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8/3/2019 Multinational Company 2003
http://slidepdf.com/reader/full/multinational-company-2003 1/31
8/3/2019 Multinational Company 2003
http://slidepdf.com/reader/full/multinational-company-2003 2/31
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.
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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
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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.
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• 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
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• Extend marketing activities through a network of
branches.
• Having investment and business in a number of
countries, islands and constituents.
Giant in Size
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• 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
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• 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
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• 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
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• 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
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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
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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.
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•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…
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•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…
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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
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• 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…
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• 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…
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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
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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
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• 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%.
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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
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Mode of overseas market entry or foreign collaboratio
• Exporting
• Licensing
• Franchising
• Special Modes
• Contract manufacturing
• Management contract
• Turnkey projects
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Contd…
•
Foreign Direct Investment without alliances
• The Green field Strategy
• Foreign Direct Investment with Strategic
alliances
• Mergers and Acquisitions