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Attracting Multinational Companies

Question:

Discuss About The Creating Local Job And Competitive Domestic?

The introduction of globalisation makes it easier for the multinational companies to penetrate into the international markets and hence the name, multinational corporations. In relation to this, it can be stated that all the nations intend to practice national competitive advantage that develops a national environment within which organizations learn how to grow and compete. In case of Kuwait, the increment of the national economy demands the same.  According to the viewpoint of Warner (2017), the economic freedom score of Kuwait is 62.2 and it makes the economy of the country the 81st freest as per the 2018 index. The recent statistics of the said country states that the rate of unemployment is near about 2.4% while the inflation rate is 3.2% (Isik 2018). From this perspective, it is essential for the nation to develop an environment that attracts the multinational companies so that, it becomes possible for the country to lower the rate of unemployment and enhance the gross domestic product (GDP) or the national income (NI) significantly. However, the government of the country has already introduced some of the policies that nurture the determinants of national competitive advantage for the development of national environment to attract MNCs and protect the domestic companies. 


The developing countries such as Kuwait take several strategies and one of the most significant policies to attract MNCs includes Foreign Direct Investment (FDI) as the foreign direct investments inflow in the developing nations is still one of the crucial drivers for the growth of the economy. In spite of having a financial crisis in the year 2008, the recent global trends show that FDI from the United States multinational corporations are the major source for Kuwait to pursue business stimuli and financial inflows (Export.gov, 2018). It is worth saying that, the FDI considers open door policy into account to make the strategy an effective one. As stated by Asheim (2018), Kuwait has been suffering from structural labour shortages and these shortages have begun primarily during a post-oil era in Kuwait when the economy of the country expanded rapidly. Thus, the country is feeling necessity in taking assistance from the foreign labour force and hence, the introduction of ‘open door policy’. Under this policy, the concerned country allows all the persons who are willing to work in this nation and because of this policy, it becomes possible for the country to enhance the labour force and it becomes one of the steps towards attracting Multinational Corporations. 

Along with the open-door-policy, the country considers some other policies for developing a business environment in the nation and therefore, another policy is all about collaboration. As stated by Abdmouleh et al. (2015), the country has decided to participate in the international monetary fund (IMF) on the basis of mutual agreements. The mission of the international monetary fund is to develop capacity with the help of hands-on training for the policymakers and thus, the aim of this initiative is to strengthen the implementation and design of economic policies in the Arab world. Based on this, the oil-rich country, Kuwait has cut all the subsidies and plans to implement value-added taxes to plug the budget shortfall which is triggered by the lower crude production and prices. With the help of this policy, it becomes possible for the country to tap the international debt markets for the first time and it has raised $8 billion funds from this initiative (Jabsheh et al. 2016). Further, the 2017 report of IMF stated that government's recent efforts become able to enhance the business climate, diversify revenue and streamline the current spending and all these add that the new environment calls for sustained and deep reforms.

Protecting Domestic Firms


The oil-rich country Kuwait has considered different policies to protect the domestic firms besides attracting the MNCs and one of them is all about the Import Tariffs (E.gov.kw 2018). Based on these policies, the concerned country has developed a Single Customs Tariff resulting in an additional external tariff of 5% on most of the imported goods. Hence, it becomes possible for the domestic companies to get extra opportunities in developing their business in the home market. Further, it becomes possible for the domestic companies to export in the international market and as a result of this, the percentage of foreign capital inflows increases. Along with this, the government of the country has introduced Trade Barriers for protecting the domestic companies to have business growth in terms of financial profitability in the market of Kuwait (Bown 2014). Trade Barriers include non-tariff and tariff barriers for the international companies while exporting to this country. The international companies have to confront several situations to legalize their shipping documents which if not performed properly, the companies could face trade barrier. All these steps make the multinational companies develop their business in this particular market.

Besides these policies, various corporate strategies are considered by the organizations in the global context. This is because the international business environment that includes actions of buyers, competitors, new entrants, sellers may influence the entire domestic market and it is worth noting that, information technology reinforces the trend. Hence, the four determinants of Porters Diamond help to understand the competitive advantage of nations from the perspective of Kuwait. The four determinants are factor conditions (such as material resources, human resources, capital resources and knowledge resources), demand conditions (demand for products and services), related and supported industries and the fourth one is all about firm strategy, rivalry and structure. Based on this model, it can be stated that Kuwait has an opportunity regarding production factors such as infrastructure and skilled labour and these are relevant for the development of competitive advantage in the business environment. Further, according to the viewpoint of Fainshmidt et al. (2016), the said country can gain national competitive advantages as the domestic market provides earlier and clearer signals of demand trends to the home suppliers rather than foreign competitors and this is one of the strongest aspects of Kuwait to attract MNCs in the domestic market. Therefore, the government can foster these said advantages by ensuring safety or environmental standards, high expectations of product performance or vertical collaboration between buyers and suppliers on a domestic level significantly.

