Business management strategies of multinational corporations operating in different markets

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Business management strategies of multinational corporations operating in different markets

A. Sapozhnikova

In the era of globalization countries and multinational enterprises tend to be closely related. They do affect each other in several ways. Political, economic and legal environment of the country influences the operations of the companies as well as the activity of the multinational enterprises makes countries restructure their economic systems to receive the most positive interaction effect. This work aims to examine the influence of the countries policies on the operations of multinational enterprises as well as the influence of multinational enterprises' activity on the country's economic and political performance. The evaluation of such influence is the base for drawing up of recommendations for countries how to increase the effects from multinational enterprises activity and recommendations for multinational enterprises what opportunities and business modes should be used. This work examines the experience of the French conglomerate LVMH (Louis Vuitton Moлt Hennessy) as a case study for analysis and framing of algorithms for international business.

Nowadays, in the era of a highly globalized world - countries and enterprises which act internationally become highly interdependent influencing each other. Since recently, multinational enterprises have gained even more influence on countries and global chains of production and distribution. By placing the production abroad, firms create an impact on countries where the manufacturing is placed. The effect is expressed in the creation of working places, input in the development of the host countries, the involvement of the host countries into the global networks. However, the host countries also do make an impact on foreign enterprises. The laws and regulations, the economic system, the political system, the stability of the situation, the informal rules and codes of conduct differ from country to country, thus making the process of expanding more complicated. Therefore, the compromise on terms has to be found to make the process firm expenditure more profitable for both sides. The arguments mentioned above define the relevance of the research topic. The scientific significance of the research is defined by the high importance of getting the balance between the interests of countries and firms due to the interconnectedness of all units operating in the world.

The objects of research are countries' institutional frameworks and business management strategies applied by multinational enterprises. The research question is how enterprises and governments find a balance between their cooperation. Sub-questions are the following:

* What are the objectives and modes of enterprise perspective business strategies to operate abroad?

* What are the guiding principles for an enterprise to expand abroad?

* What are the main principles of interaction between government and MNE?

* How do MNE's and governments negotiate on terms and conditions of market entry?

The first chapter will examine the phenomenon of multinational enterprises, foreign direct investments and theories of business management strategies for international enterprises. Formal and informal rules of countries operation will be examined as the basis for the MNEs strategies. Moreover, the first chapter will focus on enterprise resources and capabilities itself as they form an internal basis for MNE's strategies.

The second chapter will elaborate on the case of LVMH. In essence, the strategies of this enterprise, the analysis of a value-added chain and the way of interaction of the firm with different countries where it operates.

The history of LVMH conglomerate began in 1987 when Moлt Hennessy and Louis Vuitton merged. In 1989 Bernard Arnault became the leading shareholder, Chairman and Chief Executive of the Group.LVMH is a group of family businesses which have unique history and identity. However, the company developed on the daily basis acquiring new luxury brands and enriching their portfolio with brands from different categories. Thus, the LVMH simultaneously advance in all 5 Spheres.

According to the Deloitte (2019), LVMH is the first company by sales in the top 100 luxury companies of the world. The second-largest Group is the Estйe Lauder Companies Inc., followed by Compagnie Finaciиre Richemont SA, Kering SA and Luxottica Group SpA. The main feature of the success of the LVMH and its first position in the ranking is the diversity of produced goods. The Estйe Lauder specializes on cosmetics; Richemont on apparel, watches and jewelry; Kering also holds brands producing clothing and Luxottica concentrates on the sphere of eyewear, and only LVMH has a presence in a wide range of products from clothes to beverages. This fact enables the Group to be the leading one among luxury conglomerates and to gain high revenues. Moreover, the presence in all continents across the globe adds to the competitive advantage of this enterprise.

Finally, the third chapter will deal with the analysis of efficiency of government policies and how do they affect the work of the LVMH. Some suggestions about the measures for improvement countries positions, their policies will be presented.

The research goal is to find the point of common interest of the enterprise and government by analyzing the performance of LVMH on the international arena.

The objectives to reach the research goal are the following:

* to examine theories of business management strategies for multinational enterprises;

* to identify the role of formal and informal institutions as the base for MNEs business management strategies

* to define the resources and capabilities as an internal base for MNEs business management strategies

* to analyze LVMH business management strategies and its risks and opportunities

* to identify the linkage between MNEs business management strategies and countries' government policies

The hypotheses of the study:

1) While elaborating business management strategies Multinational Corporations will favor the countries with higher institutional quality to place the production or distribution without regard to internal factors.

