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International Business: Theories & Issues

  1. A critical analysis and review of academic literature on multinational enterprises and their location (see reading list below). Illustrative examples of themes that you might investigate could be:
    • Multinationals and the diversity of their locational environments
    • Location and knowledge sources
    • Location and institutional compatibility
    • Locational strategies of multinationals and innovation
    • The regionalization thesis
    • The impact of location on multinational/subsidiary performance
  2. An empirical analysis of your chosen themes in the context of a specific company of your choice.
    You can choose an MNE in any sector/industry.

Structure – a traditional essay format should be followed, offering a short introduction and conclusion with clear sign-posting.

Solution:

Individual Coursework (ESSAY)

Company: Unilever

1. Introduction

During the initial phases of the global business area’s growth, the emphasis on consideration shifted from the nationwide stage to the company stage, and curiosity in placement concerns waned. The firm-based study is currently widened with the investigation of firm-location relationships (Cantwell, 2009). When investigating mutual exchanges of information or repercussions between multinational companies along with other players in particular areas, company variation or unevenness, as well as geographical context variety, is important. Therefore, location is extremely vital for any MNC to ensure success, which is driven by innovation, performance, customer engagement and others. In this regard, this paper aims to make a critical analysis of two key themes, “Location and knowledge sources” and “Location and institutional compatibility”, in the following segment to highlight their effectiveness for multinational corporations. The second is an empirical assessment of those selected two key themes with Unilever, which is a multinational company with a global presence. Lastly, the study ends with a conclusion.

2. Discussion

2.1 Part A: Critical analysis and review of academic literature on multinational enterprises and their location

Currently, many organisations are considering locations for business expansion after having a good knowledge. Global corporations and the variety of their geographical surroundings are now important components of firms, and even institutional compatibility and international locational plans, as well as innovation, are becoming more important. There are other themes as well; however, for this study, only two themes have been identified and a critical discussion on this is conducted below:

  • Location and knowledge sources

Companies may use various sites for innovations in technology for two distinct purposes. In the beginning, according to Leiponen and Helfat (2011), corporations may establish new research and development centres to translate extant technical expertise to regional marketplaces, a practice Kuemmerle (1999) referred to by the term “home-base exploiting” research and development. Furthermore, corporations may pursue repercussions of fresh location-specific technical expertise, which is referred to as “home-base-augmenting” research and development (Kuemmerle, 1999). As per Cantner et al. (2023), corporations may establish local R&D centres inside nations to modify extant scientific understanding if market conditions diverge substantially. For instance, Kuemmerle (1999) discovered that the majority of the enterprises in his study maintained an extensive system of research and development locations in their native nations. Consequently, the main considerations concerning the placement of research and development operations, as stated below, pertain both inside and across nations.

Meanwhile, as claimed by Dunning (1998), Insofar as information-intensive and knowledge-based promoting output has distinct location requirements and generally necessitate assets and functions that multinational enterprises can offer, it remains unjust to speculate that each of those characteristics should have an impact on the location of FDI alongside associated initiatives. The resurgence associated with location was fueled partially by substantial shifts in the financial system, including the growing significance of research and development to be an essential wealth-creating property and greater internationalization. As a result of more connected coordination of movement between nations, as well as a growing focus on certain specialised knowledge-based operations within chosen subnational zones, along with the development of cooperation economics (Cantwell and Zhang, 2011). In this regard, Schmid and Kwon (2020) stated that alliance capitalism entails both collaborative strategies and acquiring trade corresponds between originating businesses, while it additionally embraces raised community connections across numerous locations that encompass fresh and frequently greater connections not only between companies themselves, between businesses as well as additional local stakeholders which are commonly mentioned to as provincial as well as national innovation frameworks.

