Research Korner

The Impact Of Corporate Governance On Financial Performance In China

The Impact of Corporate Governance on Financial Performance in China    Over the years, China has able to take enormous task of developing its economy into developing its various industries. In fact, the China Securities Regulatory Commission (CSRC) has announced that 2002 was the good year for corporate governance in the country.  This has been also associated with transparency, accountability, and equality in the financial sector.  Since then, China has been very careful of managing its financial sector by avoiding financial crisis and plundering of state assets. In the same manner, retaining its capital, as well as fostering domestic investments, so as raising cash fund for social obligations; China these days,  gradually develops  its financial markets and  various companies through taking the learning advantages  and  apply the best practices from other business sectors of the economy.  By doing this, financial market development and business reform in China has been started by product of the state-owned enterprise (SOE).  (http://mitsloan.mit.edu/50th/pdf/corpgovchinapaper.pdf) Furthermore, as China’s economy heads off towards financial stability, the role of the financial market becomes significant in the growth of the entire economy. Some business experts considered corporate governance as the “last pillar to be moved” in its economy. Financial market development and better corporate governance go hand in hand for the economic reform in China.  A well-developed financial market is one of the essential fundamentals of corporate governance reform in the country. For instance, the securities market is one of the important steps towards raising domestic assets. This market is a financial tool   that helps the China government to shift from   SOE jobs to economic obligations.  During 1990s and 1991s, the government had set up the Shenzhen and Shanghai securities exchanges correspondingly, as a trial and error process in putting   capital market machinery in China. (http://mitsloan.mit.edu/50th/pdf/corpgovchinapaper.pdf) Asset management has been the most attractive financial services in China for many years now; with the help of investment made by Chinese people, as well as the retirement plan and insurance needs increased among the Chinese population.  This sector has grown widely, it even increases more than 60 percent per annum for the past three years of business.  Many Chinese business experts foresee this condition to even give the economy a rise of 24 percent   yearly for the next ten years. Subsequently, there are more than 27 foreign asset investments that have entered China in the past five years, through combined business undertakings and minority stakes.  In spite that Chinese law limits foreign participation to business ventures with Chinese companies,   foreign ownerships still rose to   49 percent.     (http://www.mckinseyquarterly.com/The_opportunity_in_asset_management_in_China_2060) Moreover, the recent issue on the China Briefing Magazine written by Richard Cant, the Director of Corporate Accounting Services; and a new member of the Dezan Shira & Associates group.  He is an Australian who wants to help   legally many Chinese businessmen to establish private “empty shell” companies in the U.S. and register on U.S. stock exchanges, skipping directly to major boards such as NASDAQ or NYSE because of technical ambiguities. Various fraudulent activities have been widely exposed in various media sources in a theme of financial management. (http://www.china-briefing.com/news/2011/03/31/new-issue-of-china-briefing-financial-management.html) On the other hand,   the major internal challenges of SMEs that operating in the Chinese territories are the deficiencies on the internal strategies of the SME businessmen, as well as the insufficient management of the business. Most SMEs have difficulties in sustaining their start-up capital for their expansion and operating   capital for the SME business. Hence, SME sectors should promote good business relationships with banks as their important sources of financial resources.  Small and medium enterprises in China are advised to maintain regular communication with the banks. By doing this, they can have chances to discuss with these financial institutions about their   company’s needs, future plans and some suggestions and advice from the financial experts.  SMEs need also to establish sufficient credit lines, and, in order to establish credit lines, establishing them in advance before the need arises is always a better action.  In other words, a good-financial management practice is the most common   solution in order to avoid any failure in the financial and corporate management in China.  (http://www.chinadaily.com.cn/hkedition/2011-11/30/content_14184635.htm) In view thereof, corporate governance is evolving with business individuals and corporations are being controlled and directed.  Seemingly, international guidelines are necessary to further improve its policy and standard.  The good governance plays a vital role in the promotion of economic growth and business integrity of one nation.  The main objective of corporate governance performance in China is to alleviate the economic condition of the entire Chinese communities, as well as to advance the economic status of the nation. References: (http://mitsloan.mit.edu/50th/pdf/corpgovchinapaper.pdf) (http://www.mckinseyquarterly.com/The_opportunity_in_asset_management_in_China_2060) (http://www.china-briefing.com/news/2011/03/31/new-issue-of-china-briefing-financial-management.html) (http://www.chinadaily.com.cn/hkedition/2011-11/30/content_14184635.htm) Credit:ivythesis.typepad.com

The Impact Of Corporate Governance On Financial Performance In China

The Impact of Corporate Governance on Financial Performance in China Over the years, China has able to take enormous task of develo...