2) Global Value Chain is the basis for creating government policies seeking to find maximum outcome from MNEs activity at countries' territory.

Theoretical and methodological justification and research methods

A causal research design method is implemented to identify cause-and-effect relationships to answer before-mentioned research questions. More precisely, this method is used to identify the main factors of prospective business strategies for enterprises doing internationally and the efficiency of their international activity (LVMH case) and to identify the ways for seeking a balance of interests between multinational enterprises' activity and governments.

On the one hand, the deductive and inductive approaches are used for assessing political, economic and legal environment (business environments) in the countries of LVMH interests and search for opportunities as well as relevant business models for multinational enterprises in these countries. On the other hand, such deductive and inductive approaches are highly effective when assessing the opportunities for the governments from the activity of multinational enterprises in their territories. It is essential to identify the place for active participation of the country in an exact global value chain through attracting international companies organizing the production with high value-added.

The quantitative and qualitative data collection methods are used in analyzing the influence of the countries' policies on the operations of multinational enterprises as well as the influence of multinational enterprises' activity on the country's economic and political performance. Data for analysis are taken from external sources such as official government representations, Eurostat, World Economic Outlook, World Investments Report, World Bank Reports, International Monetary Fund Reports and from internal sources of LVMH enterprise such as internal company's policy, Code of Conduct and Annual Reports.

Such frameworks as PESTEL, CAGE and SWOT are implemented to facilitate analysis of the business environment in countries of LVMH enterprise interests. To assess the competitiveness of LVMH representations in different countries, the author uses VRIO (Value, Rarity, Imitability, Organisation) and benchmarking analysis.

Literature review

Institutional based view proposed by Peng & Meyer (2019): country institutions establish formal and informal rules for businesses in which they have to operate. Formal institutions are laws, rules and regulations. The main role of the institutions is to limit the range of acceptable activities and thus reduce the uncertainty of the firm on how to behave. Williamson (1985) argues that uncertainty increases the cost of the transaction, and if they become too large, a firm may choose to avoid this country rather than to cope with such costs.

Political systems are essential to international business since they set the rules and determine whose interests are served. Moreover, they establish a framework of interaction between a firm and government in terms of influence on legislature (either lobbying or corruption). Finally, the type of political system influences the stability of the regime and hence the stability of the rules for running a business.

Hill (2012) believes that the political system has an impact on economic and legal systems and thus should be considered as defining the framework of a company's operation. Two dimensions should be taken into consideration in order to examine this system properly: collectivism versus individualism; democracy versus totalitarianism. Hill (2012) argues that these dimensions are interrelated and individualistic countries tend to be democratic, while collectivist states incline to totalitarian regimes. However, a mix of different features might be present, so there are no strict limitations.

Economic systems define in which type of economy business will operate (market/ command/mixed). Market economy refers to more autonomous operation of a business, where goods are privately owned, and production is determined by demand and supply. Here the government encourages fair competition and prevents the establishment of monopolies.

On the other hand, in the command economy, the government sets the amounts and prices for the goods and services that should be produced according to the government. Private ownership is not the case in such an economy type.

In the mixed economy, features of both types are present: the government controls those enterprises that are considered crucial for national interest, while others could remain independent. Depending on the type of economy, the set of rules differs, and thus a company should adapt its strategy in order to fit into the type of the country's economy.

Legal systems also affect international business by imposing laws, which regulate business practices. The legal framework defines rights and duties that a firm can/should exercise and thus makes a particular country more or less attractive for foreign investment. Peng & Meyer (2019) suggest three types of legal systems, namely: common law, civil law and religious law. Different type of legal system implies the following for the business: the level of certainty, the ways of creating codes of law and the amount of bureaucracy as well as consideration of religious norms. Each type suggests diverse ways of approaching the development of contracts. Some countries have signed the United Nations Convention on Contracts for the International Sale of Goods (CIGS) to avoid ambiguity of these types. This document creates a uniform set of rules dealing with particular aspects of signing the contracts between sellers and buyers operating in different legal systems.

Hill (2012) defines strategy as «actions that managers take to attain the goals of the firm». The ultimate goal of any business is to maximize the value of this company and increase revenues. Several strategies can increase profitability. The company can increase the value of the product, and thus the price will rise. Alternatively, it can sell more goods at the same price as before. Another option is to enter another market. Expanding to international market leads to several benefits such as reducing the costs of value creation, strengthening the skills acquired in foreign entities of the firm and transferring these skills to other departments.

