MNCs and International Business

Chapter 3

MNCs AND INTERNATIONAL BUSINESS

International Marketing Chapter-3 MNCs And International

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Learning Objectives

What is multinational corporationWhat is organizational transformationWhat is globalization of businessWhat is the role of MNCs in global economy


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Learning Objectives

What are the merits, demerits and perspective of MNCsWhat is code of conductWhat is the role of multinationals in India


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IntroductionThe total foreign affiliates of MNCs, only little were developed countriesForeign investment has been growing substantially faster than world output and exportMultinationals have been emerging from the developing countries The diversified corporations have many odds against them and focus strategy is more successful


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Definition: Multinational corporation

The essential nature of the multinational enterprises lies in the fact that its managerial headquarters are located in one country while the enterprise carries out operations in a number of other countries as well


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Five Criteria of MNC

1. It operates in many countries at different levels of economic development

2. Its local subsidiaries are managed by nationals

3. It maintains complete industrial organizations, including R and D and manufacturing facilities, in several countries


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4. It has a multinational central management

5. It has multinational stock ownership


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Organizational Transformation

MNC is now increasingly assuming the role of an orchestrator of production and transactions within a cluster, or network, of cross border internal-external relationships, which may or may not involve equity investment, but which are intended to serve its global interests.


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Globalization of business

Globalization is a way of corporate life necessitated, facilitated and nourished by the transnationalisation of the world economy and developed by corporate strategies


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Dimensions of Globalization1. Doing or planning of expand, business

globally.2. Giving up the distinction between the

domestic and foreign market and developing a global outlook of the business.

3. Locating the production and other physical facilities on a consideration of the global business dynamics, irrespective of national considerations.


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Dimensions of Globalization4. Basing product development and

production planning on the global market consideration.

5. Global sourcing of factors of production i.e., raw materials, components, machinery/technology, finance etc. are obtained from the best source anywhere in the world

6. Global orientation of organizational structure and management culture.


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Reno vision on the Art of Global Dominance1. Source raw materials wherever they are

cheapest.2. Manufacture wherever in the world is most

cost effective.3. Sell in those global markets where prices are

highest.4. Raise finances globally.5. Forge international strategic alliances.6. To manage all these, take on the best talent

from all over the world. International Marketing

Chapter-3 MNCs And International Business

Table 3.2 World’s Top 100 TNCs


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Dominance of MNCs and global economy

The global liberalization has paved the way for fast expansion and growth of the MNCsThe economic clout of the MNCs is indicated by the GDP of most of the countries is smaller then the value of the annual sales turnover of the multinational giants


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MNCs and international tradeThe sale of foreign subsidiaries in the host countries are three to four times as large as total world exportsSignificant increase in the export intensity of the foreign affiliates of MNCsThe abilities of multinationals to manipulate financial flows by the use of artificial transfer prices is bound to be a matter of concern governmentInternational Marketing


Merits of MNCs1. MNCs help increase the investment level and

thereby the income and employment in host country.

2. The transnational corporations have become vehicles for the transfer of technology, especially to the developing countries.

3. They also kindle a managerial revolution in the host countries through professional management and the employment of highly sophisticated management techniques.


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Merits of MNCs4. The MNCs enable the host countries to increase

their exports and decrease their import requirements.

5. They work to equalize the cost of factors of production around the world.

6. MNCs provide an efficient means of integrating national economics.

7. The enormous resources of the multinational enterprises enable them to have very efficient research and development systems. Thus they make a commendable contribution to inventions and innovations.


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Merits of MNCs

8. MNCs also stimulate domestic enterprise because to support their own operations, the MNCs may encourage and assist domestic suppliers.

9. MNCs help increase competition and break domestic monopolies.


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Demerits of MNCs1. The MNCs technology is designed for world wide

profit maximization, not the development needs of poor countries. The imported technologies are not adapted to a. consumption needsb. size of domestic markets c. resource availabilities d. stage of development of many of the LDCs.

2. Through their power and flexibility, MNCs can evade or undermine national economic autonomy and control and their activities may be inimical to the national interests of particular countries.


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Demerits of MNCs3. MNCs may destroy competition and acquire monopoly

powers.4. The tremendous power of the global corporations poses

the risk that they may threaten the sovereignty of the nations in which they do business.

5. MNCs retard growth of employment in the home country.

6. The transnational corporations cause fast depletion of some of the non-renewable natural resources in the host country.

7. The transfer pricing enables MNCs to avoid taxes by manipulating prices on intra-company transactions.


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Growth Perspective of MNCs1. Increasing emphasis on market forces and a

growing role for the private sector in nearly all developing countries.

2. Rapidly changing technologies that are transforming the nature of organization and location of international production.

3. The globalization of firms and industries4. The rise of services to constitute the largest single

sector in the world economy5. Regional economic integration


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Code of Conduct1. A framework to allow developing countries

as well as transnational corporations to benefit from direct investments on terms contractually agreed upon

2. Legislation3. Cooperation by governments4. Fiscal and other incentives and policies

towards foreign investment5. An international procedure for discussions

and consultationsInternational Marketing


Multinationals in India

In India the government policy confined the foreign investment to the priority areas like high technology and heavy investment sectors of national importance and export sectors. Firms which had been established in non-priority areas prior to the implementation of this policy have, however, been allowed to continue in those sectors.


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Multinationals in India

Several Indian outfits of MNCs are in the low technology consumer goods sector. There are many MNCs which are in high technology area.Since the economic liberalization unshared in 1991, many multinationals in different lines of business have entered the Indian market.


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SummaryMNCs are corporations that control production facilities in more than one country, such facilities having been acquired through the process of foreign direct investment. Firms that participate in international business, however large they may be, solely by exporting or by licensing technology are not multinational enterprises.


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MNCs and International Business

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