International Management: Market Entry

Introduction             If an industry has decided to conquer the international market, there are many choices that will be opened.  These options may include the cost, risk and the degree of control that the company will encounter (Luo 2001).  In entering an international business, it is important that the management of the company should be able to choose a marketing entry strategy so as to make the company be more competitive (Anderson & Gatignon 1986). Primarily, the purpose of this paper is to provide an analysis of the marketing entry mode that British Petroleum may use to enter the Hong Kong Special Administrative Region (SAR) market.  In this manner, the discussion of the current situation of Hong Kong will be analyse as well as the international management approach that can be used by the company to sustain competitiveness within the international market.   Overview of the Company             British Petroleum known today as BP Amoco is a petroleum industry based in London.  It is recognized as one of the top four oil and petroleum companies throughout the world. The company started in 1901when William Knox D’Arcy was given the permission by the Shah of Persia to explore the land for oil and founded one in May 1908.  Because of this discovery, the Anglo-Persian Oil Company was established so as to expose these findings. The company has grown gradually because of this as World War I is happening; the British Government shows intense interest to the company which became the source of fuel oil of Royal Navy during WWI. In 1917, the war gives permission to the British Government to have full control of the company and named it British Petroleum (British Petroleum 2006).  The company has continued to become one of the largest oil companies in Europe and because the company wanted to expand its market, BP merged wit the American Oil Company (AMOCO). The strategies used by the management have been the major factors for the company’s success.  In addition, the ability to include international marketing has made the company become one of the most successful oil companies all over the world.             Today, the company operated in more than 100 states in 6 continents.  The main goal of this company is to drill and find oil.  The major activities of BP Amoco is exploration and production of natural gas and crude oil; refining or decontamination, marketing, supply and transportation and production and marketing or petrochemicals.  In addition, the company also engaged itself in solar power.  The strategic use technology and strategic management can be considered as a factor for this achievement.  The company also acquires Burmah Castrol and Atlantic Richfield Corporation (Arco) and has been able to launch a combined global branding. The company offers products and services which are divided into three categories; on the roads which include fuels and stations, fuel cards, Liquified Petroleum Gas (LPG), lubricants, roadside assistance and route planners, for the home which consists of products like LPG, online store and solar and renewable; and for business which include air BP, Bitumen, BP Marine, BP open books, BP shipping, petrochemicals, power, natural gas, lubricants Liquified natural gas (LNG) and LPG, fuels, fuel cards and solar and renewable. In order to easily reach their customers, BP also uses the internet through its website (BP 2006).   Analysis of the Choice of Foreign Market          In the business arena, it is important that an entrepreneur must be knowledgeable about the different marketing strategies that must be utilised in order to make the business prolong its competitiveness and stay in the marketing world, locally and internationally. The management of an enterprise that are considering entry into a foreign market must be able to make decisions focusing on uncertain and changeable circumstances that might be faced (Madhok 1997).  To successfully enter international market scene, it is important that the management should determine which country to choose (Kumar & Sumramaniam 1997, Kim & Hwang 1992).           It is a very crucial factor because the economic status of such country will be one of the major factors that can help boost the competitive advantage of a Firm BP Amoco chooses Hong Kong even though there are lots of competitors to outgrow, because of the economic status of the country.  Since the country has a positive vision regarding oil and natural gas products and other chemicals, BP can use this as an instrument to expose its products in the population of China (Tse, Pan & Au 1997) and show the quality of products and services they offer.    Various Environments          When a firm decides to expand its venture to international market, it faces different challenges that need to be given emphasis (Bradley, 1999). One of the most important considerations that should be given enough attention by the management of any industry like oil industries is the different environmental factors that affect the firm as a whole (Porter 1980).  BP operates in a complex and more competitive environment.  This is because only few countries can able to produce oils and natural gases.  In this manner, the competition to produce and provide products and services for different consumers is demanded not only in the domestic arena but most especially to the international market (Aaker 1995).           The environment in which oil industries belong is a kind that must be given enough consideration in order for the company to be recognised in the whole world. Factors, such as consumer segments, political, economic and technological factors (Burgelman, Maidique & Wheelwright 2000) are few of environmental aspects, needed to be determined by BP as it enters an international market.  In Hong Kong, it can be said that the country has a strong political system.  This means, the British Petroleum should be able to adhere to the political status of Hong Kong in terms of business operations.            Moreover, the economic status of the country is also considered as strong since it allows foreign investments to enter the PRC market.  And since the needs of oil and other oil products is in demand with, it can be said that the market will be able to consider BP as an important industry that will provide quality oil products and services. In this regard, BP entry to Hong Kong is plausible and that with strategic marketing entry the company may ensure growth in this nation. In terms of technological aspects, the country has been able to adapt modern technologies to ensure growth and development within its territorial boundaries. This means that, Hong Kong is a potential international market for British Petroleum.   Competitive Strategies As one of the world's biggest oil and petrochemical companies, British Petroleum (BP) has international operations in over 70 countries with 233 billion revenues, and 103700 employees. It focuses on oil and gas exploration and production, the supplying of petroleum products, and the manufacturing and marketing of chemicals. Currently BP owns five recognized brands worldwide which include BP, am/pm, ARCO, Aral and Castrol. (BP 2005) With the rapid change of the external environment, BP has regarded itself as a modern, global, decentralized and learning corporation that must learn to be adapted and responsive accordingly (Prokesch 1997.) The leaders of BP knew that to maintain BP's competitive advantages and its leader position, it is no more relies on their experiences but the technical skills, political and operational knowledge because oil may be found in more challenging environment and even will be replaced by alternatives, such as hydrogen and solar, in the future. John Brown, BP's CEO, has claimed that learning is the foundation stone of BP to adapt to change. To identify the opportunities that their competitors may not see, BP has to create and distribute knowledge throughout the organization, thus learn faster and exploit faster than their competitors. (Prokesch 1997; Popper 2000) Similarly, Mr Ashton, head of BP's information technology architecture and strategy, claimed "BP needs to know what it knows, learn what it needs to learn and apply that knowledge as quickly as possible for sustainable competitive advantage, (Newing 1998) Thus, the vision of BP is to be "an integrated world-class, agile learning organization Newing 1998). Party of the business strategy of BP is its effective entry to international market which makes the company become more recognized in the business arena. In addition, the company is able to seek improvement in its business operation and tries to provide innovative products for the target market (Hunger & Wheelen 1996).  As mentioned, the company divided its market into three categories which helps them in knowing what the needs of their customers in specific categories are.   Motivations for Market Entry Entering a new market is a complex decision which must be given focus and attention.  