In Peng &Meyer (2019) four strategies for multinational companies are listed: home replication, localization, global standards and transnational.

Home replication strategy refers to replicating strategy and competencies used at home. The operation abroad is mimicking the operations such as brand positioning, production scales and distribution efficiencies. This strategy considered as easy to implement; however, it has its downsides such as lack of local responsiveness. A firm which implements such strategy fails to get acquainted with the customers' preferences and needs, which may vary from those at home- country. This strategy can be implemented when there are both low costs pressure and local responsiveness.

Localization strategy goes beyond simple replication the home strategy, considering each region as an independent unit that should be treated differently. Thus, by using this strategy firms adapt their operations to local market. It can be a useful one when national and regional markets differ. Although, adapting this strategy can result in duplication of costs because each new country or region means building a new strategy, which would imply all-new distinct features, which in turn results in higher costs. Also, there might be too much local autonomy and thus it would be hard to introduce corporate-wide changes. Localization strategy makes sense when differences in preferences of the customers are high, but costs do not experience high pressure.

Global standards strategy is a «strategy that relies on the development and distribution of standardized products worldwide to reap the maximum benefits from low-cost advantages» state Peng&Meyer (2019). This strategy implies the creation of so-called «centers of excellence», where critical capabilities utilized and thus there is no need to locate all the operations at home. Moreover, this strategy is beneficial to serve global clients. Clientele themselves operate in various locations across the world and expect to receive services or goods also in different locations. To coincide with such demands, a firm could connect a client to the same channel-global key account manager. This strategy can be used when there is a need for cost reductions but demands for local responsiveness are low.

The transnational strategy aims to take the best parts of all strategies, being locally responsive and also cost-efficient. The concepts of global learning and implementation of innovations are crucial for this strategy and knowledge flows in both directions: from home to a foreign subsidiary and from abroad to the home country. Also, companies using such strategy try to localize products using gained knowledge and do it at the lowest cost using location economies and economies of scale. The transnational strategy is useful when cost pressures are high as well as pressures for local responsiveness.

Willcocks(2016) argues that four strategies mentioned above fit into four types of structure, namely international division, geographic area, global product division and global matrix.

International division structure often can be seen when a company wishes to expand abroad while using home replication strategy. Within these structures, divisions are built in order to control operations abroad. The advantages of this structure are the following: there is an integrated approach towards operations in different markets (on the development stages it might be beneficial) and attention from the executives to international operations. However, some problems may also occur. Such as lack of power of foreign subsidiary managers, which are under the control of the heads of domestic divisions; lack of proper integration of the foreign subsidiary into the rest of the company. Moreover, this structure is often implemented after the new market entry and considered as temporary, hence lacks attention and sufficient commitment.

Geographic area structure refers to the type of structure based on geographic areas. One country can be considered as «area» or a group of countries. Within this structure «areas» are treated as entirely different units, where different strategies in the spheres of research and development, marketing, production, finance are adopted. Thus, the emphasis is put on local responsiveness and tailoring a strategy for a specific region. That is why this structure is often connected to localization strategy. Despite the distinct advantage of high response to local variations, this structure has its weaknesses such as high fragmentation of the entire firm which in turn may result in difficulties when the company would adopt new strategies for the whole production. Difficulties also arise when knowledge and core competencies should be transferred within a company. High autonomy of subsidiaries can end up with barriers to understanding and communication between the departments.

Global product division structure is often used within companies who produce various goods domestically. Since such structure involves autonomy from the divisions and also encourages the transfer of competences across various locations, this structure is useful in the global standardization strategy.

Global matrix structure supports transnational strategy. The responsibility for making decisions hold both product division and geographic area. Basically, such structure is a combination of several other structures, which allows to effectively manage multiple channels of operation. This structure is specifically useful when a company has several ventures in different locations.

Frйry (2006) suggests that «the ability to sustain value creation is the ultimate goal of any strategy». As Porter (1996) describes it, the strategy «is the creation of a unique and valuable position, involving a different set of activities». Without having a strategy, a company will not be able to achieve sustainable competitive advantage which bases on unique features of the company. Sometimes the concepts strategy, business model and tactics are used as synonyms, but Casadesus-Masanell& E.Ricart (2011) emphasize that these are three interrelated, but different terms. Business model refers to the logic of the operation of the firm; strategy points out the plan how to create unique position using the core competencies, and tactics include a variety of choices which company can make in order to compete successfully.

