Non-Discrimination and Exceptions in Post-World War

The European Economic Community (EEC)

Since the Second World War, states have removed trade barriers mainly through multilateral agreements such as the Agreement on Tariffs and Trade (GATT). A core principle of these agreements is non-discrimination, where GATT members have the same access to other member’s markets (Vandermeersch, 2017). However, an exception to this rule is in trade agreements, where partners to the agreements can exempt other members’ goods from import duties while maintaining quotas and or tariffs on products from other GATT members, which can be the most significant aspect in place to consider in business dissertation help. A typical example of a free trade area is the European Economic Community (EEC).

Whereas members of the EEC do not have any barriers to trade among themselves, they also have uniform tariffs of goods and services outside the membership (Rushdi & Ba-Rukab, 2017). As such, the EEC has greatly transformed itself into a true common market that is characterized by a free flow of not only goods but also labor and capital.

Advantages of EEC

A significant benefit of EEC to its members is that it confines trade to its members, spurring economic growth beyond what each individual country could achieve as a stand-alone (Gehler & Romeo, 2021). Similarly, according to Romano and Romero (2021), the ECC has not only removed internal trade barriers but also expanded into an effective monetary unification and domestic market regulations. The monetary unification, under the banner Economic Monetary Union (EMU), facilitated the recognition of EEC as global actor in the financial markets, anchoring the financial exchange rate stability as the global market was desperate for low inflation levels, employment, and growth.

Apart from a single market, the EEC members also benefit from monetary unification. Members of the EEC have a single currency called the Euro, which was introduced in 1999and has become a significant economic and trade factor in the EEC (Vandermeersch, 2017). The monetary unification has boosted trade within and outside the member states through reduced transaction costs with less unexpected exchange rate changes. The member states no longer deal with the economic implications of different currencies.

Disadvantages of EEC

While the EEC agricultural policies have helped address the problem of food insecurity Rushdi & Ba-Rukab (2017), member states have also experienced some inefficiencies related to these policies. For instance, according to Rushdi & Ba-Rukab (2017), the member states spend a significant chunk of their budget on the Common Agricultural Policy, an expenditure that has distorted the agricultural market for many years by placing minimum price capping on food. This has encouraged over-supply and placed higher prices for consumers. Moreover, Romano and Romero (2021) argued that the cap on food prices has only benefited large-land owners at the expense of social benefits.

The other significant challenge associated with EEC is the common currency – The euro. According to Vandermeersch (2017), the members of the EEC have placed great emphasis on the Euro, despite proving to have many economic problems associated with interest rates that are not suitable for all the member states.

Why MNCs internationalize and the challenges they experience

In today’s business environment, companies choose to get into foreign markets to seek international growth. Ideally, going global presents a wide range of opportunities associated with diversification and market expansion. But whereas there are many advantages associated with going global, companies also face serious challenges when they internationalize. This section of the paper provides an overview of business internationalization. It explores why many multinational corporations go global and some of the challenges they encounter when they internationalize. Ultimately, this section provides special advice to business experts on how to maximize their capabilities as they go into international markets.

Increase in sales volumes

If a business is succeeding in its domestic country, expanding globally will likely increase its sales revenue. Panibratov & Klishevich (2020) argues that a significant percentage of the global population lives within one country and do not speak the same language. This implies that looking beyond the shores of the domestic country presents MNCs with an upward sales potential. Furthermore, if the company has a technological advantage or a unique product that the international competitors do not have, then the unique capabilities can result in major business success in foreign markets. For example, Apple produces technological products with a unique aesthetical appearance that appeals to consumers the world over (Aguilera-Caracuel et al, 2017). The company has leveraged this technological advantage to grow its global consumer market.