With the goal of establishing a business that would be recognized and patronized by consumers, more and more entrepreneurs are trying to enter the market swiftly. There are different motivations for market entry (Hill, Hwang & Kim, 1990).  One of the motivational factors to enter an international market is the chance given by this investment to make the company become more competitive among its rivals.  It can be said that one’s an industry becomes a multinational company, there is an implication that such company has been able to establish a competitive position in the marketplace not only in the local but most especially to the global arena. Marketing entry is also capable in making a certain business enhance and expand its business portfolio. In line with BP, the company enters an international market (Hong Kong) in order to establish a company that would be powerful not only in Europe but in different continents as well.   Modes of market entry In the market arena, it is important that a business firm or company should be able to include global competitiveness in their marketing strategy.  The paradox of globalisation has always been one of the great influences for a company to lasts. In order to compete globally or internationally, the management of a firm should be able to choose a mode of market entry that will help them to achieve their goal. All of these modes involve resource commitments (albeit at varying levels); firms' initial choices of a particular mode are difficult to change without considerable loss of time and money (Root 1987). Entry mode selection is therefore, a very important, if not a critical, strategic decision. The four most common modes of foreign market entry are exporting, licensing, and joint venture and solve venture.  Collaborative venture is the term used when a business company merged to other company for the purpose of entering the international market.  This is an alternative mode of exploiting a particular asset such as retail and potential branch network to form an arrangement with an established supplier of the product. Collaborative ventures both jointly owned and affiliate company arrangements are known to be an obvious ways of spreading risks and acquiring access to expertise (Root 1994).  Here, the collaborative arrangements with an existing market participants also means that the entrant can transfer resources into the industry without necessary disturbing that industry’s current competitive structure too much (Ingham & Thompson 1993).  It is a mutual understanding between the entrant and the existing firm to collaboratively work with each other for the expansion of the business portfolio of each company (Contractor & Lorange 1987; Root 1987). BP mode of market entry to Hong Kong is through a joint venture to either CNPC or Sinopec or Asiatic Petroleum Company. The joint venture mode is preferred by larger and more multinational firms. By having a venture with other bigger and competitive oil companies which are currently operating in Hong Kong or in China, British Petroleum products may be known in the HK market. An international joint venture is a distinct enterprise or multi-organizational agreement, created as an alliance between two or more parents organizations working across country borders in designing and managing the venture (Pitts & Woodside 1996). In order to do so, the company must ensure that the company is willing to have a joint venture with BP. in addition, BP may also use a third party stakeholder to help them in designing and implementing joint venture with an existing petroleum and oil industry in Hong Kong.  For instance, banks, government agencies, union officials, suppliers, distributors and legal officials often make critical contributions in designing-implementing parts of an international joint venture. Enterprises with little prior experience in setting-up joint venture almost always underestimate the impact of third party involvement (Biemans 1989).     Conclusion International marketing is a complex process. In order to successfully enter the foreign market the company must see to it that all their resources are ready to face the risks of such investment.  In addition, the company must be able to identify different factors that may affect the entry of the company to the marketplace. Analysis shows that BP must be able to utilize a strategy which enables the company to gain competitive advantage both in local and foreign market.  Since, Hong Kong accepts foreign investment; BP must be able to provide appropriate agreements to adhere to the current situation of Hong Kong market. Analysis also shows that the economic status of HK is an indication that BP may be able to easily provide its products and services to different segments of the market.  The entry of BP to Hong Kong can also be considered as beneficial for both the company and the country. In terms of strategic approach for international market entry, BP had used standardization to streamline its business portfolios in China. The company had emphasised the strategic use of technology, strategic management system and a strong and competitive organisational structure as the main reason why it has become successful in its venture of providing its products and services to China. In the analysis, the only recommendation is, BP must continue to strategically and effectively decide on different investments that would enhance its business performance both in the local and international market. Herein, the merging and acquisitions of different companies must be continued to provide innovative products and services in terms of oils, gases, and petrochemicals in the future. In addition, the company must continuously integrate its business strategy and information technology. It can be concluded that the right choice of market entry mode along with the concept of strategic management and other efficient marketing approach, can make a company succeed in achieving its goal of providing quality products with their target market.  However, decisions should be made strategic also. This means, that the company should have the ability to decide which among the market entry mode can be helpful to the company itself and suitable for the international market that the company will consider.   Reference Aaker, D 1995, Strategic Market Management, 4th ed., John Wiley and Sons, New York, NY. Anderson, E and Gatignon, H 1986: “Mode of Foreign Entry: A Transaction Cost Analysis and Propositions”, Journal of International Business Studies.   Biemans, WG 1989, Developing Innovations within Networks, University of Groningen: Groningen   Bradley, F 1999, International Marketing Strategy, 3rd edition, Prentice Hall.   British Petroleum 2006. [Online]. Available at http://www.bp.com   Burgelman, R.A., Maidique, M.A., Wheelwright, S.C. 2000. Strategic Management of Technology and Innovation. 3rd Edition.  McGraw-Hill: New York Contractor, FJ & Lorange, P 1987. ‘Why should firms cooperate? The Strategy and economic basis for cooperate ventures.’ In F. J. Contractor & P. Lorange (Editions). Cooperative strategies in international business. Lexington Books: Lexington, Mass.   Hill, CWL, Hwang, P and Kim, WC 1990, ‘An eclectic theory of the choice of international entry mode’, Strategic Management Journal, vol. 11, pp. 117-128.   Hunger, DJ and Wheelen, TL 1996, Strategic Management 5th edition, Addison-Wesley Publishing, England.   Ingham, H & Thompson, S 1993, ‘Structural Deregulation and Market Entry:  The Case of Financial Services’, Fiscal Studies, vol. 14 no. 1, pp. 15-41.   Kim, WC & Hwang, P 1992, ‘Global strategy and multinationals' entry Mode choice’, Journal of International Business Studies.   Kumar, V & Subramaniam, V 1997. ‘A contingency framework for the Mode of entry decision’, Journal of World Business, vol. 32 no. 1, pp. 53-72.   Luo, Y 2001, ‘Determinants of entry in an emerging economy’s multilevel Approach’, The Journal of Management Studies, vol. 38 no. 3, pp. 443-472.   Madhok, A 1997, ‘Cost, value and foreign market entry mode: The transaction and the firm’, Strategic Management Journal, vol. 18, pp. 39-61.   Newing, R. 1998, ‘BP introduces its 0m digital nervous system: Teams and staff members worldwide can work together electronically at any time, in any place, reports Rod Newing :[Surveys edition],’ Financial Times, pp.11-16.   Pitts, RE and Woodside, AG, 1996.  Creating and Managing International Joint Venture. Quorum Books: Westport, ICT.   Popper, M 2000, ‘Organizational learning: mechanisms, culture, and feasibility.’ Management Learning, vol. 31, no.2, pp. 181-197.   Porter, ME 1980, Competitive Strategy, Free Press.   Prokesch, S 1997, ‘Unleashing the power of learning: an interview with British Petroleum's John Browne,’ Harvard Business Review, vol. 75 no. 5, pp. 147-168.   Root, FR 1987, Entry strategies for international markets, D.C. Heath, Lexington, Mass.   Root, FR 1994, Entry Strategies for International Markets, Lexington Books, Washington, DC.   Tse, DK, Pan, Y and Au. K 1997. ‘How MNCs choose entry modes and form Alliances: The China experience’, Journal of International Business Studies, vol. 28, no. 4, pp. 779-805.     Credit:ivythesis.typepad.com