When expanding abroad, firms choose among four basic strategies: localization, global standardization, transnational and international strategy mention Bartlett and Ghoshal (1998).

Localization strategy refers to increasing profit by customizing its products to the local market. This strategy is useful when preferences vary significantly across the markets of distribution. By implementing such a strategy, a company increases the value of the product and thus increases its revenues.

Global standardization strategy is associated with making cost reductions that come from location economies, learning effects and economies of scale and hence increase the profitability. Companies which use such strategy prefer to make one standardized product for the whole chain of distribution, thus minimizing costs spent on customization. Production, research and development activities and marketing are based in several excellent locations, and the main aim is to implement a low-cost strategy across the globe.

The firms that pursue transnational strategy are trying to achieve at the same time low costs as in global standardization strategy, produce a variety of products which would be suitable for different markets, and also boost the exchange of skills among their subsidiaries.

International strategy is used in enterprises which produce a good for their domestic market initially and then sell it abroad with low customization to the local market. Usually, such companies produce and sell some universal products, which do not have global competitors and do not need to be changed significantly for different markets. Such companies tend to centralize the development activities at home but initiate the production in each important location where do they plan to sell the product. Sometimes the marketing strategies may vary from region to region, but the product itself remains the same no matter the location of the distribution.

Some Reports such as Doing Business Report or Global Competitiveness Report will be used to analyze specifics of countries, where various indicators are analyzed to evaluate the performance of a country's economy and suggest solutions for improvement.

The Doing Business Report (2020) assesses how easy it is to settle down a new enterprise in a given country. By examining the 41 indicators, the scores are calculated. The higher the score, the easier is to open a new business in the country. The regulatory measures of the countries, such as the legal procedures needed, the time required, the cost and minimal capital are the main interest of this examination. Furthermore, permits on construction, registration, loans and credits, taxes, international trade are also taken into consideration while calculating the scores. Considering the scores for particular countries, where LVMH operates could give exciting insights into the analysis of the Group's performance across its branches.

The Global Competitiveness Report (2019) provides an in-depth and insightful analysis of a country's performance based on 12 different pillars from macro-economic stability to innovation capacity and labor market. The aim of this report is to evaluate the strong sides of a country and also to analyze sectors, where improvement should be made. In terms of this paper, the Global Competitiveness Report will be useful in terms of evaluation of countries where LVMH has its enterprises and could help to understand why specific locations were chosen. Also, on behalf of countries understanding their weak sides could help to predict the interests of these countries, when LVMH seeks to establish a new enterprise there.

Moreover, the database of the World Bank will be used to evaluate the core economic characteristics of the countries, such as GDP, inflation rates, GDP growth rate and unemployment rates. Also, the date of countries performance will be gained from OECD reports. In addition, some data, such as various legal frameworks, will be gained from the official websites of each country. The website of LVMH will be used to analyze the Maisons of the Group and evaluate the specifics of each brand. The reports prepared by the World Health Organization will be used to evaluate the levels of alcoholic beverages consumption in the countries of brands location. What is more, the empirical analysis will be based on the reports made by Deloitte on corporate tax rates in different countries.

Expected outcomes

By making an analysis of the performance of the luxury conglomerate LVMH and evaluating countries profiles, it is expected to find the point of intersection between goals of the country and goals of the company. The results of this research will be the base for elaboration of standard recommendations for governments and different business approaches for multinational companies in their international operation activity depending on their business tasks.

Also, the profound analysis of the countries capabilities and measures for improvement will be made, which will provide an opportunity for countries to improve their positions in order to engage in fruitful cooperation with MNE's. Using this case study analysis, a country that aims to attract foreign direct investment will have criteria and specific terms and conditions on which enterprises pay attention; thus, a country would have a chance to improve the conditions they offer for foreign companies and possibly attract more investment.

Theoretical framework. Theories of Business Management Strategies

In the modern world, multinational corporations have gained more influence on countries, in which they operate. Hence, these corporations could be seen as valuable and influential parts of the countries' economies. By locating ventures in different countries, multinational corporations can significantly contribute to the development of the economy of this particular country. In order to analyze strategies implemented by multinational corporations, it is vital to understand the definition and core characteristics of such entities. Thus, this chapter will start with an outline of the description of the term «multinational corporation» and key concepts behind it.