The economic condition of a country mostly depends on the strength of the industries and for this reason; countries tend to take various strategies to improve the production capacity of the firms to meet the increasing demand of the customers and to create more employment as well. Kuwait is oil-rich country and the main customers of Kuwaiti oil are Europe, United States, India and South Korea. However, the consumption of crude oil is increasing because of increasing percentage of power plants for generation of electricity and for this purpose; the number of customers is also increasing. Hence, it is important for the country to consider some of the strategies to cope with the increasing demand so as to improve the capacity of the firms.

Corporate Strategies for Competitive Advantage

The industries of Kuwait depend on imported natural gas and thus, it will be beneficial for the industries to get resources at a lower cost to enhance the capacity by reducing the internal cost. Hence, it is essential for the Kuwait constitution to limit the involvement of international oil companies (IOCs) to lower the rate of interest from the underlying resources. Thus, it becomes possible for the industries to get all the resources to at low cost and hence, the companies become able to improve the productivity. Along with this, with increasing demand for productivity, the industries will tend to hire more people and this will help the country to create employment. As a result of this, the entire economy may grow significantly.

To get benefits, it is essential for the oil industries to enhance the export more oil to the countries and thus, the Kuwaiti firms need to improve the storage capacity to improve the production. As stated by Breinlich (2016), industries need to invest in the equipment to have growth of the business. Hence, it will be beneficial for the companies to install new machinery or sophisticated conveyor systems. With the help of this strategy, the companies become able to improve the capacity and hence will improve the rate of employment by hiring more staffs to handle new machinery.

One of the important ways to optimize the business environment is to focus on improvement of the layout. Companies can reposition the entire assembly line in order to create new positions for packing and picking new products. This will make the business process more flexible which in turn help the companies to improve the productivity.

Sharing of capacity is a fundamental way to enhance capacity utilization. Furthermore, implementation of advanced techniques such as reservoirs evaluation, drilling and enhanced recovery helps to improve the rate of production and recovery rate. Hence, the new designs and handling of new techniques demand more workforces and hence, this step will help the companies to recruit more employees. Further, it will help the companies to get more benefits in terms of production and financial profitability.

All the steps encompass significance in creating strength and capacity of the firms in Kuwait and the country becomes able to improve the rate of employment significantly

Reference list

Abdmouleh, Z., Alammari, R.A. and Gastli, A., 2015. Recommendations on renewable energy policies for the GCC countries. Renewable and Sustainable Energy Reviews, 50, pp.1181-1191.

Asheim, B.T., 2015. An innovation-driven economic diversification strategy for Kuwait. Kuwait Foundation for the Advancement of Sciences, pp.1-14.

Bown, C., 2014. Temporary trade barriers database: Update through 2013. World Bank. Available at: https://econ. world bank. org/ttbd/, June.

Breinlich, H., 2016. Producer services and trade liberalization. The International Encyclopedia of Geography.

E.gov.kw. 2018. HomePage.  Available at: https://www.e.gov.kw/sites/kgoEnglish/Pages/HomePage.aspx [Accessed 11 Mar. 2018].

Export.gov. 2018. Kuwait - Trade Barriers | export.gov. Available at: https://www.export.gov/article?id=Kuwait-Trade-Barriers [Accessed 11 Mar. 2018].

Fainshmidt, S., Smith, A. and Judge, W.Q., 2016. National Competitiveness and Porter's Diamond Model: The Role of MNE Penetration and Governance Quality. Global Strategy Journal, 6(2), pp.81-104.

Isik, M., 2018.Getting Ready for the Post-Oil Age: The Entrepreneurship as the Rising Star of Development Policies in the Gulf States. Modern Economy, 9(01), p.125.

Jabsheh, F., Chemingui, M. and Malek, N.A., 2016. Impact of trade policies on the economic growth and diversification of an oil surplus economy: The case of Kuwait. 2(1), pp.23-45.

Warner, M., 2017. Local content in procurement: creating local jobs and competitive domestic industries in supply chains. Abingdon: Routledge.

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