Globalisation or Internationalisation has become a key part of many MNCs since it can determine competitiveness by providing a locational advantage with the help of technology (Luo, 2021). However, as claimed by Porter (1994), corporations can acquire components like raw supplies, cash, and even general scientific understanding in global marketplaces, and specific operations can be located abroad to take advantage of low-cost supplies. Moreover, the capacity to access international markets becomes more essential than the size of the local market. As remarked by Pata, Kartal and Erdogan (2023), advances technologically have enabled enterprises to eliminate, cancel, or bypass deficiencies in regional variables; for instance, Porter (1994) mentioned that Japanese companies balance or mitigate high electricity prices using energy-saving equipment. Moreover, recent innovation additionally reduces efficiencies of magnitude and/or makes it possible to become quickly countered by tiny yet equally inventive competitors (Belloc, 2006).

  • Location and institutional compatibility

According to He and Zhang (2018), concentrating on home-country institution-related variables provides a key method for tackling the subject and expanding the comprehension of SOE (state-owned enterprises) internationalisation. Contrary to the above statement, according to Li et al. (2018), the theoretical processes behind the involvement of home-country entities have not been completely characterised. Corporate procedures that are compatible or incompatible with home-country institutional circumstances might have an impact on an organisation’s overseas direct investment operations. Meanwhile, Cantwell (2009) claimed that the geographical makeup of a specific multinational enterprise’s global infrastructure for acquiring knowledge can be determined by the degree of this institutional compatibility across the areas where the multinational corporation operates. Additionally, the suitability of locales influences the multinational enterprises’ ability to develop as key players in local economic networks and impact the local regulatory context.

Organisations could offer suitable seminars or events for enterprises trying to make investments overseas so they can grasp the problems of FI settings and share thoughts on how to manage them. According to Shen et al. (2022), local OFDI companies can assist state-owned enterprises in overcoming issues related to institutional incompatibility when entering foreign marketplaces. In contrast, as indicated by Li et al. (2018), home-country institutional compatibility, along with host-country credibility hurdles, causes state-owned enterprises to concentrate on regional marketplaces rather than foreign activity. Jin et al. (2021) mentioned that while state-owned enterprises can possess resource benefits over individual companies that might enable OFDI operations, SOEs’ diminished acceptability at home, along with their absence of reliability abroad, give substantial motivation for the state-owned enterprises to concentrate on their nations and participate more sparingly worldwide. Now, it can have various outcomes since the multinational companies that are already there in different regional places in various nations may face massive competition since the local players are not thinking of expanding their business overseas. In contrast, it is also true that the economic condition of state-owned enterprises is not improving significantly as they are reluctant to go abroad. Moreover, it creates opportunities for different MNCs to explore new locations and expand their business while keeping institutional compatibility in mind.

As cclaimed by Meyer, Mudambi and Narula (2011), to make the most possible of the chances for success accessible inside one’s networks, multinational enterprises necessitate the smooth operation of third-party financial and commercial processes, as well as flawless motivational compatibility across domestic actors. Meanwhile, Li et al. (2018) affirmed that no matter the country that hosts the investment, the influence of institutional compatibility locally predominates, discouraging state-owned enterprises from venturing greater amounts abroad. Leiponen and Helfat (2011) addressed that imitation plays an important role in this context because it enables state-owned enterprises to obtain knowledge and implement investments (such as entrance execution, country selection, and entry method selection) and managerial procedures that are suitable in the overseas marketplace. For instance, to increase trustworthiness, state-owned enterprises might opt for fresh expenditures rather than mergers or reduce ownership stakes in obtained companies.

2.2 Part B: Empirical analysis of the chosen themes in the context of Unilever

  • Empirical analysis of Location and knowledge sources of Unilever

Unilever encompasses roughly three hundred plants in sixty-nine nations (Unilever, 2023). A lot of them are enormous operations developed to produce vast amounts of items at rapid speeds. However, occasionally, IT has to make a modest quantity – perhaps a periodic version – or evaluate the marketplace with certain goods before introducing the item on an extensive basis. Because every transition requires duration, the situation is generally not monetarily feasible to employ a large manufacturing process for it (Malode et al., 2021). Comparably, there are times when it must react swiftly to shifting consumer preferences in regional marketplaces, whether by increasing or decreasing output. When anything is created for distribution, it is difficult to build or decrease. As added by Alarcon-Gerbier et al. (2022), to solve these issues, a supply chain group of this company composed of two scientists devised a fairly novel approach: a nano factory.

