Nestle: A Global Multinational company

Nestle: A Global Multinational company Brief of company: Nestlà © with headquarters in Vevey, Switzerland was founded in 1866 by Henri Nestlà © and is today the worlds leading nutrition, health and wellness company. Its sales for 2009 were $ 112.3 billion, with a net profit of $ 11.1 billion. They employ around 276,050 people and have factories or operations in almost every country in the world. Reasons for selecting the company: Nestlà © can trace back its origins to 1867, from selling milk-based baby foods and condensed milk as its primary products to a market leader in todays Food Beverage Industry with more than 6000 brands under its belt ranging from coffee and candy to hotdogs and pasta. Instead of just reaping the profits from the market, Nestlà © has given back to the community by adopting social responsibilities, showing above the bar ethical behaviour and in many cases raising the standards in the industry. Its founding ethos reflects the basic ideas of fairness, honesty, and a general concern for people. Main strategic issues facing the company: Nestlà © has been facing Nestlà © boycott since 1977 due to its promotions of the use of artificial infant foods. Growing resistance of consumers against the use of genetically engineered foods in Nestlà ©s products. Increasing competition. Increasing awareness in the consumers with the demand of being socially and ethically responsible increasing day by day. Increasing control and regulations in the policies of the governments worldwide. Companys contribution to the National Economy: Switzerlands GDP for the year 2009 was estimated at $522.4 billion with GDP growth rate of 2.8% (2010 estimate). Out of which Merchandise exports for 2009 were of $173 billion. *Companys contribution to the regional economy: Nestlà © employs around 280,000 people all over the world and have factories or operations in almost every country in the world. Nestlà ©s gross revenue for the year 2009 was $ 112.3 billion and RD investment was $ 2.11 billion. *Recent strategic dilemma: Environmental impact of palm oil and the role of multi-nationals such as Nestlà © in this. Recent strategic choice: In March 2010, Nestlà © purchased Krafts North American frozen pizza business for $3.7 billion. Nestlà © has been heavily investing in Africa. Source of Information on Company: http://www.nestle.com (334 words) Executive Summary This assignment analyzes Nestlà ©s current situation and strategies in context of Global Food Beverage Industry and then recommends the key strategies Nestlà © should use to be more successful and retain its status as the global market leader in future. To analyze the FB Industry on a higher level and examine Nestlà ©s external environment, the following business models are used in this assignment: Industry Life Cycle, Key Success Factors and Porters Five Forces. And to analyze Nestlà ©s current status and its internal environment the business models used are: SWOT analysis, Strategic Factor Analysis, TOWS Matrix. After analyzing the information based on the above mentioned models, Nestlà © is currently facing issues like product recalls, stagnant growth, high logistical costs, negative publicity and false allegations which are damaging its image and goodwill in the market. To combat some of these issues Nestlà © has introduced innovative and healthier food products to cater the rising number of health conscious consumers, started focusing on the rising middle class consumers in developing and emerging economies, which has helped Nestlà © to increase their growth again post the 2009 Financial Crisis. For further improvement in the market share and company image, key strategies recommended to Nestlà © are Expansion strategy through strategically acquiring and merging with its competitors and investing in production facilities in developing economies and Growth through Innovation in health nutrition food segment. One area that Nestlà © has to care of immediately is improvement in its Public Relations management to create a high level of loyalty and trust in its customers by building and reinforcing the notion that Nestlà © still follows its founding ethos of fairness, honesty, and a general concern for people. (277 words) Industry Life Cycle Introduction Growth Maturity Decline Time I ND U S T R Y SALES The Global Food, Beverage and Tobacco Industrys growth has slowed down in recent years. But all this is set to change due to the recent technological advancements, rapid globalisation and opening up of the many restricted markets worldwide such as India, China, African nations, etc. With the technological advancements in food processing, handling and storing capacity and the rapid emergence of organized retailing in Asia, Africa, and other third world countries, along with fast changing demographics and habits has changed consumption the patterns and is fuelling the next growth trajectory for the global food, beverage and tobacco industry. The Global Food, Beverage and Tobacco Industry is in the High Growth stage of the growth phase as the increase in sales has slowed down in recent years. The global food, beverage tobacco industry generated total revenues of $6,319.2 billion in 2009, growing at a compound annual growth rate (CAGR) of 3.4% for the period