Profit Maximization

Many export markets are not as competitive as domestic markets and therebefore have far less price pressure compared to that which a company may experience in its domestic market. This explains why, for example, the Jaguar car made in England may cost more in Coventry than it costs in California USA. It is not uncommon for products to be sold at higher prices (and thus higher profit margins) in foreign markets than they are in domestic markets. According to Su et al (2021), this is because the export products are made to be more appealing to the foreign markets and therefore consumers are more willing to pay premium prices for them.

A long-term and short-term security

Companies become less vulnerable to periodic downturns and fluctuations in their domestic marketplaces if they choose to sell products or services offshore. According to Singh (2021), this is especially advantageous to companies that are domiciled in economically and politically unstable countries but sell their products worldwide. Similarly, for companies in large countries with mature markets and competition from both local and foreign competitors, going global shields them from the competition and opens new opportunities (Estrin et al, 2017).

Economies of scale

Through exporting, companies can easily expand their businesses especially if their products are widely accepted across the world. For example, in the manufacturing industry, internationalization presents an opportunity for companies to achieve greater economies of scale, especially those whose domestic markets are relatively smaller (Estrin et al, 2017). Alternatively, a company may choose to explore a differentiating or unique advantage such as intellectual property, service model, patent, or brand in a foreign country. As such, they emphasize providing ‘more’ of the same product provided by other competitors in the foreign market with relatively little local market adjustment.

Organizational Learning

In certain circumstances, an MNC may solely try to enter an international market not only for financial benefits but also for organizational learning. For instance, Koc, a consumer division of a Turkish conglomerate entered the German market, the world’s leading market for washing machines, freezers, refrigerators in terms of product specification and sophistication. In entering the German market, the company observed that its unknown brand would experience many challenges gaining market share in the German’s highly competitive market.

However, according to Beugelsdijk et al (2018), Koc embraced a philosophy that as an aspiring multinational company, it would benefit from experiencing the world’s most competitive market for household appliances and thus its products and service would need to improve to enable it to compete within the world’s leading market. This would be a prerequisite for Koc as a global leader despite having to bear with low profits.

The US is a leading market for computer software, Japan a leading market for electronics, Germany a leading market for an automobile while Italy is a leading market for fashion. If a company anticipates learning from a leading market, it should do so with its own subsidiary. As per Ricard et al (2021), learning indirectly through local distributors is less effective and may have a lesser contribution to the company’s development as a global figure.

Competitive advantage

MNCs also go international to develop a competitive advantage not by the foreign country’s positive characteristics but by the company’s need to match the competitors’ moves. A typical scenario is a company entering a foreign market because its major competitor has done so based on the assumption that the competitor would gain a significant competitive advantage if allowed to take over the market alone (Sing, 2021).

Another similar scenario is the adoption of an offence-defence strategy, whereby an MNC enters a competitor’s home market while retaining entry into its own domestic market (Barnard, 2021). This strategy may also be meant to push the competitor to allocate more of its resources towards the intensified domestic competition.

Government incentives

Governments often incentivise MNCs as a way of encouraging exports. According to Li & Deng (2017), this results in many MNCs entering many foreign markets that they would otherwise not enter. A typical example is the US government that offers various forms of assistance when a domestic company decides to venture into international markets. The country has established export assistance centers across US cities that provide a variety of resources for local companies that might want to go global. Similarly, the US Small Business Administration (SBA) has established a working capital program that provides guaranteed loans to local companies that want to grow their businesses abroad.

Challenges faced by MNCs

Imperfect Markets

It is highly likely that if a company decides to enter a foreign market in which it does not know its local customs, laws and business practices, the manager is likely to encounter several challenges that might divert their focus from running the business. For instance, Panibratov & Klishevich (2020) argues that entering a foreign market comes with additional costs that may be of less interest to a domestic business. MNCs may encounter additional transportation costs as well as other non-tariff and tariff costs that can reduce their profit margin and deny them a competitive advantage over their competitors (Aguilera-Caracuel et al, 2017). However, to address this challenge, some MNCs enter merger and acquisition deals with local companies thus lowering competition.