Unilever has been precise in its location selection for a long time, which is why the corporation is progressively expanding. According to Nisen (2013), the business’s revenues are expanding at twice the pace of P&’s, while the share price is extremely expensive. It has achieved it using surprisingly straightforward techniques; however, the management doesn’t seem easy. For instance, the firm offers discounts for retailer proprietors in locations including Indonesia so that its offerings get displayed prominently, and it dispatches sales staff to the tiniest establishments to ensure that items are constantly in inventory and well presented. The firm targets less affluent customers in countries that are developing by providing lessened (Bocken and Short, 2021), more affordable versions of things that individuals are likely to buy, as well as higher-end, higher-ticket goods aimed at the growing middle classes. TRESemme shampoo was launched successfully in Brazil thanks to ten million complimentary samples and intensive advertisement (Lucchese, Engel and Tessaro, 2021). Moreover, it must be added that it merely seeks to demonstrate that it requires no groundbreaking items or complex strategies for achievement. Rather, these are versatile strategies that are capable of being used in any location in any nation, and by executing them promptly and vigorously, Unilever is establishing an advantage in such regions that can benefit it for many years (Nisen, 2013). The market analysis process has been clinical for this company since their R&D team is highly significant as they work together with the market research department. In this regard, it must be added that the market-based analysis helps this company to determine tactical interventions. Unilever does not apply the same formula or strategy for both developed and developing markets and countries; rather, the company uses different tactics to ensure success as they have plenty of knowledge of this. Moreover, this knowledge-based data helps the company continuously explore new areas and keep moving forward. In this regard, Ndyetabula (2022) has shed light by mentioning that Unilever started to expand and that fresh initiatives were created throughout Africa and Latin America during the 1930s. As per OBCB (2023), throughout this period, Unilever purchased the United Africa Company, which handled British trading operations in modern-day Nigeria throughout the time of colonialism. This was only the beginning, and the firm has now expanded into other markets. Unilever Indonesia, founded in 1933, went on to become among Indonesia’s major Fast Moving Consumer Goods (FMCG) firms, constantly accompanying Indonesia’s citizens in daily activities via products (Unilever, 2023). Over four thousand individuals support the company’s growth. Its top commodity is its workforce; therefore, Unilever thinks that ongoing capability development can help the business stay successful.

However, current data suggests that the company’s profit margin in this country has been lowered. According to Nurhayati-Wolff (2023), this firm’s overall total earnings amounted to 7.9 trillion in 2019 and 7.5 trillion in 2020. It increased to 5.7 trillion in 2021 and 5.5 trillion in the previous year, indicating. Yet, this does not indicate the whole picture since, from the data below, it can be seen that the company’s global revenue has been hiked in comparison to the previous few years. This particular company’s worldwide earnings in 2022 were roughly €60.07 billion, representing a rise of over €8 billion over the year before (Petruzzi, 2023). Therefore, it can be mentioned that the organisation’s distinctive advantage in the competition stems from its international reach and history of improving prices for clients worldwide.

  • Empirical analysis of Location and institutional compatibility of Unilever

Unilever is a firm that has been successful in its venture in different locations; however, the process was not smooth as the company had to deal with various institutional factors that are present in different countries and locations. The company’s market analysis process has been highly effective, and that is why the company has enough capability to compete with local competitors. The company use different strategies based on institutional norms. However, it is not about expanding business; sometimes, it is about investment so that the local factors of institutional norms can become compatible and the business runs smoothly. FDI is part of its business strategy that allows the company to expand and foster its compatibility in different locations (Guo, 2023). Substantial FDI displays to be geared at either exploiting the innovative benefits of a certain nation or area or completely relocating the headquarters (a multinational corporation’s home ground for a specific firm can be anywhere within the nation of control) (Porter, 1994). Moreover, as per Baaij et al. (2015), the place of the company’s judicial headquarters influences the multinational corporation’s constitutional, regulatory, and budgetary framework. Whereas a company like Unilever’s statutory base can represent a multinational corporation’s “home country” throughout legal terms, its location does not always correspond with the multinational corporation’s centre for managerial choices.

