multinational company 2003

8/3/2019 Multinational Company 2003

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Multinational Company

An Enterprise which own or Control

production or service facilities outside the

country in which they are based.

Multinational

Corporation have a large scale capital,

Production, Sales, Profits, Management and Administration, with the large quantity and

“life line” quality of human resources.



Characteristics of Multinational Corporation

International

Operation

Creation,

Development &

Research as the

world Economy

Giant in Size

Multinational

Management &

Administration

Multinational

Ownership &Control

Multinational

Transfer of

resources &

Technology

Permission of related countries

Participation in

Capital Investment



International

Operation

• Integrated world wide system.

• Parent company and foreign affiliates act in

close alliance and cooperation with one another.

• Controlled by a sole institution, but interests

and activities are spread out the boundaries of

the nation.

•Called Global Factories to search the

opportunities.

http://en.wikipedia.org/wiki/Image:Ford_Motor_Company_Logo.svg



• Economy is benefited from multiplier and

linkage effects

• Using the new Technology

• New creation

• New innovations and research under world

economy, Including training, widening of

markets and mobilization of resources.

Example – distribution pattern of coca

cola in India.

Creation,

Development &

Research as the

world Economy More than 200 Countries



• Extend marketing activities through a network of

branches.

• Having investment and business in a number of

countries, islands and constituents.

Giant in Size




• Better and skilled management system as per the

standards of world economy.

• Controlled by a single managerial authority,

typically the top management group of the parent

company.

• It makes key strategic decision relating to the

operations of the parent firm and all its affiliates

Multinational

Management & Administration




• Rich in advance and future Technology.

• Develop the resources and technology through

continuous investigations, researches and

developments as per the international norms.

• Development as an organization as per the

international standard.

Multinational

Transfer of

resources &

Technology



• Capital base is very strong.

• More fixed Capital with financial resources and

working capital.• Under adaptive circumstances to Find out the

adequate capital from the market of the host

country.

• Foreign aid is available for them in a easy way

from their government.

Participation in

Capital Investment



• Major Decision are made centrally and alsocontrolled by the Parent Company.

Overall Product mix

Sourcing of Inputs

Including Capital Funds ( Shares,

Debentures and other kind of

Securities)

Location of Production facilities

The Market to be served

Multinational

Ownership &

Control



Control on the Multinational made by the –

•

Department of Company Affairs• Reserve Bank of India

• Ministry of Industrial Development of India

Permission of

related countries



Advantage of Multinational

• Increase the Investment level and thereby the income and

employment in host country

• Vehicles for the transfer technology, especially to the

developing countries.

• Managerial revolution in the host country through

professional management and the employment of highly

sophisticated management technique.



•Make commendable contribution to inventions and

innovations.

• Contribute the favourable balance of payment of the home

country, in continuation or regularly.

• Host country can enjoy the benefits of foreign culture,

brought by MNC.

Contd…



•Stimulate domestic enterprises to support their own

operations, MNCs may encourage and assist domestic

suppliers.

•Enables host countries to increase the export and decrease

the import requirement.

• Help to Increase the competition and break domestic

monopolies.

Contd…



Disadvantage of MNCs

• May destroy competition and acquire monopoly powers.

• MNCs technology is designed for world wide profit

maximization, not the development needs of poor

countries.

• May threaten the Sovereignty of the nations in which

they do business.

1. Paying bribes to secure political influence

2. Not respecting human Rights

3. Paying protection money to terrorists



• Undermine the local cultures and traditions, changes the

consumption habits for their benefit against the long term

interest of community, Promote conspicuous consumption.

•

Fast depletion of some of the non renewable resources inthe host country & accused for following environmental

problem

1. Polluting the environment 2. Not paying the compensation for the environment

damage

3. Harmful changes in the local living condition

Contd…



• MNCs meets the requirements of highly middle income

group, rich income group and not for the poor population of

developing countries generally.

• Ignore or neglect the home country’s industrial and

economic development as it makes the investment in more

profitable countries

•May not create employment opportunities to the people of

home country.

Contd…



MNCs in India

• To Jump the tariff wall

( IBM, Coca- Cola)

• low cost back office, manufacturing and R&D

( Nokia has set up 3 R&D centers that work on next generation packet switched

mobile technology and communication

solutions)

• Skilled and cheap manpower

• Command on International language

compared to China



Degree of Success

• Suzuki and Hyundai are way ahead of

Formidable rival such as General Motors and

Ford.

• Procter & Gamble remains a marginal player

Compared to Hindustan Unilever.

• MNCs has been beaten by local playersEx.- Asian paints



• MNCs which entered India since 1990s have

been more aggressively and proactive in

liberalized business environment.

Ex. – Hyundai, Samsung and LG

• Out of 50 plus MNCs, 9 Market leaders Including

British American Tobacco, Hyundai Motor, Suzuki

Motors and Unilever have and average Return on

capital Employed is 48%.

• Rest 26 have an average ROCE is 36%.



Common Characteristics of Successful

MNCs in India

• Have invested time and resources to

understands local consumers and business

conditions.

• Have understood that price points in that

matter in India are different from those in

other countries.

• Middle and lower end segments are

critically important , affordability is crucial

matter.



Role and Importance of MNCs in India

1. Concentration on consumer goods

• 2nd larger after China communism.

• Large consumer base and high profits (

Hindustan lever limited).

2. Profit Maximization

• Operate fairly and behave like a corporatecitizen

• Significant objective is profit maximization



3. Public Acceptability

• Techniques to get the public acceptability.

• Colgate- Palmolive, Cadbury and so on use

“Hindu” Sentiments in their large scale

advertisements.

4. No social Service

• Believe in superiority of free market

economy.• Invest according to market demand

• Concentrating in designing, producing,

pricing and services for higher standard

living segments.



5. Cultural and Civilization Erosion

• Youth is under illusion of the products.

• Products like Cigarette, liquor, pizza and fast

foods

6. No Social responsibility and BusinessEthics

• Ignore the fundamental principal of

business ethics.

•

Prices of products based on businessprinciples rather then the social

consideration and ethical means.



Foreign Collaboration

Agreements are made in between Indian and

foreign companies, for technology, sale of spare-

parts, ultimate products or by using the name of

foreign brand in hosts country’s markets.



Cause to invite foreign skill & capital

• Rate of saving is so less (developing country) that

Economic development is not possible. Heavyinvestment projects, adequate capital is necessary. It can

be brought by MNCs.

•Lack of extra ordinary and managerial know how.

• Difficulties of foreign exchange resources, raw material

and capitalized goods are in turn of deficit in balance of

payments.

• For Scientific and Industrial research.

• Solve the problem of deficit financial management.



Advantage of Foreign Collaboration

• Capable to enter in foreign market even after

limited capital and human resources.

• Managerial know how and the experiences of

multinationals have resulted in low risk.

• Host country enjoy the liaison activities with the

guest country ( MNC’s in Charge) towards their

attitude, culture, norms and intellectual means.



Limitations/ Disadvantages

•

Profits are divisible in between two countries. But Host country remain in loss due to privileges given to

MNCs by Govt.

• May be some conflicts.

• Working may be ineffective due to new market.

• Increase monopoly

• Sometime govt. imported same technology by paying

price again & again. No any acknowledgement and

increasing in the stock of technology



Mode of overseas market entry or foreign collaboratio

• Exporting

• Licensing

• Franchising

• Special Modes

• Contract manufacturing

• Management contract

• Turnkey projects



Contd…

•

Foreign Direct Investment without alliances

• The Green field Strategy

• Foreign Direct Investment with Strategic

alliances

• Mergers and Acquisitions

multinational company 2003

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