Tax competitions

Countries and subnational regions sometimes compete for the establishment of MNCs within their jurisdictions, especially to gain from increased economic activity, employment, and tax revenues. As such, the authorities incentivise the MNCs through tax breaks, improved infrastructure and governmental assistance. However, Sing (2021) observed that sometimes these incentives fail to actualize and the MNC remain liable for the relevant costs, limiting their abilities to achieve their foreign missions.

Political instabilities

Many MNCs experience the challenge of political instabilities when operating in politically unstable countries. According to Aguilera-Caracuel et al (2017), this challenge is especially rampant in developing countries that have not established strong democratic processes. Ironically though, these countries are more attractive to MNC because their markets have relatively higher growth potentials. Nonetheless, political instability is normally associated with poor legal frameworks and corruption, all of which makes it difficult to do business.

Lobbying

Multinational corporate lobbying is a common challenge for MNCs seeking to enter new markets. The lobbying is done through various elements of business including environmental regulations and tariff structures. Firms that have made a heavy investment in pollution control mechanisms may lobby the respective governments for very tough environmental standards to lock non-compliant competitors out of the market, r weaken the existing competitors (Aguilera-Caracuel et al, 2017). As per Panibratov & Klishevich (2020), companies use tariff lobbying to restrict foreign industry competition. Ideally, for every tariff that a multinational company wants to be reduced, another multinational company wants it increased. A good example is the US automobile industry, where the portion of a company’s imported component will vary and therefore some companies favor tighter restrictions on imports while others favor less strict restrictions.

In conclusion, international markets have experienced a rapid evolution and as such, companies often struggle to keep up through strategy. It is therefore plausible to conclude that MNCs venture into foreign markets for different reasons. As a result, different companies use different strategies and modes to enter foreign markets. By selling their products and services in foreign countries, companies anticipate that their businesses will expand and yield greater sales margins. They typically replicate their businesses for a different market, culture, demands, expectations and needs. Consequently, they encounter different challenges including market imperfections, political instabilities, tax competitions and lobbying.

Individual Report

Despite the COVID-19 pandemic, Ikea, a Swedish multinational furniture retail store has opened a record number of stores in the past year. According to reports by Business Insider South Africa (2020), Ikea opened additional 50 stores in the year 2020. In addition to its 455 stores across Europe and US, the company recently launched a big market expansion campaign in various emerging markets with more plans to enter Chile, Peru, Estonia, Colombia, India and Puerto Rico. However, as per Business Insider South Africa (2020), the company has no immediate plans to enter South Africa. This section of the paper analyses how Ikea could enter South Africa, a country where it does not have any presence. It analyses Ikea’s domestic market, its internationalization strategies, mode of entry, and challenges sit may encounter in the process of entering South Africa. The essay will also analyze the leadership qualities that might support the market entry.

Swedish Domestic Furniture Market

Data by Statista (2021a) indicate that the Swedish furniture market has undergone rapid fluctuation between the years 2010-2020. For instance, between 2013-2019, the value of furniture production in Sweden has increased by 25.3 billion Swedish Kronor, with another decline to 24.5 billion Swedish Kronor within the same period (Statista, 2021b). Moreover, the value of Swedish furniture consumption has increased as well since 2013, increasing to 27 billion Swedish Kronor in 2019 but declining to 206 billion Swedish Kronor in 2020 (Statista, 2021b). This rapid fluctuation indicates a need for Swedish furniture companies like Ikea must explore international markets to secure more stable revenues.

Strategy to internationalize

Ikea can enter the South African market through its strategic firm-specific advantages. The company operates with a globally integrated approach, with the main objective of cost reduction and achievement of economies of scale through its standardized products (Alenezi et al, 2019). Other Ikea’s firm-specific advantages (FSAs) that can be used as a strategy to enter South Africa include a strong supplier network, efficient retail layout and efficient routines (Panibratov & Klishevich, 2020). these firm-specific advantages can be used to outcompete South Africa’s local competition, considering that the advantages have not grown because of the company’s entrepreneurial spirit but because of constant external market pressure.