A multinational corporation or multinational enterprise is an enterprise which has branches in several countries apart from country of origin. Mirriam-Webster Dictionary defines a multinational corporation as «having divisions in more than two countries». Dunning and Lundan (2008) mention that such enterprises control value-chains in different regions or countries. Such corporations gain their revenues from various locations across the globe.

Caldas de Lima (2008) in work for United Nations Industrial Development Organisation defines the international company as one, which «operates in more than one country». The term «transnational corporation» refers to such enterprises, operating across boundaries and have various strategies to gain an advantage of the global market. The term «multinational enterprise», according to the author, applies to these companies, which use «global approach» through different activities, be it global production networks or outsourcing. The fact that a company uses a wide range of operation modes makes it multinational enterprise, despite the actual size of the corporation. From this perspective, it is essential to focus on MNEs structure considered as the base for the creation of business management strategies. Structure of multinational enterprises evolved due to the development of technologies, transportation system and increase in competition among corporations.

According to Grant R. (2005), the structure of multinational corporations could be summarized, as shown in Annex 1. Structure of the multinational corporation. In the early 20th century, the structure of such corporations assumes that national headquarter holds control over the appointment of managers in the ventures and collection of revenues. However, the structure of these corporations differs between European, American and Asian markets. Even though ventures gained a degree of autonomy, the main decisions were taken by the home-company in all of the regions. Local subsidiaries gained access to resources and capital of parent corporation and thus had a competitive advantage on their local markets.

In the late 20th century, multinational corporations have to adapt their strategies to correspond to the changes induced by globalization and the spread of technologies. To increase competitive advantage, corporations became tighter and cooperated, developed global production and also moved some activities into outsourcing. The bottom scheme above represents the structure of multinational corporations in the context of high competition.

The other important component that is taken into consideration while elaborating MNEs business management strategies is a value chain. A value chain, as defined in International Business by Daniels &Cannice (2004), is the activities of the group which take place when a product emerges from raw materials and end up to a final step-distribution. Kaplinsky and Morris (2001, p.4) provide the following definition of the value chain: «the value chain describes the full range of activities required to bring a product or service from conception through the different phases of production, delivery to final consumers, and final disposal after use. » A raw material gets its added value in the result of special activities done by a company and then is sold to customers. However, since the nowadays economy is not so simple and straightforward, and various chains are linked with each other in multiple locations, Sturgeon (2013) encourages to call these activities «global value chains». The Annex 2. Value-added chain below illustrates primary and support activities which combined lead to the value of the product and hence the revenue for the company.

Saloner et al. (2001) argue that any enterprise must seek to create value in order to succeed. Nevertheless, the creation of value is not sufficient to compete not only in the international market but also on domestic one. To compete successfully in all markets, an enterprise must develop a strategy, which would allow outperforming the competitors, having the value of the product.

There are different reasons for companies to expand to a broader market than their home market. Since the distribution of a product in the modern world is not enough for companies to profitably compete against opponents, corporations decide to enter foreign markets. Based on the goals of the company, which could be the following: enlargement of the distribution channels, entry of new market, optimization of the value chain or cost production there could be different modes of implementation. Also, various strategies could be used to achieve different goals of the corporation. The Figure 1.Strategies, modes of entry and offshoring possibilities below illustrates this.

Source: elaborated by author

The main reason to enlarge the portfolio of a company is competition. Due to the globalization and its effects on the economy, domestic markets could be threatened by competitors not only from the same origin, but also by foreign companies.

Caldes Lima (2008) summarizes reasons for expenditure into three categories: market factors, cost factors and competitive factors. Market factors refers to the opportunities of distribution of product to a larger group of consumers. Cost factors implies the notion of limited financial opportunities to create economies of scale within one country and thus search for these opportunities abroad. Moreover, the production abroad might be also beneficial if abroad, the costs are lower than at home. Competitive factors, as already mentioned, would help corporations to achieve advantage on their domestic market and to enlarge their sphere of influence abroad.

When a company decides to expand abroad, several strategies to implement this idea into practice. These are: exporting, international licensing, international franchising, management contracts, turnkey projects, equity alliances, joint ventures, consortiums (joint ventures with more than two participants), contract manufacturing and wholly owned subsidiaries. The degree of activities done by domestic corporation vary in each strategy of foreign market entry, as well as simplicity of implementation a particular entry strategy.

Hence, the exporting strategy is the simplest way to enter foreign market. It could be done by opening distributing points directly or with the help of intermediaries. The revenues are the part of volume of sales. Such type of market-entry strategy was widely used during the era of early trade between countries, however could be still present.

