Competing in the Global Market- Defining Differences among Domestic Firms and MNEs

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Table of Contents

Abstract
Areas where purely domestic firms face international risks in the US market
Major differences between a multinational and domestic firm
Ways in which firms benefit from the international market
Corporate governance and major provisions of the Sarbanes Oxley Act 2002 (SOX)
References

Abstract

Domestic firms are also affected by the risks experienced in the global market. These mainly include administrative and fiscal threats. Domestic and global firms have a number of variations between them. These include the legal and economic structure, cultural differences, and language.

There are many ways through which firms benefit from the international market. Corporate governance is a term that refers to the manner in which corporations are managed and directed. SOX was mainly aimed at renewing the publics confidence in the financial arena in US.

Areas where purely domestic firms face international risks in the US market

Domestic firms are gravely affected by the political risks in the global market arena. This is attributed to the fact that the regulations and laws operating at the regional, local, global, and central government entities affects the operation of domestic firms. In addition, there is a high likelihood of facing various forms of financial risks.

These include exchange rate risks, commercial risks, and inflation- related risks. Political risks impact negatively on the profitability and growth of businesses. All firms are mainly affected by the following financial factors; commodity prices, interest rates, and exchange rates. In domestic firms, interest rates are given a keen concern (Schroeder, Clark & Cathey, 2006).

Major differences between a multinational and domestic firm

Whereas multinational corporations operate in more than two countries, domestic corporations operate in only one country. Whereas multinational corporations have to adhere to the various international legal and economic structures in the market, domestic firms only adheres to the legal and economic structures in the country of operation. Multinational companies operate in different countries and they have to adhere to the set structures.

Multinational firms have to trade with a wide array of currencies. This depends on the location of the subsidiaries. On the contrary, domestic firms only deal with the currency used in the country of operation. Therefore, multinational corporations have to incur the extra costs and inconveniences involved in exchanging currencies during funds transfers between various nations (Schroeder, Clark & Cathey, 2006).

Multinational corporations have to cope with different languages and cultural differences. Throughout the daily operations, a company whose subsidiary is based in Spain has to cope with the various languages such as Basque, Galician, Catalan, and Spanish. This is associated with additional paperwork and costs since a majority of the guidelines and polices have to be translated into a number of languages.

In addition, it is imperative that effective multinational corporations are adequately flexible so as to cope successfully with the local preferences and culture. Products and how they are marketed have to be fashioned depending on cultural differences (Eiteman, Stonehill & Moffett, 2010).

Ways in which firms benefit from the international market

There are wide arrays of reasons why corporations expand to the global market. Some firms engage in global marketing to find new resources and markets, or minimize costs. A company that engages in global marketing benefits from better service and product effectiveness. This is attributed to the fact that there is rapid growth as a result of immense learning. As a result, novel and better services and products are produced. Marketing through the internet helps in producing innovative products and services.

Global marketing is associated with solid competitive advantage. As a company enacts its effectively articulated global strategy, other companies are influenced. This results to more focus and better information within companies. It also leads to quick adaptation and producing products and services that match customers needs.

There is also increased customer awareness whereby they are able to track the progress or failure of certain products. For instance, Apple products are always accompanied by consistent and uniform messages. Satisfied customers possess more awareness, are loyal, and market the products to others (Carbaugh, 2004).

Global marketing is also linked to savings and cost minimization. Through the focus on novel markets, it is relatively easy to attain economies of scale as well as scope via standardization. Customers from all over the world can be reached through the internet that saves on costs. This helps in serving customers through better ways.

Corporate governance and major provisions of the Sarbanes Oxley Act 2002 (SOX)

Corporate governance is a term that refers to the manner in which corporations are managed and directed. According to the governance structure, there is an indication of the way responsibilities and rights are distributed among the various corporation participants.

In addition, the governance structure indicates the procedures and rules that should be adhered to when making decisions as far as corporate affairs are concerned. The structure also indicates how the corporation sets and pursues all its objectives. While choosing how to achieve this, there is a key concern for the regulatory, market, and social environment. Governance refers to the way in which operations are monitored in a corporation. This involves considering the interests of the stakeholders (Butler, 2004).

The SOX (Sarbanes- Oxley Act of 2002) is also referred to as the Public Company Accounting Reform and Investor Protection Act of 2002. The SEC (Securities and Exchange Commission) is mandated by the Congress to control finance and accounting professions. SOX was mainly aimed at renewing the publics confidence in the financial arena in US. The Act also engages in revising the procedures and practices followed by public accounting and auditing companies. Public audits have to comply with the guidelines provided by SOX.

References

Butler, K. (2004). Multinational finance (3rd ed.). Mason, OH: Thompson South-Western.

Carbaugh, R. J. (2004). International economics (9th ed.). Mason, OH: Thomson.

Eiteman, D., Stonehill, A., & Moffett, M. (2010). Multinational business finance (12th ed.). Upper Saddle River, NJ: Prentice Hall.

Schroeder, R., Clark, M., & Cathey, J. (2006). Financial accounting theory and analysis: Texts and cases (9th ed.). Hoboken, NJ: Wiles.

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