International Management: Market Entry

Introduction If an industry has decided to conquer the international market, there are many choices that will be opened. T...

Service Recovery Essay Critiques

Introduction             Service recovery is acknowledged by many as an important aspect in service encounter. Service recovery is very essential in maintaining a favorable relationship between the service provider and the customers. Service quality and customer satisfaction are the main goals of service-oriented companies. Because of these goals companies continue to search for new methods and techniques in service in order to satisfy the demands and needs of the consumers. Companies continuously try different techniques and approach in order to achieve total quality in service. However, failure is inevitable. Service recovery is very vital in the occurrence of service failures. Service recovery is the action (or actions) that the company take to solve the problems of the consumers and deal with their issues. Customer complaints must not be seen as a negative occurrence but rather an opportunity for the company to turn a dissatisfied customer into a loyal customer. The success of a failed service encounter depends on service recovery. In this regard, we can say that service recovery is the make or break point where a dissatisfied customer can either become a lost customer or a loyal customer. This paper presents a collection of journals and articles that discuss service recovery. The author gathered useful information from these articles and presents informative critiques of these journals. Influence of switching barriers on service recovery evaluation               The article focuses on the effect of switching barriers to service recovery evaluation. As such the authors focus on two concepts - service recovery and switching barriers.             The authors chose to explore the effect of switching barriers on service recovery given the current condition of the business environment. There are companies that operate in a very competitive market where in customers have wide choices when it comes to service providers. By investigating the impact of switching barriers to service recovery evaluation, these companies can come up with different strategies that will strengthen their complaint handling processes.             The authors aimed to determine whether a relationship exists between switching barriers and service recovery. In order to do so, the authors first examined which industry has the highest percentage of complaints. The authors found out that specialist store industry got the highest percentage of complaints. The authors then identified three constructs which are related to service recovery evaluation - compensation, promptness and employee behavior. The authors then, performed a factor analysis of switching barriers scale items. Two factors were identified - Negative switching barriers and Positive switching barriers. From the analysis made by the authors they were able to find that there is a relationship between service recovery evaluation and positive barriers.             The authors equate service recovery to complaint handling. The authors believed that complaints must be considered by service providers as some sort of a "gift" from the customers or an opportunity for the organization to look at its weaknesses and work on them, thereby enabling them to regain the trust and loyalty of its customers. Service recovery according to the author scan be considered as an opportunity to create very satisfied customers (Valenzuela, et al. 2005, p. 241). A switching barrier has been defined as anything that will hinder the customers from changing service providers. There are different forms of switching barriers but they can be grouped into interpersonal relationship, switching cost and attractiveness of alternatives (Jones, et al. 2000, cited in Valenzuela. et al. 2005).             The authors were able to draw important conclusions from the research. First is that compensation is valued by customers in service recovery evaluation. With regards to switching barriers, the authors found out that positive switching barriers is related to service recovery.             The authors found out that compensation is the most important factor that consumers consider in service recovery. Compensation is placed on top of employee behavior and promptness in the research conducted by the authors. This finding seems to go against a wide body of literature, that points to employee behavior as the most important factor in service recovery evaluation. According to Gronfeldt and Strother (2005), 42.9% of consumers become dissatisfied with service recovery efforts because of the employees' unwillingness to help. Pugh (2001) considers the behavior of the service provider as a critical aspect of the service recovery process. According to Bitner et al. (1994), The service provider represents the company, and the behavior of the service provider will affect customer satisfaction and their perception of the quality of service.             One of the interesting things that the authors found in the research is their identification of compensation as the most important aspect for customers evaluating service recovery efforts. The author pointed out that the result of the exploratory survey revealed other things that consumers feel are important and affect their service recovery evaluation. The respondents revealed that they want to meet the person in charge of handling complaints and that they want to be informed regarding the matter.             The paper under review is interesting, in the sense that it aims to explore the relationship between switching barriers and service recovery - a topic that is according to the authors, has not been explored. The authors were able to ascertain that positive switching barriers are indeed related to service recovery. However, the degree or the nature of their relationship was not explore. The authors were also vague regarding the result of their investigation of the "Negative Switching Barriers". The authors also pointed out that there is a need to redefine the switching barriers construct so as to obtain more suitable goodness of fit.             The constructs which were included in the research by the authors were also limited. The authors could have explored other constructs as the three that were included in the research were too broad, thereby limiting the findings.   Understanding service recovery satisfaction from a service encounter perspective: a pilot study             The paper seeks to explore the role of service provider to service recovery satisfaction. More specifically, the research aims to determine the influence of the physical features and appearance of the service provider to the customer.             The author based the research on the social identity and similarity-attraction theories, which applied to services marketing, assert that customers are likely to be satisfied with the service rendered by service providers who are similar to them. The author investigated three variables - gender, race, and neatness and tried to find out whether these variables have an effect to the assessment of the consumers of their satisfaction with the service recovery.             The article is founded on two theories - social identity theory and similarity attractions theory. Social identity theory is founded on the belief that people tend to want to be associated with those that they feel have the same self-concept as them. Similarity-attraction is based on the belief that motivated by the desire for positive self-identity, people tend to have a positive evaluation of other people who they base their identity on.             The author wanted to determine whether gender, race and neatness have influence on the satisfaction of customers with service recovery. The also investigated on the possibility of two-way interactions between these three variables as well as a three-way interaction.             Gender was found to have no effect on the satisfaction of consumers with service recovery. Race was also found to have no significant effect on satisfaction as well as neatness. Gender-Race interaction was found to have limited effect on satisfaction. Gender-neatness interaction was found to have no significant effect on satisfaction, same goes with race and neatness. Three-way interaction was also found to have no effect on satisfaction.             The author found that neither gender, race, and neatness has no significant impact on service recovery satisfaction. However, it is interesting to find out that while these variables do not affect satisfaction, it has been found that receiving services from an "untidy white woman" has a slight impact on customer satisfaction during service recovery. This finding needs to be further investigated.             The implication of the author's findings is clear - physical appearance of the service providers do not affect service recovery satisfaction. Managers should therefore focus on those factors that matter - particularly, the skills and abilities of the service providers. Choice, perceived control, and customer satisfaction: the psychology of online service recovery             The article focuses on the issue of service recovery in the field of online shopping. Service recovery is viewed as a critical process by which customer retention and loyalty can be achieved. The article studies the impact of giving the customers a choice of recovery options and increased sense of control to the overall satisfaction of customers.             