Expansion of business scope necessitates the performance of international activity as a logical and consequent step of economic development and ambition to capture a bigger market share. International activity is an essential attribute of a multinational company. Business operations that are inherent to international connections with foreign partners include importing and exporting processes. They reflect various advantages and disadvantages of the company’s performance as well as any other ongoing processes of large companies. In turn, the opportunities to import and export faced influence and affect the common business. Appropriate corporate strategy reflects specific characteristics of multinational companies and facilitates transactions of the international trade. Strategic and tactical provision of these operations in the common practice of a multinational company provides it with successful commercial operations while collaborating with foreign entities and countries. Multinational companies face the necessity to export and import, but these activities need to be supplemented with proper strategy to reveal their advantages and cover disadvantages.
Advantages and Disadvantages for Exporting and Importing
Multinational enterprises are the companies represented in several countries due to multicultural composition of its personnel within national borders and in other countries as well. These companies are usually large corporations producing and selling goods and services in accordance with the peculiarities of national markets in foreign countries. As a multinational enterprise is a multinational organization comprised of several relatively independent companies located in different countries, such business facilities and opportunities lead to the performance of export and import functions.
A multinational enterprise (MNE) functions in the environment of dynamic international trade, feasibility and profitability of an international labour division and concentration of manufacturing of certain products in particular countries. It resorts to exporting its goods in order to sell them in the world market, meet the needs of other countries and create a demand for its products. Exporting and importing belong to the specific activities of MNE that provide dynamic and beneficial collaboration. In contrast to domestic trade operations, international trade of MNE has a range of peculiarities. Primarily, goods and services are less mobile on a global scale than in the country. As each country uses its national currency for calculating, the need for comparing different currencies emerges during each trading operation. Foreign trade is controlled by a government more than internal trade. International trade involves an increasing number of customers along with the growing number of competitors. Despite certain unfavourable market conditions, MNEs correspond to the peculiarities of international trade.
Modern world trade is performed according to geographical allocation. Thus, currently there is a growth of mutual trade between the developed countries, the United States, Western Europe and Japan. Among individual countries, the largest turnover is accounted for the USA, France, Germany, the United Kingdom and Japan. The structure of world export and import is absolutely dominated by ultimate goods (almost 70 percent) and raw materials and food (almost 30 percent). The most rapidly growing trade characterizes the world exchange of communication means, electronic equipment, accessories, computers and components. Along with the international trade of goods, it also involves the exchange of services referred to transport, tourism, communications, insurance, construction, etc. Currently, the growth of international trade services increases two times faster than the exchange of goods.
Multinational exporters and importers were only 0.2 percent of all US-located firms that conducted exporting and importing operations in 2000. The total number of multinational exporters and importers was more than 7,700 in 1993 and almost 9,600 in 2000. Intensive trade tendencies and economic reformation favoured the establishment of these MNEs.
These circumstances affected the activity of MNE and recovered the advantages of its international trade through exporting and importing. Advantages of these transactions include: satisfaction of wider needs of distribution of goods and services of MNE in foreign markets, an opportunity to get more products from outside markets on wholesale prices, wider access to consumers abroad, geographical expansion of captured and controlled unsaturated or diversified markets in foreign countries, an opportunity to gain more profits due to exploitation of cheap labour force and raw materials in the developing countries, and better reasoning of marketing activities. Presence of a MNE in any foreign market widens the access of a company to their inner resources and facilitates the strengthening of demand. Importing operations supply any MNE with inputs of its business system. Imported resources may include labour, tangibles, technology, information, half-finished and ultimate goods and services. Exporting operations allows any MNE to expand distribution channels, promote and enlarge sales and receive a bigger market shares.
Despite beneficial consequences of exporting and importing, international trade of MNE is often faced with incomparable differences and restrictions of national legislation with domestic laws. Particular countries trade in compliance to their national laws that may totally prohibit the production and sales of MNE’s products. For example, MNEs engaged in tobacco or alcohol production will not export their goods to the UAE or other Asian countries with dominant Islamic rules due to tobacco and alcohol prohibition. However, the impact of tourism and business activity has changed the strictness of local legislation in terms of pursued commercial goals.
Airbnb faced pressure and complaints from the legal agencies and local governments of several countries due to the service peculiarities of the company. Airbnb is engaged in promotion of apartment renting and ordering service for travellers for any period of time. This company exports its services throughout the world to satisfy customers’ needs. Despite advantage of export and import activities, this multinational enterprise faces some challenges, the greatest of which is its non-compliance with the national legislation. Airbnb’s import was not completely approved by the U.S. and some European countries, which established another order and fees for the living for more than 30 days.
The issues of intellectual property may also arise while entering foreign markets. For example, the US-located MNE will not be able to use the name or symbol of its domestic brand owing to the use of the similar symbol or name by the foreign firm on another country. Another serious disadvantage of importing and exporting is the interdependence of these processes on political arrangements between the countries. Imposition of restrictions on the objects of trading operations or severity of procedures creates additional barriers, costs and expenses for MNEs.