These FSA are a product of strong domestic competition that Ikea has faced over time, characterised by, demanding local consumers, aggressive home-based suppliers, and fierce domestic rivals. Typically, the company has not depended much on location-based and ‘short-lived’ advantages such as a large domestic market and constant flow of raw materials.

Supplier network

Ikea can leverage its strong supplier network to take on the South African market. After the Swedish suppliers boycotted the company, it quickly looked for more stable alternative suppliers from Eastern Europe Khan & Shafiq (2021) since then, the company has worked with the suppliers to optimize its supply chain and product development, leading to a more robust internal competition between its retail networks and leveraging on large supplier network to reduce costs. Ikea’s global expansion has also enabled it to learn efficient new market entry strategies that it can leverage to enter the South African Market. Furthermore, the company’s global sourcing model whereby it buys merchandise from around the world is a cost-efficient way of ensuring that the products timely and cheaply reach its retail stores regardless of where the store is located.

Effective business model

Ikea’s consistency with its business model while adapting to local cultures and taste levels can also be a strong advantage as it enters the South African market. The company can offer on-site assembly services in its South African outlets due to the lack of do-it-yourself culture (Sing, 2021). furthermore, it would be beneficial if Ikea figured out early the selection of products that might sell well in South Africa, the adapt them to South African sizes. For instance, shoppers might not buy fitted bed sheets that do not ‘fit’.

Product designs

Ikea can leverage its remarkably country-neutral product design to enter the South African market. Dimitrova et al (2018) observed that many retailers have failed by trying to sell local-specific fashion and household items to other countries without translating them to country-specific preferences. However, Ikea’s simple and minimalistic design aesthetics are country neutral and this has been proven by the fact that the majority of its products are accepted worldwide. This is an FSA that Ikea can leverage to enter the South African market without worrying about acceptance by local demographics.

Branding

Ikea’s even more quirky names such as ‘Fyrkantig’ – a Swedish word meaning ‘square’ has been accepted worldwide and this has become its global strategy. By picking odd names of its outlets, the company maintains an international look and stays away from embarrassing language translations that have affected both large and small multinationals. Ikea’s brand as a trusted furniture store with simplistic but stylish furniture can act as a competitive advantage and a strategy for entering the South African market.

Mode of entry and Challenges likely to be experienced in South Africa

On the mode of entry, Asongu & Odhiambo (2019) argued that if a company with a strong international brand anticipates entering a new market, it should do so with its own subsidiary. Entering indirectly through local distributors is less effective and may have a lesser contribution to the company’s development as a global figure. Therefore, Ikea, being the international brand that it is, should enter the South African market as a standalone brand with its own network of retail stores in the country.

South Africa has been known for a host of economic, regulatory, and political factors that can adversely affect foreign business. Reports about government mismanagement, violent crime, impoverished communities, insufficient infrastructure, and corruption in South Africa (Bhorat et al (2017) should be of great concern to Ikea as it plans to enter the South African furniture market. These challenges have been exacerbated by COVID-19. These challenges can be addressed by reforming state-owned enterprises (SOEs) that have largely been tainted with corruption allegations. Ikea can also address these challenges by exploring various business risk management strategies such as political risk insurance that has proven beneficial to businesses entering new markets that are politically unstable. However, this may add to the company’s cost of operation.

Leadership qualities involved in entering international markets

In the contemporary business world, global expansion is constantly changing as more companies continue to venture into new international markets. As an organization expands globally, its leadership must think globally and act locally because the companies must realign their local strategies to the individual countries they enter (Esmer & Faruk, 2017).

For Ikea to effectively enter the South African market, its leaders must consider flexibility, organizational commitment, and effective problem-solving capabilities as key elements of leadership. The South African market will present a cross-cultural setting that requires the company’s top management to successfully adapt to the local business environment (Markovic, 2019).

