The Role of MNC in International Strategy

Who are the MNCs?

Financial Companies:• Pension Funds• Banks• Insurance firms

High Net Worth & Powerful People

Financial & Trading Organisational Entities in

different Countries/Regions

Funds & owns

Funds & owns

Top MNCs:• USA• Japan• Britain• France• Germany• China• Canada

Global Companies

1. Strong technical capacity in market places across countries

2. Masters of branding in consumer markets across countries

3. Products that appeal ACROSS cultures & countries

MNC’s Foreign Direct Investment

Is about directly Investing in international business operations to achieve managerial control over assets abroad

1. Purchasing M&As equity in foreign companies2. Offering capital or green field investments to foreign

companies via new equity holdings3. Financial restructuring

Why consider

FDI?

Marketing Factors:• Size of market• Market growth• Desire to maintain share of market• Desire to advance exports of parent company• Need to maintain close customer contact• Dissatisfaction with existing market • arrangements• Export base• Desire to follow customers• Desire to follow competition

Barriers to Trade:• Government erected barriers to trade• Preference of local customers for local products

Financial Factors• Higher profit expectations• Cost Factors:

Desire to be near source of supply Availability of labour Availability of raw materials Availability of capital/technology Lower labour costs Lower other production costs Lower transport costs Financial (and other) inducements by gov. More favourable cost levels

Investment Supporting Factors• General attitude toward foreign investment • Political stability • Limitation on ownership • Currency exchange regulations • Stability of foreign exchange • Tax structure • Familiarity with country

Impact on Host Country

Positive Impact:• Capital Formation• Technology Transfer• Regional & Sectoral Development• Internal Competition &

Entrepreneurship• Favourable Effect on Balance of

Payments• Increased Employment

Negative Impact• Industrial dominance• Exploitation of raw materials and cheap labour• Bribery and corruption• Interference in political matters• Technological dependence• Disturbance of economic plans• Cultural change• Interference by home government through MNC• Degree of government control may be less than intended

Host Country Benefits:• Improves Gross Domestic

Product via repatriation of profits, royalties & fees.

• Increases export opportunities.• Political advantages.• Job losses.• Net effect on imports & exports.• Creating competitors.

Allegations:• In transferring technology to less developed countries, prices are set too

stringently.• If a country attempts regulation, MNC’s merely divest and move where

regulations are less stringent.• The centralisation and control of key functions of MNC’s in their home countries

perpetuate a neocolonial dependence of less-developed countries.• Sensitive country information is disseminated internationally by MNC’s global

intelligence networks.• MNC’s introduce superfluous products that do not contribute to social needs

and perpetuate class distinctions.• National labour interests are undermined because of global activities of MNCs.• MNC’s avoid paying taxes. Through artificial transfer pricing, MNC’s undermine

attempts by Governments to manage their economic affairs.• The best jobs are given to citizens of the nation in which the MNC’s have their

headquarters.• Inappropriate technology is introduced by MNC’s to less developed countries.• National labour interests are underminded because of the global activity of

MNEs.

Social Responsibility Mitigation

1990’s - United Nations set up a Code of Conduct on Transnational Corporations

1999 - United Nations set up “Global Compact” which has no teeth as

no penalties.

Because USA MNC complained about scrutiny

What is the UN Global Compact? “ The Global Compact asks companies to embrace universal principles and to partner with

the United Nations. It has grown to become a critical platform for the UN to engage effectively with enlightened global business.”

• 2 Human Rights Principles• 4 labour principles• 3 environmental principles• 1 anti corruption principle

Impact on Host Country

The Rise of Bangladesh’s Textile Trade Case Study

The Impact of International Theories on the internationalising organisation

Traditional to Modern Trade Theories

Trade Theories

1. 16th Century Mercantilism theory

2. Absolute Advantage (Adam Smith)3. Comparative Advantage (David Richardo)4. Factor Proportions Theory (Heckscher & Ohlin

19th Century onwards5. Country Similarity Theory (Steffan Linder)6. Global Horizons Theory7. Product Life Cycle (Vernon)8. New Trade Theory9. Ownership Advantage Theory (S.Hymer)10. Internationalisation Approach (Buckley and

Casson)11. Global Strategic Rivalry theory12. Porter’s National Competitive Advantage

