Multinational Enterprises and Global Capitalism Research Paper

Multinational Enterprises and Global Capitalism - Research Paper Example There are several reasons why a multinational may choose to undertake foreign direct investment. One of these reasons is that the company has been very successful in selling its product with success and efficiency, and has been successful on satisfying the demand for this product to a full extent in the area of its origin. After seeing its success in that area, perhaps the exhaustion of demand within the area, the company may be tempted to open up a second location in a different country. The main reason, in this case, would be that the company would be seeking to satisfy the demand of consumers elsewhere, at that point. It will see a profitable business investment to open up a new location near these new potential customers because it predicts a similar response from them as it got in the country it was originally operating in. This new group of customers would be an attractive basis for foreign direct investment for any company, and once it has evaluated the possible risks associat ed with the possible expansion, it will surely consider the expansion as feasible, profitable and the next logical step to their expansions and operations (Jones, pp. 74, 2005). A company will not expand to a county in which it does not perceive the demand for its product (Seymour, pp.104, 1987). For example, one can consider a company, which produces food products, which use ham as the main ingredient. This company may be extremely successful in a non-Muslim country like the United States. Here, consumers in all age groups, as well as several different socio-economic statuses, may love its product. This would logically mean that once the company finishes expanding within the areas of the US where it finds functioning feasible, it could expand to and invest in even the less developed countries because it knows by experience that its product is well accepted by people of lower-middle income statuses as well. This logic will not apply in those countries, however, which have a majority of Muslim population. This is because, even though the acceptance of the company’s product has proven to be high amongst previous consumers, these new Muslim consumers would not warm up to them because their ingredients include pork, which they do not eat. In this regard, even when a product has been popular in several countries, the company will have to make several other inquiries before it can assume whether it is a good idea to undertake foreign direct investment in a newer area. In other words, the product needs to be tested in any region to where the multinational corporation (MNC) wishes to expand because, without that, the FDI will have very slight chances of yielding a successful result. Another reason is the political stability that is present in that country. Political stability is an important factor to consider for any MNC when it chooses to undertake foreign direct investment (Yoshitomi, & Graham, pp. 30, 1996). This is because it has a large bearing on how smo othly the company is able to operate in that area with hindrances, strikes and other interruptions, which often result in large losses, which make a large profit out of their daily operations. The political stability of the country is an important factor because it affects the consumer market of the country.