The author stressed the inadequacy of existing works in tackling the different factors that affect service recovery effectiveness in online retailers. The author aimed to investigate whether providing different service recovery options to online customers can lessen their negative responses to service failures.             The author explored the issues of customer choice, sense of control and satisfaction among online customers. Control was defined in the article as the perception of a customer regarding his or her influence on the outcome of a given situation. The author wanted to ascertain whether increasing the customers' choices will increase their perception of control. The author also wanted to investigate whether perceived control will lessen the negative feelings of the consumers towards service failure. The effect of service recovery satisfaction to the overall service encounter satisfaction were also studied.             The author was able to find out that there is a positive relationship between increasing the customers' remedy choices to their perceived control. The author also found out that the more importance given by the customer to the service, the more sense of control can be induced through increased choices. Perceived control also was found to be positively related to customer satisfaction.             The research is interesting because it was applied in online shopping which is becoming more and more popular. By investigating on the issue of service recovery in online shopping, the author was able to present useful information that online service providers ca use as a guide. The findings of the author give emphasis on the need to train and educate service managers and representatives in providing service recovery. The findings point to the importance of devising various service recovery options that will fit the need and demand of consumers. There is a large body of literature that support the author's finding. For example, Hui and Bateson (1991) conducted a research regarding the impact of perceived control in service experience. They found out that perceived control increased customer satisfaction in the service experience, which in turn increased the desire of the customers to stay with their service provider. According to Rowley (2006), the more sense of control the customer feel during the service experience, the more they are likely to be satisfied with the service.             Although the article presents useful information on service recovery in online shopping environments, the author did not investigate on other factors that can affect service recovery satisfaction. The research was limited to service recovery choices and perceived control. Whether there are other factors that affect service recovery factors that affect service recovery satisfaction in online shopping, the author failed to ascertain. Plan to do it right: and plan for recovery             The article presents different strategies to prevent service failure and to succeed in service recovery. Perspective of the Author             The author presented guidelines for companies to avoid service failures and to implement service recovery successfully. According to the author, many organizations spend considerable resources in attracting new customers. Maintaining current customers, however, is not given priority. The author argued that keeping a company's existing customers can be easier and more advantageous for the company.             The author also pointed out that there is no perfect service system, and that failures in service are bound to happen. When service failure occurs, it is important that the company regains the customer's confidence. This is where service recovery enters.             One key issues discussed in the article is service recovery paradox. According to a number of authors (Adamson, 1991; Berry & Parasumaran, 1991; Brown, 1987; Halstead & Page, 1992), customers will be retained if the company is able to effectively solve their problems and concerns. Service recovery can be an opportunity for the company to achieve higher customer satisfaction and loyalty (Michel, 2001). It has been argued in the article that the best way to deal with service failure is to avoid them happening. This entails that the company find new ways of managing customer relations. In order to avoid failures the company must identify failure points and find ways to avoiding them. Other factors that may minimize service failures are environment, employee empowerment and communication. According to the research conducted by Bitner (1990) service failures can be minimized if the service environment is organized. Customers are found to perceive that there will be few service failures if employees are empowered and effective in communicating (Sparks et al., 1997). Service recovery is considered in the article as an important factor in customer satisfaction. Complaints are not considered as a negative occurrence, rather an opportunity for both parties to resolve the issue or problem through service recovery. There are different service recovery strategies. Some of the most popular strategies are apology, assistance and compensation (Levesque & McDougall, 2000). Service recovery will impact customers' post service satisfaction. If the company employ moderate to high service recovery efforts, customer satisfaction will be achieved. On the other hand, if the company fail to employ appropriate service recovery efforts, customer dissatisfaction will also increase.             It is interesting that in service oriented businesses such as hotels, restaurants and airlines, customer complaints and service failures can be grouped into three which has "employee response" as their core. The three groups of customer complaints and service failures are employee responses of service delivery system failures, the responses of employees to the needs and requests of the customers, and employee reactions which are unsolicited. Again, the importance of frontline staff training and education is highlighted. Complaints and service failures are found to spring up from ineffective service delivery.               The article provides a wide collection of information and ideas for operations managers and service providers. The author was able to gather useful information and was able to present them in such a way that readers will gain insights that will help them in avoiding failures and making sure that service recovery efforts will become successful. The article adds to the service recovery literature and will be a useful reference for future researchers that will embark on the topic of service failure and service recovery.   Consumer responses to compensation, speed of recovery and apology after failure             The article focuses on the three dimensions of fairness and their impact on consumer perception, service recovery satisfaction and behavioral responses.             The key issue that were investigated in the article is justice theory and the components of justice and fairness in service encounters. The components of fairness analyzed were distributive, procedural and interactional. Distributive justice in service recovery can be defined as the perceived outcome of the transaction. procedural fairness refers to the procedures, processes and policies where service recovery actions are based. Interactional fairness refers to the treatment that the customer receive during the service recovery process (Smith et al, 1999).             The authors aimed to investigate whether compensation, speed and apology have impacts on service recovery satisfaction. The authors also wanted to investigate whether it is true that service recovery attributes affect service recovery satisfaction which in turn, will affect customer behavioral responses. Another issue that the authors aimed to tackle was whether compensation affects the perception of the consumers of the "controllability" of service failure. The authors also want to test their perspective that response affects customers' stability attribution.             The researchers found out that distributive, procedural and interactional factors affect customer service recovery satisfaction. Meaning, customers' service recovery satisfaction is affected by the outcomes, procedures and interactional style that they observe.             The article is able to add useful information to the service recovery literature. The findings of the researchers was able give emphasis on the dimensions of fairness that must be considered by organizations. These dimensions of fairness were found to affect service recovery satisfaction and subsequent customer behaviors and responses. The authors’ findings that compensation may not be required in some instances such as when immediate recovery is accomplished and apology is offered, is enlightening for organizations and managers and service providers who rely on compensation as a service recovery action. The findings of the researchers were also important because it stresses that immediate recovery and apology are more effective service recovery strategies rather than compensation. Again employee training and education were given particular emphasis. According to the authors front-line employees need to be trained to handle customers’ complaints and dissatisfaction on the spot.             Although the article is useful and informative there are some limitations that were found. For example the researchers made use of scenario method, which hindered the respondents to fully project themselves and to give their answers in real-life service encounters. The finding of the researchers that compensation does not have a significant effect on service recovery satisfaction still remains to be validated as the amount of compensation that was tested in the research was minimal (20 percent discount). Future researchers can conduct a research which will test higher compensation and test whether the same result will be achieved.  