spanning 2005-2009. Food sales generated total revenues of $4,235.4 billion, equivalent to 67.1% of the industrys overall value and sale of beverages generated revenues of $1,581.7 billion in 2009, equating to 25% of the industrys aggregate revenues. The industry is forecasted to grow at CAGR of 3.8% for the five year period 2009-2014. Nestlà © recorded revenues of $99 billion in year ending December 2009, showing decrease of 2.1% compared to fiscal 2008. In 2009, Nestlà © renovated 7,252 products for nutrition or health reasons, as health awareness among consumers is rapidly increasing and it wants capitalize on the health conscious trend. Nestlà © has been active in Developing Emerging (DE) economies through its subsidiaries in Asia Pacific, Africa, the Middle East, Turkey and Latin America. Nestlà ©s sales in emerging countries accounted for almost 32.5% of total revenue and reached $32.32 billion in 2009. According to IMF, the advanced economies are set to grow at 2.1% and 2.4%, respectively, in 2010 and 2011, while the DE economies are forecasted to grow at 6% and 6.3% in 2010 and 2011, respectively. Therefore in the future, Nestlà ©s growth will be driven by high-growth DE economies. Key Factors for Success Key Success Factors Weight Rating Weighted Scorecard Rating Weighted Scorecard Rating Weighted Scorecard Branding 0.20 5.00 1.00 4.00 0.80 4.50 0.90 Diversification 0.15 4.50 0.67 4.00 0.60 4.50 0.67 Product Quality 0.15 4.00 0.60 4.00 0.60 4.00 0.60 Pricing 0.15 3.50 0.52 3.50 0.52 4.00 0.60 Distribution Network 0.10 5.00 0.50 3.50 0.35 5.00 0.50 Packaging 0.10 4.00 0.40 3.50 0.35 4.50 0.45 R D 0.10 5.00 0.50 3.00 0.30 4.50 0.45 Market Dominance 0.05 5.00 0.25 4.50 0.22 4.00 0.20 Total 1.00 4.44 3.74 4.37 Key Factors for Success in the Food and Beverage Industry: Branding in FB industry is of utmost importance as people do not prefer to buy products that they are not familiar with; also in this industry brand image is everything as it can attract consumers to a companys new products if it is already reputable in the market. Diversification in FB industry are almost always related as companies prefer to have a healthy portfolio of products while still maintaining their core competencies and using them in their related products; as by having a large range of products a company will be more competitive and would not have to rely on a single product. Product quality is very important in FB industry, as bad quality products can will lead to consumer boycott of the companys products, health issues in consumers and lawsuits against the company. While quality of the products also have to justify their prices, such as normal milk chocolates (Nestlà ©, Cadbury, etc.) cannot be priced high while specialty chocolates (Lindt, Godiva, etc.) are high priced. A strong distribution network is a must in FB industry as it gives the companies low costs operations, fast delivery, and optimal shelf presence in retail stores. RD is vital for gaining market share for the companies as development of better tasting, more nutritional and new foods beverages is the fastest way of capitalizing on the fast changing trends of the consumers (like current healthy organic food trend). Two of the many competitors that Nestlà © has, I have chosen Kraft Foods and Unilever for the comparison of KFS. After analyzing the KFS it is clear that Nestlà ©s response to the current and expected key success factors is above the industry average, with Unilever quite close behind and Kraft Foods just managing the industry average. So the analysis of KFS also reinforces Nestlà ©s position as the largest FB Company in the world. Porters Five Forces Model: Potential Entrants: Product Differentiation Switching Costs Distribution Channels Cost Disadvantages Suppliers: Financially weak Large no. of suppliers Buyers can do Backward Integration Substitutes: Private label products Niche products Cheaper alternatives available Buyers: Large Retailers Financially strong Backward Integration Low Profit margin Other Stakeholders: Health Groups Environmental Groups Fair Trade Organizations Rivalry among existing firms: Large number of players Dominance of big players Highly diversified markets Analysis of Porters Five Forces: The Bargaining Power of Suppliers (Low): The bargaining power of suppliers in FB Industry low as the raw materials for this industry includes fruits and vegetables, meat and fish, dairy products and grains, tobacco, cereals and grains, etc which could be purchased in the open markets around the world. And some FB producers have integrated backwards into producing their own raw materials, negating the need for suppliers. Also suppliers tend to be financially quite weak giving market players upper hand. The Bargaining Power of Buyers (High): The bargaining power of suppliers on the other hand is quite high as typical buyers are large retailers such as Wal-Mart, Carrefour, etc. who are financially very strong and usually make large purchases and enter into long term contracts with market players; as the profit margins for the buyers is quite low. So loss of one retailer could significantly impact upon a manufacturers revenue. Buyers are frequently integrating backwards, with many retail chains offering their own branded packaged food goods usually referred to as Private