The international licensing strategy is the next step of responsibilities of the company. Licensor (domestic enterprise) allows the licensee (foreign enterprise) to use some of its assets, usually intellectual ones to produce goods. The revenue here is gained by the allowances paid by licensees, which they have earned while distributing products made with the use of licensor technologies.

Another type is international franchising strategy, which refers to the ability of franchisee to duplicate the whole process of production made by franchisor. Caldas Lima (2008) argues, that this type of strategy is often used in the food chains, primarily fast food, hotel chains etc.

Management contracts also belongs to strategy types. The domestic company shares its expertise with the foreign company. The managerial personnel having their knowledge in particular fields or spheres use it to the sake of foreign company. Using this strategy, the domestic company can investigate the local market and also gain revenues as a part of compensation for employers.

Turnkey projects refer to developing a whole plant, which is ready to be used in local environment. Generally such turnkey projects are made by construction companies or consulting enterprises. For domestic company these projects can establish a path to entering new market and for the local companies they represent an easy path to get fully operating enterprise done by the experts of the field.

Equity alliances or international alliances represent the cooperation between enterprises at a global level. One company is an owner and the others are partners, which can both benefit from expertise, resources or knowledge.

Joint ventures can be also seen as collaboration between companies, nut in this case corporations collaborate for a long period of time and both parties contribute their resources in order to develop an enterprise. Moreover, joint ventures are usually newly established plants with the involvement of both parties, rather than participation of one side in already working enterprise.

Consortiums can be seen as joint ventures with more than two companies involved. However, such agreements are usually time-bonded. After the implementation of the project, joint companies dissolve.

Contract manufacturing deals with the production of specific goods of a domestic company, using local plants. In addition, these products will be sold on the local market. By choosing such strategy a domestic company does not invest in building new facilities, but holds a control over the production process and after that gains revenues from distributed products.

In the wholly owned subsidiaries, the domestic company has a control over all of the activities of the venture. Rasmussen&Madsen (2002) developed an idea of «born global» enterprises, which view their market as world since the launching and domestic market in this view works as a support. Right from the start, these companies are export-oriented due to the large international experience of the founders and highly globalized world.

All of these types are used nowadays in order to begin the expenditure to the foreign markets, however, recently the most attractive and widely used strategies are equity alliances and «born global» enterprises. Both of them seem beneficial in their own ways.

Equity alliances, argue Pon&Duncan(2019), are useful when it comes to combating global competition since it allows to create products suitable to local markets; to share knowledge and skills within the alliance, not outside of it and also to cooperate on the research and development stage in order to tackle problems associated with rapidly changing technology and environment.

On the other hand, «born global» companies respond to a demand of universalized products which are ready to be exported since the very establishment of the enterprise. Decades ago, companies firstly developed themselves on the domestic market and only after maintaining a stable position at home started to enter new markets. However, the environment of fast changes, global interconnectedness and high technologies companies do not have a privilege of long evolving. Since the very beginning they should be ready to answer the demand and be ready to combat internationally. One more reason for the popularity of such type of companies is that now entrepreneurs possess global mindset as there is an easy access to travelling, getting education and experience in various locations and hence the horizons of founders are broader than ever before.

Significant impact on companies decisions to expand abroad and choose a specific strategy of market entry render formal and informal institutions of a country, since they develop a framework of operation, which is crucial for performance of an enterprise in the particular market. In order to elaborate on this issue the next part of the paper would be devoted to the role of these institutions and the measures, which countries implement to attract foreign direct investment into their markets.

1.2. The Role of Formal and Informal Institutions as the Base for Business Management Strategies of Multinational Corporations

While developing a strategy, multinational corporation has to carefully evaluate the institutional frameworks of a particular country in order to adjust the strategy. The domestic environment of the country has a considerable impact on all of the spheres of action, and the economic sphere is not an exception. Government policies in political, economic and legal policies define the operation of the enterprises. Moreover, they do influence foreign direct investment, since foreign investors, while choosing a country for the establishment of their branch make a detailed analysis of country's environment as they want to be sure that local conditions are satisfactory and secure to create for an enterprise another source of revenues. Figure 2. Influence from external environment illustrates features that have an impact on the decision making of the corporation.