As multinational enterprises exploit cheap labour, they may face a higher rate of taxes and be forced to spend more money for exploitation of other resources. Particular place in servicing export and import operations have transportation expenses. Hence, the price on oil products and other macroeconomic determinants will affect the efficiency of international trade of a MNE. Certain countries impose special tariffs and duties on exports and imports, sometimes in terms of restraining domestic policy. Therefore, importing and exporting may be costly and disadvantageous. Advantages and disadvantages of the international trading activities of MNEs are handled by appropriate corporate strategies.
Corporate Strategy for Exporting and Importing
In order to successfully perform exporting processes, MNE should adopt a special competitive strategy. This corporate strategy is global and orients the MNE to pursue comparative advantages. It deals with immediate outputs of the enterprise and their promotion outside the national borders under the competitive conditions. Therefore, this multinational corporate strategy should strengthen the position and competitiveness of the resources and environment of the MNE. Implementation of this strategy is carried out through the development of competitive advantage of the enterprise, which is poorly demonstrated or not available to other foreign competitors. This advantage may be referred to transferring ideas, knowledge or experience from country to country, international reputation, sufficiency of international volume, rational allocation of economic capabilities and laws fulfilment, service provision at international level and a need to economise, for instance, by means of using less expensive resources. This type of corporate strategy combines the focuses of MNEs on international competitiveness, inner economies and formation of competitive advantage in order to facilitate the exporting processes.
Introduction of corporate strategy may be performed through the involvement of internal resources to boost exports or imports and promote these activities in certain target markets. However, this discretion may not be aligned to the distinguishing peculiarities of market growth in all countries covered by exports. The example of Coca-Cola Company and implementation of its corporate strategy demonstrates that this multinational enterprise mobilized its internal resource potential internationally to export its product in more than 90 markets including the emerged markets in different countries. The company developed a corporate strategy in particular countries of international business network to verify its efficiency in certain areas.
Corporate strategy for importing processes concerns global specialization. This strategy directs the inputs of multinationals on development of specified inner processes and particular abilities of the business system. Import of the MNE is concentrated on strengthening one of the areas or facilities. However, the import activity may face the challenge of rapid technological changes that force to diversify. For example, the specialization of Ferranti Company on its technology was chosen to provide international strategies with more efficient technological side. The company exports all necessary resources to develop the process of collector diffusion that was essential for the production of custom chips. The company was about to capture a specific technological niche and lead this special profile of activity. Thus, the focus on strengthening the internal elements of the enterprise system allows a multinational enterprise to develop strategically important resources to achieve international success. This strategy echoes the strategy for export in terms of formation of competitive advantages through internal reforms. However, the specific exporting strategy of Ferranti Company compelled the business to make its products more diverse to adapt to external changes. Therefore, it must be concluded that the corporate strategy for importing operations and the strategy for exporting processes can be integrated into a single strategic complex to achieve high competitiveness at the international level in the context of import and export processes, but they should be aligned to the national demand of other countries. Therefore, there is a need to do MNEs research before starting the exporting activity.
The Reasons for the Multinational Enterprise to Export
The export-related decisions of MNE companies are guided by the commercial and common economic benefits at a global level. Priority of the export processes over the importing ones allows MNEs to concentrate entrepreneur approach on obtaining benefits. In spite of trade costs, possible inconsistencies between domestic and foreign legislation and transfer expenditure, multinational companies use its large scale and domestic leadership to enter foreign and global markets.
Export-related decisions of MNEs deal with the necessity to expand and develop their multinational network through financing and investment. Business enlargement faces a high level of trade expenses, but location of production near customers can lower the transfer expenditure. Export activity connects with the company’s expectations of return to scale and permanent cost reduction. Exporting multinationals have an access to the profitable technologies and other economic resources. Additional entry of the MNE into the raw material or factor market within an exporting strategy empowers the company to control its supply chain and design appropriate tactics of its improvement. Particular goal much easies the business position of a large company and makes it less dependent on suppliers, especially foreign.
Export of MNEs is always connected with new opportunities. Consolidation of various production stages into vertical integration attracts numerous enterprises to adopt this form of collaboration in order to reduce transfer and production costs. Allocation of productive facilities and capabilities abroad contributes to closeness of the company to its customers in each represented country. Furthermore, this approach leads to corporative business with acquisition of various small firms with high innovative potential that would reinforce the enterprise capital and improve competitive advantage. The company's decision to sell goods and services abroad allows it to use export potential and compete with the companies from other countries. An MNE opts for export when it has reached a high level of relative competitive advantage and concentrated on their domestic priorities. Yield entrance into international market can increase domestic sales, which will bring additional revenue to multinational companies. Under these circumstances, the company can also become a market leader within the country if it has strong marketing service.