label products. The Threat of Potential New Entrants (Present): The threat of new entrants is high for small players who only serve few products and few markets (regional or national players) but is low for highly diversified big market players such as Nestlà ©, Unilever, etc. who operate globally. Since its a highly fragmented market small-scale entrance by occupying a niche in the industry is possible and high these days. But new entrants have to bear switching costs (which can be quite high) as its very hard to convince consumers to try new brands/products. Also big players can restrict the access to distribution channels for new players through their contacts and power in the market. The Threat of Substitutes (High): The substitutes are often cheaper and just as popular with consumers in FB Industry as most of the products in this industry are in a way a substitute of some other products, like Tea for Coffee, Coke for Pepsi, NutraSweet for Sugar, etc. These days private label products, organic foods; nutritional foods, etc. are also rapidly substituting the packaged foods. And there are almost no switching costs for end consumers as they just pick any new products instead of their regular ones if they want to experiment. The Extent of Competitive Rivalry (High): The competitive rivalry among the firms is quite high in this industry as the enormous size of the industry creates endless opportunities for the players to compete for. Large number of players, ready availability of substitutes, low entry barriers, low bargaining power of suppliers and fast changing customer tastes intensifies rivalry in the FB Industry. And also slow down of sales in the industry in 2009 will intensify the competition in the market, as everyone would try and gain market share now by take sales away from other competitors. Relative Power of Other Stakeholders (High): SWOT Analysis: Internal Factors Analysis Summary (IFAS): Internal Factors Weight Rating Weighted Score Comments Strengths S1: Finance 0.15 5.00 0.75 Low debt/asset ratio S2: Global Presence 0.10 4.50 0.45 Market Leader S3: Brand 0.10 4.50 0.45 One of USAs most admired S4: RD 0.10 5.00 0.50 Industry leader S5: Diversified Portfolio 0.05 4.50 0.22 More than 6000 brands Weaknesses W1: Quality Control 0.20 3.50 0.70 Increase in product recalls W2: Growth 0.10 3.00 0.30 Growth recovery slow W3: Emerging Markets 0.10 3.20 0.32 Less emphasis W4: Logistics Cost 0.05 2.00 0.10 Quite high W5: Perceived Image 0.05 2.00 0.10 Considered to put profit first Total Score 1.00 3.89 Strengths: Nestlà © apart from being the market leader in FB Industry is also financially very strong with highly diversified portfolio of more than 6000 brands, global presence, and strong RD capabilities; and in the process has developed a very strong brand image which it uses as leverage to generate high sales. As it has global presence it has customized its products according to consumer preferences in the local markets. Nestlà © is also the leading company to invest heavily in RD (annual invest of $ 1.8 billon approx.) as it considers innovation as one of its primary growth drivers. Weaknesses: Due to the sheer size and geographical diversity of Nestlà ©, controlling quality in many of its factories and supply chains is becoming difficult for Nestlà ©; which in turn is resulting in product recalls, loss of goodwill, and effect to the brand image of the company, which can lead to low customer loyalty. Another one aspect where Nestlà © is lagging behind is that it has not been focusing much on emerging markets as majority of its sales are from developed markets. Its logistical costs and inventory management costs are also quite high due to its geographical diversity. Its growth has been has slow after the economic downturn as compared the industry as a whole, which has been on the recovery track since. External Factors Analysis Summary (EFAS): External Factors Weight Rating Weighted Score Comments Opportunities O1: Health food trend 0.15 4.50 0.67 Rise in health consciousness O2: Developing Emerging economies 0.10 3.50 0.35 High growth rate O3: Opening of Eastern Europe 0.05 3.00 0.15 Can expand there O4: Out-of-home consumption 0.10 3.50 0.35 More than 40% in Americas O5: Premiumisation 0.10 3.20 0.32 Growing incomes Threats T1: Rising prices of raw materials 0.10 3.00 0.30 Climate change food shortages T2: Specialized competitors 0.15 3.50 0.52 General Mills in Yogurt Mkt. T3: Increasing Regulations 0.15 4.00 0.60 Spats with FDA T4: Currency Fluctuations 0.05 2.50 0.12 Strong Swiss Franc T5: Negative Publicity 0.05 3.00 0.15 Due to alleged unethical business practices Total Score 1.00 3.53 Opportunities: One of the major opportunities which can be the future growth driver for Nestlà © is healthy and nutritional foods segment, as by 2014 the global organic food market is forecasted grow by 60.7% since 2009 and while the global functional drinks market is forecasted to grow by 32.9% since 2009. Also further penetrating the Asian, African and Eastern European markets by using merger, acquisition and joint venture strategies can also be a major growth driver for Nestlà ©. The growing level of incomes of the middle class around the world is also providing Nestlà © with opportunities for launching its premium products such as Mà ¶venpick, etc. in the developing economies. Threats: Two of the major factors threatening Nestlà © are specialized competitors and increasing regulations by government bodies. As Nestlà © is highly diversified it faces problems when it has to compete with competitors who are highly specialized in one product such General Mills in US Yogurt Market. Also any change or stricter enforcement of regulations by government bodies like FDA, tend to threaten Nestlà © as it would have to change its production process or may even face lawsuits pay fines due to some violations of the regulations, which will also give rise negative publicity about the company. Due to the economic downturn of 2009, currencies fluctuations have been hurting Nestlà © as Swiss Franc has strong against the most of the other currencies. Strategic Factors Analysis Summary: Strategic Factors Weight Rating Weighted Score Duration Comments S H O R T I N T E R M E D I A T E L O N G S1: Finance (S) S3: Brand (S) 0.15 5.00 0.75 X Large amount of cash 0.10 4.50 0.45 X Major global brand W1: Quality Control (W) W3: Emerging Markets (W+O) 0.20 3.50 0.70 X Recent product recalls 0.10 3.20 0.32 X Give more emphasis O1: Health Food Trend (O+S) O5: Premiumisation (O) 0.15 4.50 0.67 X Major growth area 0.10 3.20 0.32 X Increasing incomes T2: Specialized Competitors (T+O) T5: Negative Publicity (T) 0.15 3.50 0.52 X Possibilities of JVs 0.05 3.00 0.15 X Significant impact on customer loyalty Total: 1.00 3.88 Short Term: The FB Industry can see short and explosive bursts of growth, so it is necessary for Nestlà © to always have few strategies ready for short periods or it might not be able to capitalize on important trends or fads. For short term Nestlà © should focus on Premiumisation in developing and emerging economies as the incomes of the middle classes is rising there, which is fuelling their want of premium products now. Since Nestlà © already has lot of products in the premium segment, so all it has to do is to launch them into developing and emerging economies now; which will only take short time period to do and with minimum costs. Intermediate Term: Quality Control, Emerging markets, health food trend and specialized competitors are factors which Nestlà © will have to address in the intermediate time period, as they can adversely its sales if left unchecked. Nestlà © has to bring its quality in to control quickly otherwise it will be at risk of losing its loyal customers and might even face lawsuits. By expanding and capitalizing in emerging markets like India, China, etc. and current health food trend Nestlà © will be able to compete with its competitors and maybe also gain market share in the process. Collaborating with its competitors or buying them out in the segments which require specialized skills will take some time but is a necessary step or in long term they might become a huge threat to it. Long Term: Nestlà ©s long term scenario is quite balanced as it is financially very strong with a brand name that is counted among the top 25 brands in the world, but it also has repair its deteriorating image in customers minds. Being the market leader in the industry and with worldwide renowned brand Nestlà ©s sales revenue is far greater than that of its competitors which gives it high leverage capabilities while operating in the market. It has been coming under attacks from various social groups in recent years, which has been damaging its goodwill among its customers. Nestlà © has to strongly address this issue slowly and carefully so that it is come back to haunt it, and do that it has to invest heavily in very effective and efficient Public Relations management team. TOWS Matrix: Internal Factors (IFAS): External Factors (EFAS): Strengths (S): Finance Global Presence Brand RD Diversified Portfolio Weaknesses (W): Quality Control Growth Emerging Markets Logistics Cost Perceived Image Opportunities (O): Health Food Trend Developing and Emerging Economies Opening up of Eastern Europe Out-of-home consumption Premiumisation SO Strategies: Develop products for health nutrition segment. Find joint venture partners in Eastern Europe. WO Strategies: Expand Nestlà ©s presence in Eastern Europe Asia. Change Nestlà ©s perceived image. Threats (T): Rising prices of raw materials Specialized Competitors Increasing Regulations Currency Fluctuations Negative Publicity ST Strategies: Do backward integration. Either use joint venture acquisition strategies or RD to gain market share. WT Strategies: Invest in PR management to improve the image of Nestlà ©. Emphasize on developing emerging markets to gain market share. SO Strategies (Maxi-Maxi): SO strategies are formed so that the strengths of a company can be used to capitalize on its external opportunities. So by analyzing Nestlà ©s strengths and opportunities available to it I have decided to use two strategies for Nestlà ©s future growth. As the demand of healthy nutritional foods is increasing Nestlà © can use its strong RD capabilities to develop products for this segment. Another strategy that Nestlà © can use is to find partners for joint ventures in Eastern European market as it being relatively new, it might not be aware of how things happen there; so it should first do joint ventures there to study the market first as opposed to moving