As per Bonsu & Twum-Danso (2018), a cross-cultural business environment can enhance employees’ organizational engagement and commitment through empowerment and the development of inspiring vision. As such, Ikea leadership will need to empower its south African employees, develop a shared vision, and initiate fundamental changes to align the local business environment to the organizational culture. The leaders will only be able to enhance Ikea’s performance in South Africa by enabling change and empowering the local employees.

In conclusion, Ikea has strategic firm-specific advantages such as a strong brand, effective business model and large supplier network that can accelerate its entry into South Africa. However, the company is likely to encounter challenges related to political and economic instability facing South Africa. To navigate through these challenges, Ikea’s leadership must enable change and empower the local employees.

Individual Reflective Essay

Throughout this module, we have been learning about multinational corporations and how they operate, what motivates them and the challenges they face along the way towards achieving their goals. A significant lesson I have learned from this module is that multinational businesses are not just actors in the global business environment, they are also a significant part of global governance. As such, they are not only economic actors but also political actors. I seem to have the understanding that MNCs are majorly driven by profit and the interest of both their external and internal stakeholders. However, with the constantly changing business environment, there are several challenges that managers in MNCs must deal with to achieve success, leading to my thoughts about this module.

To this end, I think that multinationals must re-evaluate the role of free trade area agreements in enhancing international trade, especially in the context of agricultural policies and monetary unification. Particularly, the EEC must rethink the common agricultural policy to ensure that it benefits all stakeholders and not just landowners.

I have also gained interesting insights into internationalization and why some companies choose to go global. One thing I realize is that going global presents a wide range of opportunities associated with diversification and market expansion. I am surprised by the extent to which companies can expand their sales volumes, maximize profits and develop long-term business security when they expand into international markets. This implies that when a company goes global, there are several opportunities that open, which it would not have if it restricted its operations to its home country. This corroborates with findings by Aguilera-Caracuel et al (2017) that going global not only presents companies with economic opportunities but also with opportunities to learn new ways and strategies of doing business in a new environment.

Another important thing I have learned from this module is that venturing into international markets requires certain leadership skills that managers are must-have. As a company enters a new foreign market, it encounters a new market with a different cultural orientation. This realization has two significant implications. First, it implies that leaders must prepare to make all the changes necessary to ensure that the company’s values integrate with the new culture. Secondly, leaders must be flexible enough, committed, empowering and change oriented.

Against this backdrop, I have embarked on a personal assessment mission to evaluate my leadership skills and capabilities of running a multinational, to see whether I can be flexible, committed, empowering and change oriented. Conducting a personality test can inform us a lot about ourselves, the decisions we make and how we make those decisions. While there are many personality tests available, I chose the Myers-Briggs Type Indicator (MBTI), which places an individual in one of the sixteen categories such as whether one is an extrovert, an introvert, is emotional or has a disposition towards being logical (Markovic, 2019).

My personality test results indicated that I am an Introvert, Sensing, Feeling and Judging (ISFJ), and this does not surprise me. As I reflect on my personality test result, each of the four personality traits that I have has a unique element that correlates to my ability to lead an MNC. Typically, my ISFJ personality is sometimes referred to as a ‘nurturer’ or ‘Defender’, enabling me to empower people working under me. Specifically, as an introvert, I tend to gain more energy from the time I spend alone than the time I spend with a crown. This implies that the more I spend time with crowds, the more I will need to recharge my energy. On the other hand, as a sensor personality, I prefer concrete data and evidence to base my judgement on. I am therefore more likely to use my senses in evaluating data than use the facts to make decisions. Also, my Feeling trait makes me make decisions with a lot of empathy after considering the benefits and costs of those decisions. This empathetic trait makes me good at empowering people that work under me. Lastly, my Judging personality trait makes me more likely to view the world with empathy than with facts. I am therefore more capable of accommodating and understanding the people around me.

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Appendix 1: Personality Test

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