MNE decides to export if it potentially provides a higher profitability of the product compared to its domestic sales. Multinational enterprises apply to exporting when they need purchasing the currency abroad for necessary equipment, technology that are not available on the domestic market, or have poor quality. Export on the barter basis allows obtaining necessary resources abroad, including raw materials. MNE tries to use its free capacities or expand the field of its activity trough export by those industries whose products are in demand abroad. Multinational companies produce high quality products that meet international standards due to the introduction of advanced technology and high qualification of personnel. MNEs attempt to reduce seasonal fluctuations in demand by exporting certain products. The reason for export lies in guaranteed sales to the foreign partner and established reliable business relationships. Resulting request for export or the expired offer ended by the conclusion of the first agreement, which success caused the intension to continue the export activities with this partner. Overall, the mentioned reasons represent the key elements of export strategies.
Key Elements of Export Strategies
Multinational companies develop export strategies according to their structural and conceptual elements. They are objectives of export, personnel participation and its experience, management processes and their unity, production capacity, financial resources, design approaches of implementation and flexibility to the changing decisions. Taking into consideration these elements in preparing export strategy will make it more reasonable and balanced. These elements are accompanied by the processes of market research, risk assessment, pricing exports, involvement of logistics and financing. Combination of strategic elements forms opportunities for direct and indirect selling of exports.
Direct and Indirect Selling of Exports
Export processes may be carried out directly by MNEs and indirectly by their intermediates. MNEs do no directly perform export activities. A broker or an export trading company deals with the sales of exported products. Companies sell their products to foreign markets without any participation of the manufacturers. The main motive of indirect exporting is to improve business results with limited resources and minimum investment. The applied strategies for direct selling include organizational expansion due to the emergence of sales agents or the company’s representatives. Moreover, the strategic long-term recruitment of sales personnel and direct distribution may be additional strategies for a MNE. The intermediate should have appropriate experience in the export business, and political and economic risks should be minimal.
Indirect export is acceptable for small and medium enterprises with limited financial resources, which are not in a position to export to foreign markets. In this case, they use the services of other business organizations that are willing to take responsibility for the implementation of certain functions of indirect exports. The appropriate strategies are the export trading and management partnership, corporative acquisition in trading aims, and focusing on trade intermediaries. Using intermediaries in export means using commercial mediation, which involves a wide range of services: search for foreign partners, assistance in negotiations and conclusion of international trade transactions, credit services trade and insurance, organization of advertising campaigns, technical and information services to ultimate users. Benefits of using intermediates include savings in sales in another country and the use of another's experience, contacts and capital.
Instead of using intermediates, a MNE may perform direct selling of exports through participation of foreign retailers, distributors and ultimate users. An MNE can directly export if it sells its products to an importer or some buyers in foreign markets. Implementation of direct export requires the establishment of direct contacts with foreign partners, conducting a market research, development and implementation of international marketing strategies. The production of goods and international marketing are carried out by the manufacturers.
Direct sales allow a company to control its marketing and strategy implementation and obtain higher revenues, while sales representative perform indirect functions on the basis of commission. A distributor serves as a merchant who assists in export sales and results in profit for MNE manufacturer. Current forms of marketing and advertising ease sales due to exploitation of the capacities of electronic commerce. This form of market relationship helps to save money from intermediates and transport costs. Direct as well as indirect forms of sales imply specific tools in order to achieve high efficiency of international transactions.
Tools for Aid Export and Import Transactions
Preventive measures to reduce risks and various threats and assistance in case of their negative impact include the use of special tools. Financing issues related to importing and exporting operations promote optimal functioning of these transactions.
Many countries boost exports. However, these countries pursue a policy of import restrictions without taking into account the fact that export subsidies are both subsidized imports. This is due to the fact that export subsidies contribute to the exchange rate of the national currency and reduce the price of the foreign goods in the country. The policy of subsidizing exports is widely used. Thus, the taxpayers' money provides low-interest loans to the domestic exporters and favourable loans to their foreign customers.
A state may face direct costs for sales promotion of export products abroad by organizing advertising and providing information about the conjuncture of global markets. The taxation system provides tax incentives to domestic firms depending on the volume of export of goods and services. On average, export subsidies are small, but individual products and companies enjoy it.
Western industrialized countries funded the purchase of surplus agricultural products by taxpayers’ guaranteed and the payment of premiums for non-cultivation acreage, which provides a necessary level of income for farmers. To reduce the budgetary costs of the policy of maintaining farmers' income, the countries of Western Europe and North America knowingly sell the surplus products at a loss abroad, sometimes resorting to additional subsidies, offering goods at reduced prices to the countries where the market prices are very high. One of the main tools to promote exports remains a state export credit.
MNE manufacturer or sometimes a consignor ensure shipping and receiving any consular or commercial invoice that is necessary to deliver some goods across international borders. Transport insurance provides compensation for both intentional and accidental loss and damage of cargo during its transportation.
Globalization of the world economy, participation of MNEs in various forms of international cooperation, the intentions of companies to expand the boundaries of their operations and become a leading multinational company define the important role of international operations for the stability of economic competitiveness of both MNEs and the national economy. Export and import of multinational enterprises are accompanied by the development and implementation of a well-founded strategy, which includes production factors and resources of the enterprises as the strategy's elements. The need to realize economic potential at the international level becomes one of the main reasons for exporting goods and services. Direct and indirect sales determine the company's ability to export. Additional tools to support and stimulate export and import of MNEs contribute to the development of the national economy, too.