with full force in the market. ST Strategies (Maxi-Mini): A company applies ST strategies to avoid its external threats using its strengths. As Nestlà © is financially very string it has the capabilities to do backward integration with its suppliers, which will in turn insure Nestlà © of a secure steady supply chain and quality of its raw materials. Another strategy that Nestlà © can also use is that through its financial strength, brand image and global presence it can either acquire or enter into joint ventures with its competitors who are highly specialized; or it can use its strong RD to also develop specialized products for that segment. WO Strategies (Mini-Maxi): WO strategies are aimed to improve a companys internal weaknesses by capitalizing on its external opportunities. Nestlà © can reduce its logistical and inventory management costs by expanding its presence to Eastern Europe and Asia. Another strategy that Nestlà © can use is to change its Perceived image (of putting profit first) by developing and introducing more healthy nutritional products. WT Strategies (Mini-Mini): WT strategies are defensive tactics employed by a company to reduce its weaknesses and avoiding its external threats. As the image of Nestlà © is being tarnished by negative publicity arising out of recent product recalls, compliance issues for violating regulations, etc. it should heavily invest in its PR management; so that such negative publicity could be avoided next time. Nestlà © should put more emphasis on selling in developing and emerging markets to continue steady growth while increasing market share and also for purchasing and producing there to counter the rising prices of raw materials and labor costs. Assessment of Current Company Performance: Efficiency: Nestlà ©s recently been following the strategically expanding through acquisitions and investments. It has been quite successful in expand its line of frozen foods in North America through the acquisition of Kraft Foods frozen pizza line for $ 3.7 billion in cash. Nestlà © also had several other small acquisitions in the first quarter of 2010 which did not have a significant impact on the Groups sales and profit for the period. Nestlà ©s acquisition related costs in the first quarter of 2010 were about $ 13.4 million. Effectiveness: Nestlà © was effective in carrying out its expansion strategy through acquiring frozen pizza line from Kraft Foods as where the company had only a minor presence until now; it is the market leader in frozen food segment in North America. It successfully integrated Kraft Foods pizza business into the Nestlà © Group as well as its 3,620 employees, with their valuable talent and expertise in Nestlà ©. The frozen pizza line showed 14% organic growth in the first quarter of 2010. Sales and profit of Kraft Foods frozen pizza business in the first quarter of 2010 amount respectively to $ 6.11 billion and $ 65.2 million. Return to Investors: Nestlà © paid dividend of $ 5.632 billion in the first quarter of 2010 which showed an increase of 7.8% when compared to the dividend payment of $ 5.223 billion in 2009 for the same period. Increase in dividend shows that Nestlà © is starting to recover from the financial crisis of 2009. The share value of Nestlà © went up by $ 0.91 per share for 2010. Review of Options for Future Direction In order to address its weaknesses and external threats Nestlà © has to critically use its strengths and capitalize on its external opportunities by using some of the strategies mentioned in the TOWS matrix earlier. One of the strategies that Nestlà © can use is expansion strategy through strategically acquiring and merging with its competitors and investing in production facilities in developing economies. It should acquire or start joint ventures with firms in developing markets like India, China, Russia, etc. to capitalize on their booming economies and gain market share quickly before other global players enter the markets as it has the financial backing to support such expensive ventures. Also it should start investing in developing markets to develop its own production and distribution facilities so as to eliminate dependency on local players. Another strategy that Nestlà © should undertake is Growth through Innovation in health nutrition food segment. Due to the rising education levels and general awareness around the world consumers are becoming more more health conscious, which is an important opportunity and will be a future growth driver for Nestlà ©. It should use its highly developed RD capabilities to develop more healthy and nutritional foods to cater to this growing group of consumers. Implementation of New Strategies Structure: Nestlà © has a decentralized organizational structure which has been very beneficial to it as far flung divisions could take decisions in real time to exploit the opportunities present to them; but due the huge technological advancements in the past few years this autonomy has led to conflicting practices within the company; making it a nightmare to coordinate activities between divisions in different geographical zones. It has to centralize its operations to gain a tighter control over its far flung divisions and businesses, so that Nestlà © can (with a unified centralized system) leverage its products