Source: adapted from Peng& Meyer, 2019

Furthermore, the role of international organizations is crucial in terms of the institutional framework. Taking part in various international institutions, such as the World Trade Organisation, International Monetary Fund, United Nations, creates beneficial circumstances due to the various agreements which are implemented by these organizations. They create supranational contracts between countries, which regulate diverse spheres, including trade and investments. Furthermore, these agreements, in turn, support the attractiveness of the country for the foreign direct investment.

Formal institutions include a wide range of laws, regulations and rules imposed by the government in order to protect their countries and also to engage foreign companies to enter the local market. Economic decisions often depend on political decisions. In the context of the expansion of enterprises to an international market formal agreement between countries play a crucial role since they provide a framework for legal cooperation and thus could create a more «friendly» environment for foreign companies.

Often political relations between countries also have an impact on economic agreements and decisions on collaboration. Since the relations of countries and political decisions also matter for the economies of the countries, and enterprises willing to enter another market may face challenges due to the lack of needed agreements between countries or due to some degree of political confrontation. Corporations would choose the most beneficial locations for expansion, paying particular attention to the factors mentioned above and inner systems of the countries as well.

Countries develop various measures and participate in agreements to increase interest in a particular location for foreign companies and investors. These measures help a country to improve its economic environment, raise the level of income and thus improve the overall situation in the country. Such measures, for example, could be agreements for the avoidance of double taxation, or regulations for the protection of investment. Furthermore, countries could establish grants in specific industries to attract investors from other regions.

The Organisation For Economic Cooperation and Development (2003) developed some guiding principles for countries to attract foreign direct investment in their region. These strategies include developing a stable and attractive macroeconomic climate within a country; a range of governmental support, such as subsidies on infrastructure, the assistance of administrative organs, the investment in the education of the labor force; organization of tax reduction or creation some beneficial circumstances in terms of taxation for foreign companies; creation and maintenance of fair, stable and non-discriminatory environment; creation of infrastructure for international trade and so on.

Willcocks et al. (2016, pp.91-92) developed a model for assessment of country attractiveness for companies, where six dimensions are examined. Firstly, the costs: labor, infrastructure and corporate taxes. Secondly, the pool of skills offered at a particular location: the knowledge held by the labor force, technical resources and capabilities. Thirdly, business and living environment, which include governmental support, business culture, quality of life and crime rates, access to the location (geographical position and transport system). Fourthly, the quality of infrastructure: quality of telecommunications, real estate, power supply and condition of the inner transportation system. Fifthly, risks: security issues both personal and company-related, risks of uprisings, wars and natural disasters, risks associated with a legal framework and macroeconomic fluctuations and protection of intellectual property rights. Lastly, the potential of the market: the success and attractiveness of the local market (measured by GDP and its growth rate) and the connection of the local market to other markets.

Another crucial point is the level of corruption in the country, which corresponds to a governmental structure and measures taken in order to create effective mechanisms in the work of administrative bodies. Legal authorities are responsible for reducing and combating corruption to engage foreign investors on the market. If the administrative and political entities are flawed by corruption, the chances for foreign direct investment reduces significantly as an enterprise would choose a more stable and non-corrupted country to establish their ventures there.

Informal institutions, such as culture, norms, ethics and values also can be essential factors when it comes to enlargement of the company and creating new plants abroad. They do matter since not all of the products developed by a company would be distributed abroad with equal success as at home. Moreover, some cultural biases and different norms could be an issue in the management process, which in turn would influence the whole production chain. Different culture clusters have particular and different sets of norms and beliefs, which could be either a positive feature for a company or a negative one.

There are many peculiarities in different countries. Hofstede (1980) has developed a framework, according to which there are five dimensions of culture, which should be taken into consideration. These are power distance; individualism or collectivism; masculinity or femininity; uncertainty avoidance and long-term orientation.

Power distance refers to the acceptance by the members of the community of the fact that the formal hierarchy exists, and some people possess power, while others not. This cultural dimension could be reflected when the titles are used. Moreover, high or low power distance reflects the methods of leadership and influence the performance of the company.

Individualism and collectivism refer to the notion of the identity of a person. In individualistic cultures, people tend to perform on their own and consider their personality. In contrast, in the collectivist cultures, people tend to have close relationships within a group and associate their personality with a group.

Masculinity and femininity refer to the values which social groups consider as important. Masculine values are associated with assertiveness, focus on career development and compensation for this progress, while femininity values are associated with compassion, work-life balance, relationships and attention paid to others. This dimension is vital, as, in different societies, different roles are attributed to men and women.