Service failure and recovery: evidence from the hotel industry             The article focuses on service failure and recovery in the hotel industry. The hotel industry is highly service-oriented. The hotel industry involves a high degree between the consumers and the service providers. In a service-oriented industry, where in services are rendered in every level of consumption, the rate of service failure is high. The hotel industry presents unique characteristics that can be challenging to service providers.              The authors sought to analyze the different problems that occur in hotel service, the different steps that are taken to solve these problems, and the degree of satisfaction of consumers in the service recovery process. The hotel industry according to the author presents a case wherein the level of service quality is primarily measured through the action of the frontline staff. The hotel industry is unique because production and consumption is inseparable. Hotels also operate 24 hours a day. These characteristics make it more likely for service failures to occur.             The authors investigated on the issues of service quality, service failure and service recovery actions in the hotel industry.  Service failure is defined as an inevitable occurrence that happen in the service delivery process. Service recovery strategy is the action that is taken by the service provider in order to alleviate defects and failures in service.             The authors found out that the key attributes that the consumers consider important in determining the quality of service in a given hotel is clean and comfortable bedroom. This means that customers give importance to housekeeping as a key service attribute. The most cited service failures that were recorded by the author were slow service, inefficient staff and unfriendly receptionist. The most serious service failure according to the findings of the author was room not clean. The most used service recovery strategy according to the findings of the researcher were apology and correction of problems. More than half of the consumers said that they were extremely satisfied and satisfied with the service recovery actions of the hotel.             One interesting finding is among the five most cited service failure in the research, four of these are related to service delivery. This places emphasis on staff training and education.  In  terms of magnitude of failures, it is of significant interest that out of ten most serious failures, five were related to staffing issues. Service quality therefore, can be achieved through effective staffing processes and strategies. According to Pugh, et al. (2002) and Schneider and Bowen (1993) effective staffing, training and reward systems have a positive impact on service quality. According to Schneider and Bowen (1985) service related and human resource-related process of the organization are the source of cues by which consumers evaluate the quality of service. Service failure recovery in China             The article focuses on service recovery in China. As hotel chains invest in China, the need to develop service failure recovery strategies that are appropriate for the Chinese market increases. There is a need to train and educate employees in service recovery.             The authors believed that western hotels must develop standard service failure training for Chinese employees in order to empower them to handle service failure recovery of Chinese consumers. Western based service recovery strategies may not be entirely applicable to the Chinese setting that is why the authors urged that western-based hotels adapt their service failure recovery training to China. The authors believed that hotel managers with Chinese properties must make sure that their service recovery training is suitable for the Chinese situation.             The authors argued that hospitality and tourism practices in China are adapted from western practices without considering the differences in culture, society and values. The authors emphasized the importance of focusing on information processing, emotional responses, instilling guest confidence, employee empowerment and correlation between employee satisfaction and service failure recovery efforts in training for service recovery.             In terms of cognitive styles, service recovery training is believed to become more successful if the differences in cognitive styles between Chinese and Westerners are taken into consideration. Emotional responses of the Chinese customer must also be considered in service recovery training. It is also important that Chinese hotel employees are trained in instilling to the guests that service failures will not happen again. This is important as customer satisfaction can be affected by the ability of the employees to assure the consumers of service quality. Chinese values must be tackled in service recovery training. The Chinese society gives importance to collectivism. Service recovery on the other hand, demands on-the-spot decision-making. Service recovery training must be designed to empower Chinese employees to make important decisions. Lastly the initiative of the employees to go the extra mile in service recovery can be affected by their assessment of organizational values. Complaining customers, service recovery and continuous improvement             The article explores the issues of customer complaints, service recovery and continuous improvement. The articles seeks to study the factors that will aid in the development of service recovery strategies that will result to customer satisfaction and retention.             The authors believed that customers who have problems with the products and services they have received may not complain on-the-spot but are very likely to talk to other people about their problems. This according to the authors causes serious problems to operational managers such as lost of customers, negative word-of-mouth and the lost of opportunities to correct/alleviate the problems.             The authors also believed that those customers who are satisfied with the service recovery procedure of a company are more likely to repurchase and more likely to spread positive word-of-mouth about the service encounter. This can be attributed to "reciprocity", meaning, if a person received a positive gesture, he or she will be inclined to return the favor. `           The key issues that the authors discussed is the appropriate service recovery strategies for every situation. The authors discussed four situations. In the first situation, the company does not receive any complaints. In this situation, the company cannot entirely say that the customers are satisfied with the product/service. In order to gauge the loyalty of the customers, the company can collect customer commitments. In the second situation, there is no perceived product or service failure, but the consumer is not satisfied with aspects of the operation. The best strategy for this is to educate the consumers. In the third situation, there is a perceived product/service failure but the customer does not complain. This is critical as the customer may not come back again to repurchase because the failure was not dealt with. The best strategy for this is to encourage the consumer to complain. In the fourth situation, there is a perceived product/service failure and the customer complains about it. This is where service recovery is important. It is important, according to the authors, that service recovery must be rendered while the customer is still within the operation. Considering customer loyalty in developing service recovery strategies             The article focuses on the relationship between service recovery and customer loyalty.             The authors believed that there is a relationship between service recovery and customer loyalty. Therefore, service recovery must be designed with the achievement of customer loyalty in sight.             The key issues that were explored were customer loyalty and service recovery. More specifically, the authors investigated on the impact of customer loyalty to the reaction of the consumer to service recovery.             The researches concluded that customer loyalty has a role in service recovery. Loyal customers are more likely to value service recovery in maintaining their relationship with the service provider. Loyal customers are more likely to hold on to their "relationship" with the service provider and may expect that they will be given special attention when service failure occur.             It is interesting to note that although loyal customers tend to have positive reactions of the service company, they tend to be more to have negative reactions when treated unfairly. This can be explained by the degree of their relationship with the service provider. Since they have a relational psychological contract with the service provider, they tend to expect to be specially treated.             