in real time on a worldwide scale to generate higher sales. Systems: Nestlà © has its production and logistical systems under control to meet any unexpected growth surge in a short period of time and to fuel growth for expanding in developing markets. But Nestlà © has to take care of its supply chains as they can virtually leave Nestlà © hanging in the air if any change in natural political environment takes place with the possibility of disruption in supply of raw materials or a drop in the Why do Multinational Companies Exist? Why do Multinational Companies Exist? According to Needle (2010), Multinational enterprises are those enterprises which carry its production activities in more than one country. These companies make sure of the supply of raw material to the other country they are operating in. As per Buckley and Casson (2009) many of the multinational operate in different country because of many reasons such as low labour costs, serving a huge market, cutting of their taxes and production costs, innovation in technology and exploitation of resources. According to Dickens (2011), today we are living in borderless world as there are no boundaries that exist between the countries or nations. Globalisation is the new trend changing the political and cultural order of the world (Buckley and Ghauri,2004). Every operation that has been carried out by companies goes around the world. Innovation is growing very fast and so do competitiveness. Globalisation can be define as the increase in the frequency and duration of linkages between countries leading to similarities in activities of individuals, practices of companies, and policies of governments (Czinkota 2005). From the statement we can say that companies go global because of many reasons as now the countries are linking to each other to share the information and wealth. As said by Rugman and Verbeke (2005), Firms become multinational because they want to grow, expand and diversify their operations. Operating in their home country wont satisfy them so they go global. Using the resources of their home country make it obsolete or bound them in a limit to not to go further. Then firm decides to go global by making investment on their further growth. As argued by Madura (2008) following are the theories which a firm follows when it globalises such as: Theory of Comparative Advantage The Imperfect Markets Theory The Product Cycle Theory As explained by Madura (2008), Comparative advantage theory says that when countries specializes or have expertise knowledge in one field than they dont waste their resources or energy on research of other field, they share or trade with other countries to share their expertise field. They take advantage of their expertise knowledge and become a head in comparison with others. Labour force is skilled and lower in cost in India and China as compared to western countries. They can be transported or hired for the operations for other companies. Companies such as Intel, IBM, Wipro operate in different countries because to utilise their efficient resources. These companies are operating in India, having their call centres outsource sharing the expertise knowledge in the field of Information Technology as India produces a large amount of IT experts. Imperfect market theory says that if the markets of a country stop trading with other countries than there will be no international trade. As per Dewey (1969), if the markets of the countries were perfect then there would be an easy transfer of resources from one country to another. Factors of production like labour, raw material, machines and capital can be transferred wherever they are demanded. This temperament of deal between the countries creates a similarity in costs and removes the relative cost of advantage, global trade and investment. In todays world there are situation when imperfect market conditions arises, where transfer of labour and other factors of production is restricted at some level. For example, MNEs such as Gap and Nike take advantage of the resources related countries. Imperfect market offers these companies to exploit their market and cross the trade barriers of import and export. According to Madura (2008), in Product Cycle theory, firms establish first in their home country by utilising all the resources available in the market. In home market they have an advantage over competitors. After operating in home market firm feels to expand their operations by entering into foreign market and producing their products overseas, reducing their transportation cost and other cost of production. There are existing competitors in the global market and to compete with them they introduces new technology and products in the market. For example, Dell, Lenovo, Toshiba are the companies who spent lot of their resources in their research and development for the latest technology. As argued by Kapoor and Grub (1973), firms motivate themselves to become multinational enterprises because of the foreign direct investment that helps in crossing the trade barriers to other countries. They also explore different cultures and management structure followed in different countries. Firms become multinationals in order to reduce the risk of foreign trade and become politically and economically well established. By going