(diamond) theory113. Internalisation Theory14. Eclectic Theory (John Dunning)

16th Century Mercantilism: Governments ensuring trade surplusby controlling imports

21st Century Free Trade:Countries specialised for strategic advantage & trade freely

Group Formation

3 to 5 people in Groups

Group Formation & Assignment Project PlanningBetween now and Week 4: Research & select either:• A local or international organisation that has just

internationalised;• An organisation interested in internationalisation to a

new country

By Week 4:• Plan your case story development approach / story

outline plot eg write about their history and current international operating issues; a country attractiveness or recommended entry strategy studyo Refer to MGX 5181 case studies to understand the

different genres & storyboards of writing a case story where its contexts logically leads to the appropriate questions asked

Week 4 onwards to before presentation date & report submission date:

• Work out the rest of the project timelines of who, when your group members:o Complete formulating the case questionso Answer the case questionso Prepares & deliver the presentationo Submits the final report

Hence by this week, form your group of 3 to 5 people; and work out your project

plan:

1. Work timelines2. People allocation of

activities3. Process of how you deal

with internal conflicts and non contributors

4. Name of team leader & members, including student IDs

Email me your team’s project plan before Monday next

week (ie week 5).

Assignment 3 – Individual/Paired PresentationStudent 1 Student 2 Topic

Week 2

Week 3 Yue Zhao Yanjun Wang Starbuck

Week 4

Week 5 Guiyi Ying JunJie Yu GM Holden

Week 6 Gemma Matainaho Angella Liu Reading 5.1 by Porter. M on Competitive Strategy.

Week 7 Yinan Shen Gengduo tian Reading 8.3 Moore, G. Living on the fault line

Week 8

Week 9

Week 10

Week 11

Week 12

Case Study

The Rise of Bangladesh’s Textile Trade

The Rise of Bangladesh’s Textile Trade Case Study

Source: The Hindu, Dec 20, 2012

1. Why was the shift to a free trade regime in the textile industry good for Bangladesh?

2. Who benefits when retailers in the US source textiles from low-wage countries suh as Bangladesh?

3. What international trade theory or theories best explain the rise of Bangladesh as a textile exporting powerhouse?

4. How secure is Bangladesh ‘s textile industry from foreign competition? What factors could ultimately lead to a decline?

Bangladesh's textile industry – 1.51 mhttps://www.youtube.com/watch?v=CxKlnkp9SvQ

Ethnical Textiles – 3.31mhttps://www.youtube.com/watch?v=A3xrXC9wcZghttps://www.youtube.com/watch?v=hcYYLmcxavA

Martin Jacques - When China Rules the World – 10.04 mhttps://www.youtube.com/watch?v=Og8zBhDDkEQ

The BenefitsThe POSITIVES:

1. Capital Formation2. Technology Transfer3. Regional & Sectoral Development4. Internal Competition &

Entrepreneurship5. Favourable Effect on Balance of

Payments6. Increased Employment

Bangladesh's textile industry – 1.51 mhttps://www.youtube.com/watch?v=CxKlnkp9SvQ

At What Costs?

At Whose Costs?

Bangladesh has the advantage of not being China

The argument focus is Cost Advantage

China

Martin Jacques - When China Rules the World – 10.04 mhttps://www.youtube.com/watch?v=Og8zBhDDkEQ

The long version – 1.34 hrshttps://www.youtube.com/watch?v=3G1EyvRZmOs

Bangladesh China

Low cost factors Is the largest world’s exporter sunk FDI

But still MNC have concerns of increasing cost factors

The Costs

The NEGATIVES:

1. Industrial dominance

2. Exploitation of raw materials + cheap

labour

3. Bribery and corruption

4. Interference in political matters

5. Technological dependence

6. Disturbance of economic plans

7. Cultural change

8. Interference by home government

through MNC

9. Degree of government control may

be less than intended

10. Technology transfer may be too expensive or inappropriate (eg old)

11. Can move out when country regulates

12. Products are for overseas markets and may not benefit local social needs or value

13. MNC’s home country’s labour /employment interests are undermined

14. Avoid taxes

15. Best jobs given to MNC’s privileged people

Ethnical Textiles – 3.31mhttps://www.youtube.com/watch?v=A3xrXC9wcZg

https://www.youtube.com/watch?v=hcYYLmcxavA