it is running smoothly in the overseas regions. And lastly, it is concluded that all the MNCs must follow the UN Global Compact principles while performing international businesses. 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The rise of the International National Oil Companies and their challenge to International Oil Companies. In3rd Pipeline Technology Conference 2008. EITEP Institute. PETRONAS, 2017. About us. Accessed on: 18th may, 2017. Accessed from: https://www.petronas.com.my/about-us/Pages/default.aspx