Another dimension is uncertainty avoidance, which deals with the acceptance rate of ambiguous situations. People from cultures with high uncertainty rate tend to value stability at work and benefits paid after retirement. On the contrast, people from cultures with low uncertainty rate are willing to take risks and are not afraid of changes.

Long-term orientation dimension refers to the targeting at long-term goals. People from long-term orientation cultures can develop long-term plans and wait for the outcomes. On the contrary, people from cultures with short-term orientation cultures tend to expect immediate results and profits.

Another framework for culture assessment was developed by Hall (1976), where he differentiates between high-context and low-context cultures. The core element here is the communication between members of the community, and thus in low-context cultures, the most attention is given to direct communication, without underlying meanings. On the other hand, in high-context cultures, special attention must be paid to the unspoken language and context of the environment. The USA is the example of a country with low-context culture, and the words are understood as they are, and often no background knowledge of traditions is required to communicate. Also, the hierarchy between employees is not strict, and ordinary workers could directly communicate with the top management of the company. The Asian countries, such as China, for example, represent high-context culture. Here background knowledge is the key to successful communication. Moreover, the hierarchy is strict, so that employees cannot communicate with the top management unless they are welcomed to do so.

All of these factors must be taken into consideration while expanding abroad. Often, the interests of an enterprise and a government do not correspond in the area of formal institutions and agreements. Moreover, political regimes and legal frameworks differ between the home country and the host country. Moreover, cultures and contexts vary from region to region or even from country to country and people are used to different styles of communication and decision-making processes. Thus, an enterprise should make a careful research of the specifics of a particular location and adopt their strategies given the specific frameworks of each location.

Also, the governments should implement various measures to create favorable conditions for foreign companies, such as reconsidering the legal system, lowering the levels of corruption, building the infrastructure and transportation system, improving living conditions and many other measures to capture foreign direct investment.

Resources and Capabilities as an Internal Base for Business Management Strategies of Multinational Corporations

Another factor for developing a strategy is internal resources and capabilities possessed by a company. They are crucial aspects in terms of competitiveness. The Cambridge Dictionary (2020) defines competitiveness as «the fact of being able to compete successfully with other companies, countries, and organizations». Thus, it is highly essential to evaluate the resources and capabilities of the corporation in order to design a prosperous strategy.

Willcocks (2016) argues that resources are «tangible and intangible assets a firm uses to choose and implement its strategies». Peng&Meyer (2019) distinguish between primary resources and capabilities. Capabilities refer to the ability of a company to manage its resources to achieve its aims and goals. Resources can be sub-divided into two categories, namely: tangible and intangible. Moreover, these two, in turn, also consist of different assets possessed by a company.

Tangible or observable resources include:

? Financial assets-shareholders capitals and external capitals such as bank loans;

? Physical assets-plants, buildings, equipment, raw materials;

? Technological assets-trademarks, patents, copyrights;

Intangible or hardly observable resources include:

? Human Resources- skills of employees, values that form organizational culture;

? Reputational resources-brand names, business relations, goodwill of a company, quality of services;

? Innovation resources- trade secrets, databases, assets for development and innovation creation;

Both tangible and intangible assets are critical to the success of the company. Although a company does not own labor force, it also adds a valuable part to the performance of a company, since the human capital creates and develops products with the use of tangible assets at the end. Nevertheless, primary resources are not enough to get a competitive advantage and the company's capabilities help to add the value to the product within a value chain.

Capabilities can be divided into different groups, based on their function. Peng&Meyer (2019) propose the following classification of capabilities:

? Capabilities in innovation

? Capabilities in operations

? Capabilities in marketing

? Capabilities in sales and distribution

? Capabilities in corporate functions

All of these capabilities allow a company to use its resources effectively and outperform the competitors. Each of the primary resources should be used in value creation and create a capability for the firm. If a company is not capable in a particular step of the value-chain or if it is not crucial, then a company can outsource it.

The competitiveness of the corporation could be increased by the optimization of internal resources and value chains of a company. Global sourcing could be seen as one of the methods of increasing the competitiveness of the corporation on a global scale. The decision to choose a particular country for outsourcing could be based on several characteristics of a country, argue Liu et al. (2011). This study suggests that routine, not complicated and less interactive activities would be more outsourced to foreign countries. Moreover, there is a need for a high quality of institutions and high cultural similarity to the country of origin. In order to reduce transaction costs, the company should seek to invest in the more developed in terms of institutions countries.