It is important that in the service recovery process of the organization, the perceptions of fairness of customers, particularly loyal customers, must be considered. Thus, the issue of fairness and justice must be considered in rendering service and in the execution of service recovery actions. This argument can be traced to “justice theory”. Justice theory, which is widely used in the organizational setting is now being applied in service encounters. Organizational justice can be divided into two concepts – distributive justice and procedural justice. These concepts are believed to affect employees perceptions of fairness in the organization (Alexander & Ruderman, 1987; Folger & Konovsky, 1989; McFarlin & Sweeney, 1992). Distributive justice focuses on the unpleasant emotions that are felt by employees which in turn motivates them to re-establish equity by changing their behaviors and/or attitudes (Greenberg, 1990). Distributive justice focuses on the perceived fairness of outcome. Procedural justice on the other hand, focuses on the perceived fairness of the process. According to Greenberg (1990) procedural justice has two components – the presence or lack of distributive procedures such as the influence of employees in decision making and the information that employees receive regarding organizational processes. Employees according to Thibaut and Walker (1975) will perceive the organization to be fair if they are given a voice or influence in organizational processes and decision-making.             The authors did not include in the article the specific service recovery processes or strategies that loyal customers value. Since loyal customer expect special treatment, it is possible that they expect different service recovery procedures when they experience service/product failure.             The authors can also explore the level of relationship between loyal customers and frontline staff and their expectations of the frontline staff when they experience service/product failure. A cultural models approach to service recovery             The articles focuses its attention on cultural models and their impact on service recovery expectations of consumers.             The authors argue that popular recovery initiatives fail to achieve their objectives because service providers tend to overlook consumers' cultural model. The authors also believed that consumers are not homogenous when it comes to their expectations in service recovery and their are factors (in this case, culture) that affect their evaluation of the effectiveness of service recovery actions.             The authors investigated on the different cultural models and the preferences of customers within a particular model.             The authors were able to conclude that cultural models affect service recovery preferences. The authors found out that consumers' reaction to service/products failures may be guided by their cultural models. According to the findings of the researchers, the expectations of consumers in service recovery are based on their internally held preferences. The authors also found out that cultural models have implications for service recovery because they influence peoples' reaction to service failures. The findings give emphasis on adapting service recovery to the preferences of the consumers. This seems to be in line with various works, such as those in the filed of clinical psychology. For example, Fisher, et al (1999) believe that people will benefit more from specially designed interventions. Roth and Fonagy (1996) argues that it will be more advantageous for treatment plans to be adjusted to the outlook of the client, rather than change the outlook of the client.             It is interesting that the research was able to present a new perspective in service recovery. Based on the findings of the researchers, service recovery actions must be adapted to the consumer recovery cultural models of consumers.             The researchers were unable to present a more in-depth analysis of consumer characteristics in each cultural model. An empirical examination of service recovery design             The article focuses on different service recovery designs.             The authors aim to resolve the confounding results of previous researches ion the service recovery. The researchers focused on two issues - service recovery system design and degree of primary failure. service recovery systems were divided into two elements - psychological and tangible. Psychological elements are those service recovery actions that seek to express concern to the needs of the consumers. Tangible elements are those service recovery actions that aim to correct or complete the failed service. Degree of failure is defined as the degree of importance that the customer gives to the initial service and the degree of seriousness that the customer attach to the failure of service delivery.             The researchers found that the elements recovery design affect the success of service recovery. It has been found that the more efforts the service provider put on service recovery, the more satisfied the customer will be. A combination of psychological and tangible elements was found to be more effective. It is more effective therefore, if the service provider attempts to alleviate the failure by providing compensation while communicating with the customer. Value-added atonement was also found to increase the satisfaction of the consumers in service recovery. The degree of failure was also found to have an effect to the success of service recovery. Conclusion             Through the vast research and readings that the author conducted, several important points came to light. One is the importance of service recovery in service encounter. All the articles that the author included in this paper point to the significance of service provider as an opportunity for an organization to solve service problems and failures. The aim of service recovery is to keep the organization’s customers and to turn them into loyal customers in the event of service failure.             Another important point is the importance of choosing the right service recovery action/s at the right time, the right place, for the right customers. The articles that the author reviewed point to the importance of identifying the proper service recovery actions that are applicable to the situation and the customer.             Perhaps the most important point that the author was able to identify is the roles of frontline employees in the success of service delivery and service recovery. The frontline staff are the ones that render service to the customers and they are the one also to render service recovery when service failure occurs. The articles that were reviewed by the author point to the importance of employee training, education and empowerment in order to enable them to deal with service failure and offer service recovery effectively.   References   Adamson, C 1991, “Complaint handling: benefits and best practice”, Consumer Policy Review, vol. 1 no. 4, pp. 196-203. Alexanber. S & Ruderman, M 1987, “The role of procedural and distributive justice in organizational behavior”, Social Justice Research, vol. 1, pp. 177-198. Berry, LL & Parasuraman, A 1991, Marketing Services, Free Press, New York, NY. Bitner, MJ 1990, “Evaluating service encounters: the effects of physical surroundings and employee responses”, Journal of Marketing, vol. 52, no. 2, pp. 69-82. Bitner. MJ, Booms, BH & Mohr, LA 1994, “Critical service encounters: the employee’s viewpoint”, Journal of Marketing, vol. 58, pp. 95-106. Brown, SH 1987 “Competitive banks capitalize on customer complaints”, Bank Marketing, vol. 19 no. 2, pp. 20 -22. Fisher, D, Beutler. LE & Williams, OB 1999, “Making assessment relevant to treatment planning: the STC clinician Rating Form”, Journal of Clinical Psychology, vol. 55, no. 7, pp. 825-842. Folger, R & Konovsky, MA 1989, “Effects of procedural and distributive justice on reactions to pay raise decisions”,  Academy of Management Journal, vol. 32, pp. 115-130. Greenberg J 1990, "Looking fair vs. being fair: managing impressions of organizational justice", Research in Organizational Behavior, vol. 12, pp. 111-157. Gronfeldt, S & Strother, JB 2005, Service leadership: the quest for competitive advantage, SAGE. Halstead, D & Page, TJ 1992, “The effects of satisfaction and complaining behavior on consumer repurchase intentions”, Journal of Consumer Satisfaction, vol. 5, pp. 1-11. Hui, MK & Bateson, JEG 1991, “Perceived control and the effects of crowding and consumer choice on the service experience”, Journal of Consumer Research, vol. 18, pp. 174-184. Levesque, T & McDougall, G 2000, “Service problems and recovery strategies: an experiment”, Canadian Journal of Administrative Sciences, vol. 17, no. 1, pp. 20-37. McFarlin, DB & Sweeney, PD 1992, “Distributive and procedural justice as predictors of satisfaction with personal and organizational outcomes”, Academy of Management Journal, vol. 35, pp. 626-637. Michel, S 2001, “Analyzing service failures and recoveries: a process approach”, International Journal of Service Industry, vol. 12, no. 1, pp. 20-33. Pugh, SD 2001, “Service with a smile: emotional contagion in the service encounter”, Academy of Management Journal, vol. 44, pp. 1018-1027. Pugh, SD et. al. 2002, “Driving service effectiveness through employee-customer linkages”, Academy of Management Executive, vol. 16, no. 73-84. Roth, A & Fonagy, P 1996, What works for whom, Guilford Press, New York. Rowley, JE 2006, Information marketing, Ashgate Publishing. Schneider, B & Bowen, DE 1985, “Employee and customer perceptions of service in banks: replication and extension”, Journal of Applied Psychology, vol. 70, no. 3, pp. 423-433. Sparks, BA, Bradley, GL & Callan, VJ 1997, “The impact of staff empowerment and communication style on customer evaluations: the special case of service failure”, Psychology and Marketing, vol. 14, no. 5, pp. 475-93. Thibaut J & Walker L 1975, Procedural justice: a psychological analysis, Erlbaum, Hillsdale.                       Credit:ivythesis.typepad.com