global they create a good relationship between the nations and create a name and goodwill to the firm. For example, many of the American companies are going global as they now operating their activities in the growing economy of different countries such as Brazil, China, India, Russia etc. Many of the emerging market companies such as HTC, Samsung, Nokia etc. are also spending on their research and development and sharing the information on technology sector. According to Markusen (1995), as he explains the Dunnings OLI framework that there are three advantages in which a company can have direct investment. Firstly, Ownership advantage is when a company has trademarks and copyrights of producing a product line and no other company can duplicate their product. Secondly, Location advantage is there when a firm creates his monopoly in a particular region serving a large amount of society. It is done as the foreign market offers the low cost of production to firms which make it profitable for the firm to serve that region. Thirdly, Internationalisation advantage says that if there is a market to cater than instead of going out there and start a new production unit, its better to license and sell your technology to a company and they will produce units for you. As stated by Madura (2008), there are some ways by which firms become multinational enterprises. International Trade Licensing Franchising Joint Ventures Acquisitions of existing operations Establishing new foreign subsidiaries According to Hill (1994), International trade means exporting and importing of goods and services between different nations and different companies. If a company start facing losses that it can reduce or stop exporting or importing from different countries as there is no huge investment involved in it. For example, many of the U.S. firms such as Microsoft, IBM, General Electric generates there huge amount of revenue from import export. As argued by Needle (2010), Licensing means that a firm uses several modes such as copyrights, trademarks, patents etc. to register their process of operations or the technology they use. They can transfer or share their technology with others according to their wish with low capital involved in it. For example, in India all the parts of telephone communications are manufacture by ATT and Verizon Communications as they have a licensed agreement. All the drugs that are produced and exported to Hungary and other countries are made by Eli Lilly Company. It has been argued (Spinelli et al. 2004) that Franchising means when a company authorizes its residents of the same country or other country to open an outlet using the brand of the company. Its market policies, product line and the franchisee have to follow the protocol of the parent company. In return to this the franchisee has to pay a royalty fee to the company periodically. For example, McDonald, Pizza Hut, Subway sandwiches have many outlets in many countries that are operated by the local residents of the respective countries. As per Yan and Luo (2007), in Joint Ventures two firms come together to achieve their common goal in the competitive market. In ventures risk sharing ratio is equally divided for the defined project and there should be a mutually understanding between them. These enterprises are also politically acceptable in different nations. For example, Nestle has a wide distribution of its home products throughout the world. So there has been a joint venture between General Mills Inc. and Nestle to distribute the cereals produced by the General Mills by using the distribution channel of the Nestle. It has been argued (Reed et al. 2007) that acquisition of existing operations means that the company acquires the existing competitors in the local market or in the foreign market. A company takes over another organisation as they incur heavy losses and cannot operate in the competitive market and also to vertically or horizontally integrate. A company explores the resources of another company and take advantage of the already setup done by that company. For example, Procter and Gamble acquired a bleach company situated in Panama. According to Rugman and Verbeke (2005), another way of entering in global world is by establishing new subsidiaries. The large organisations create or distribute its departments into different companies and are wholly or partially controlled by the parent company. The main organisations are called the parent company and the other is known as holding companies. If the company is totally owned by the parent company that their stock is also owned by the parent company. There is always a protection of technology as the information is not leaked out. At the same time it also involves high costs and risks in the foreign market. For example, a truck company called Overnite Transportation is a totally purchased subsidiary of Union Pacific Corporation. Conclusion At last it can be said that, the role of MNC in developing itself and the nations are very important. It in one way helps to build and economy by various advantages. At the same time it can have different repercussions if not properly strategized. The above description gives all the major points in making of an MNC. Also the essay describes the various parameters needed in making of an MNC.