In this regard, one example is Unilever’s announcement of 120 million dollars in foreign direct investment (FDI) to support the Pakistan consumer products industry (Yu et al., 2019). This funding will help the firm expand in the nation over the next two years and is thought to provide an important boost for Pakistan, which recently experienced a drop in FDI. The funding will assist Unilever in strengthening its current manufacturing powers in the private diligence, residential healthcare, foods, drinks, and confectionery sectors in the nation. It is vital to notice that the corporation does not use the same policy or strategy to achieve a competitive edge or to expand into other markets. However, the corporation has previously worked on it and announced the investments. It was made feasible by a superb R&D team, a marketing department, and innovative tactics. Throughout two years, almost all of the money invested will be used toward improving the production process at Unilever’s 4 Pakistani facilities (Prance-Miles, 2018). The company’s significant dedication to regional business and this nation’s economic strength was confirmed by the extra funding. This might demonstrate that the corporation is fully aware of its institutional rules and that institutional compatibility is effectively maintained.

Such an initiative reflects that Unilever is also compatible with local norms and can work together with state-owned enterprises even when there is high competition. Sustainability is the main target of the company since it is linked with SDGs and as the company knows to perform well in the local market, it is vital to have sustainable business. For example, as per Nisa et al. (2021), Unilever’s health initiatives, including the “healthy school program, world hand washing day, national dental health month, healthy village program”, and others, are used for medical funding initiatives. This triggers the involvement and development of innovation. As mentioned by Unilever (2023 B), Knorr’s salt-free stocks are entirely devoid of artificial colours and extra MSG as well as have been produced with premium components such as free-range poultry, cattle from sustainable ranching, and responsibly cultivated vegetables. Such things can attract anyone, and as the institutional norms are being met in many locations, the company can have a good presence and compete with others, even on the local and national stage.

As stated by Unilever (2023 C), every activity must be recorded precisely, thoroughly, and immediately, and authorisations must be authentic and supported by appropriate paperwork. Documents that might prove important to an inspection, lawsuit, or regulatory inquiry are kept. Unilever’s sensitive information may not be employed improperly. Moreover, within every division and affiliate, Unilever assigns the task of company-wide sustainability execution to a worker or team in every location (UNGC, 2017). Unilever guarantees that diverse business processes work harmoniously to enhance productivity and minimise unforeseen repercussions. Different locations can fluctuate the institutional norms and that can impact the company’s business process and performance; however, Unilever maintains compatibility by nurturing the institutional agreements. Human and employment rights are conspicuously absent from Unilever’s Responsible Management Strategy. Unilever (2023 A) stated that social aims are focused on enhancing the health of customers and small-scale producers; however, there have been no employment standards.

3. Conclusion

This study concludes that while the problem of location along with knowledge transmission has been raised in scholarship on FDI, it also pertains to inside nations. Unilever has invested in Pakistan via FDI, which indicates the company’s market analysis process and future vision. This can help the company get more customer engagement in various locations in Pakistan while the local competitors are also there. The idea of institutional integration, which originates in the study of institutions, pertains to an examination of the link between the regulatory framework whereby an enterprise functions and the point whereby their activities are deemed acceptable in that framework. As Unilever continues to invest in its global locations, many local enterprises are reluctant to expand business overseas. Unilever’s success relies on its market analysis approach and tactical interventions, which help the company ensure institutional compatibility in different locations since the company has effective knowledge about each location. Its policies, regulations and SDGs are highly effective and the human rights and worker laws are effective enough to guarantee institutional compatibility. This is the prime reason that the company is constantly improving its business by expanding its footprint in different locations.

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