Service Recovery Essay Critiques

Introduction Service recovery is acknowledged by many as an important aspect in service encounter. Service recovery is ve...

The Emergence, Evolution and the Development of Japanese, American and European Countries Multinational Corporations

The Evolution and the Development of Multinational Corporations     American and European Countries Multinational Corporations The domination of American in the development of Multinational Corporation has been widely identified (Nussbaum et.al, 1980). This idea of the multinational corporation, according to Hymer (1979), was initially based on the American perspective. The precursor to this is the United States’ “national corporation”, which was created at the end of the 19th century when American capitalism developed a multi-city and continent-wide marketing and manufacturing strategy. These state-chartered companies were considered multinationals at least to the extent that they represented a business organisation with economic goals projected on an international stage (Reardon, 1992). Prior to 1970s, most of the early studies tend to examine the United States foreign investment activity. This process began in the latter part of the nineteenth century when American industry began to supersede its European rivals.    The United States was economically self-sufficient during the half century, between the end of the Civil War and its entry into World War I. This resulted to the halt of the internationalisation of Corporate America. But when World War I forced the U. S. to be exposed to the outside world, its ideological isolationism changed dramatically. This unforeseen turn enabled the U. S. to learn various foreign business policies and to study how foreign corporations coped up from economic and political dislocations caused by a major continental war. Corporate America then realized that the U. S. and its economy had been isolated, virtually untouched by world events The effect of World War I to the economy of the U. S. included forming irreversible commitments by larger oil, paper, copper, nitrates, rubber, and aluminum companies to foreign investments to ensure their companies’ futures. However, some consumer-driven companies such as general Motors, Goodyear, General electric, and Du Pont had less aggressive foreign expansion. These foreign ventures had the geographic spread qualifications of  “MNCs” yet, in terms of corporate management and finances, they were American companies with “subordinate” foreign branches that acquired their justification because they served some specific limited objectives.   While World War II and America’s involvement therein halted the limited foreign expansion of the late 1930s, this was to become the window, which saves America a global perspective. Because of the recession and isolationism after World War I, many developing multinational corporations quickly withdrew from the global economy. The only U.S. corporations and true multinationals in the late 1940s and early 1950s were in the primary sector. These corporations anticipated real shortages, so they had to invest in the Middle East, Latin America, Africa, and Canada. Some even went so far as to rebuild their pre-war processing or distribution facilities in Europe. American corporations expanded their businesses into Latin America. But it was limited by labour-intensive industries’ establishment of assembly facilities in countries with depressed economies and an ample supply of cheap, unskilled labour.   The first real impetus to the multinationalisation process in the industrial and service sectors was developed during the late1950s. The United States direct investment abroad increased nearly fivefold, from billion to billion between 1950 and 1965, and by the end of 1980, the total was approximately 0 billion. America’s massive post-war aid to war-ravaged countries, allowed the international economy to recover sooner than expected. It formed a healthy and favourable economic climate for corporate expansion, reaching its zenith in the period 1960 – 1980. Following its victory in the war and in response to the Soviet challenge, the United States created in its own security interests the pattern of relations among the non-Communist countries within which American MNCs have flourished. In addition, the advances in transportation and communication, the introduction of the computer, and massive rebuilding requirements in Europe coincided with the rapid growth of American multinational corporations. Perhaps it was the common market that stimulated the multinationalisation of America’s manufacturing and service enterprises.   The response of European businesses to the expanding and developing U. S. MNCs was to join the MNC system rather than to challenge it. The European firms were already multinational, though their overseas expansion had been somewhat frustrated by balance of payment restrictions. As a result of mergers, nationalisation and growth, other firms became better equipped for multinational operations and began to extend their international operations in other European countries, in underdeveloped countries, and even in the United States. Therefore, the MNC system was no longer an American system, but at the very least became a North Atlantic system both in the sense that Europeans joined the MNC ranks and in the sense that American firms became less tied to the United States.   European, specifically British, capitalism has traditionally practiced capital export like portfolio investment and loans. In the 19th century, Great Britain’s direct investments were invariably infrastructure investments (Hall ed., 1968). In the 20th century, it has been largely in manufacturing, particularly in the growth sectors of advanced or rapidly developing countries. These investments were accompanied by mass migration of labour. Management, capital, and technology have gone as a package to foreign lands in search of labour, markets, and resources. In the 19th century, at least in the so-called lands of recent settlement (Canada, Australia, the United States, and South Africa), management and operating control usually remained in local hands (see Table 2.0).   Most of the original investment made by European countries to the USA was of the portfolio variety. Direct investments made in the US manufacturing sector near the end of the 19th century included capital from the British in textiles, primary metals, and food and beverages, and from the Germans in chemicals, beverages and electrical equipment. Subsidiaries in the United States were established during this time by such familiar MNCs as Bayer (in 1865), Merck, Geigy, Bosch, Siemens, Daimler, Lever Brothers, Dunlop, Michelin, and Nestle. By nationality, British holdings ranked first followed by German holdings. By type of portfolio, manufacturing ranked first, finance next, then transportation. The following (Table 2.0) is a comparison table between British and American foreign investment   Table 2.0: British and American Foreign Investment   		 		  		 		 		British, 19th 		century 		 		 		  		 		  		 		United States, 20th 		century 		 		  		 		  	 		 		Investors 		 		 		 		Banks 		 		Individuals 		 		Bond Market 		 		 		Corporations 	 		 		Type of Investment 		 		 		Portfolio 		 		Loans 		 		 		Direct 		 		  	 		 		Activity 		 		 		Raw Materials 		 		Agriculture 		 		Utilities (railroads and seaport) 		 		 		Manufacturing 		 		Raw Materials (especially petroleum) 		 		Marketing 	 		 		Primary Motivation 		 		 		Local Opportunity for Immediate Profit 		 		 		Global Corporate Strategy 	 		 		Location of Investment (Bulk of 		Investment) 		 		 		Europe 		 		United States 		 		Lands of Recent Settlement (Australia, Canada) 		 		 		Europe 		 		Latin America 		 		Canada 		 		Middle East (petroleum) 	 		 		Migration 		 		 		Stimulated Mass Migration 		 		 		Corporate Management 		 		  	   Source: US Power and the Multinational Corporation, Robert Gilpin, 1975       The Japanese Multinational Corporations Japanese firms on the other hand, constructed an extensive network of exploration and production abroad. The move was stimulated by the need to guarantee supplies of raw materials, the need to be cost-competitive due to the rising of wages, labour shortages, and an appreciating currency, and the need to secure access to the world market. Those activities were conducted by leading Japanese trade firms who were already multinational (Hymer, 1979). Many of these ventures do not take the form of the wholly owned subsidiary or branch plant used by American MNCs. Instead, they frequently involve production sharing, guaranteed demand contracts, technical assistance, and portfolio capital.   After World War II, the Japanese continued their policy of not permitting foreign direct investment but of spending liberally for imported licenses of technology (Tsurumi, 1976). Their purchases of technology from abroad were considerable, yet at the same time they spent more than four times that amount on domestic research and development. The incredible result was that within a relatively short period of two decades, Japan succeeded in breaking up the “package” of capital, technology, and entrepreneurship, which foreign direct investment has most frequently entailed. Interesting was the fact that they didn’t need the capital and got the technology without managerial control by American corporations, and the entrepreneurship remained in the hands of Japanese.   Dunning (1993) categorised Japanese foreign direct investment strategies into two categories: as a defensive market-seeking investment and as an offensive. The first strategy was the use of their strong owner advantages. These advantages were sustained and supported by strong location advantages to protect existing export markets with respect to trade barriers and competitors’ threats. Cases in point are the green-field plant type of ‘screwdriver’ factory for automobile, electrical and electronic equipment industries. Majority of Japanese MNCs activities in the early 1980s were of this type. The second strategy was the supply-oriented investment aimed at gaining access to the information and technology needed to upgrade and rationalise ‘domestic’ operations, and to advance a global competitive strategy. By the end of the 1980s, Japan’s leading MNCs departed from  trade replacing function, towards a new phase of advancing global competitive strength. They increasingly adopted offensive strategies in their attempt to secure and advance their foreign markets. Such strategies have been largely driven by the need of Japanese firms to transform themselves from exporters to ‘insiders’ in the major markets of the world, and to keep in touch with the latest technological and organisational developments, while benefiting from economies of cross-border arbitraging and the gathering and disseminating of information.     In the late 1960s and early 1970s, outward FDI was encouraged in light manufacturing sectors (textile, toys) – former export ‘stars’ which were rendered uncompetitive by the increasing predominance of heavy industries (steel, chemicals, shipbuilding). Most of these labour intensive industries were exported to Asian developing countries (Ozawa, 1989). Subsequently, outbound investment was aimed at securing access to the natural resources (oil, mineral and etc.) required fuelling the growth of heavy domestic industry. Finally, the continuation of the upgrading process demanded a shift up the value-added chain into higher knowledge and technology intensive activities.   It was in the late 1970s and early 1980s, when Japanese MNCs were encouraged by the government to develop host countries to sustain or enlarge the markets for the exports of firms whose owner advantages had by then reached rough parity with their Western counterparts (Ozawa, 1989). In other words, because of changing location advantages of Japanese firms, the latter showed an increasing preference in the late 1980s to exploit those advantages by engaging in foreign production. This was particularly true for Japan’s burgeoning car and consumer electronics industries, whose highly competitive products (low-cost, high quality and market oriented) were beginning to capture high market shares in the United States and Europe. In the early 1980s, the main aim of the Japanese MNC was to protect the competitive advantage of Japanese-made products. This was evident in what were then Japan’s premier export sectors, i.e. cars and electronic goods. Japanese had invested more in the United States than to Europe because of location advantages, and the fact that because of differing regulatory environments, Japanese firms could internalise the market to their owner’s advantages more easily in the United States than in Europe.   In other words, industrial rationalisation and restructuring mainly took place in Japan, with outward manufacturing FDI geared towards maintaining or advancing markets for Japanese exports (in developed countries) and relocating uncompetitive activities (in developing countries). But relative to their United States and European counterparts, Japanese multinationals still possessed relatively weak owner advantages in the innovation of many new technologies. This meant that Japan needs a continual inflow of technology from abroad for its industrial upgrading. Given this, a second important function of FDI was to act as a channel to absorb technologies developed in the West (Ozawa, 1989). However, Japan preferred to acquire such technology through means other than direct investment (licensing, reverse engineering, etc.).   Some still maintain that Japanese MNCs are ‘late comers’ to the international political economy and that this forcefully sets them apart from the experienced American and European-based MNCs (Ozawa, 1979). The Japanese multinationals’ alignment with the overarching industrial policy of the Japanese government is a frequent issue for debate. This policy focuses on circumventing protectionist measures abroad that limit market access. Thus, the foreign direct investment behaviour of Japanese MNCs is said to be concerned primarily with establishing export platforms and the practice of transhipments (Yoffie, 1990). Other researchers believe that Japanese MNCs, have traditionally emphasised the development of natural resources rather than agricultural and manufacturing endeavours. And compared to American MNCs that have focused more on profit making in manufacturing, Japanese MNCs are more into foreign direct investment behaviour that is consistent with nature resources diplomacy.       Credit:ivythesis.typepad.com

The Emergence, Evolution and the Development of Japanese, American and European Countries Multinational Corporations

The Evolution and the Development of Multinational Corporations American and European Countries Multinational Corporations Th...