2. Module I. - MNC's Session 3 Dtd 21.12.11

7/31/2019 2. Module I. - MNC's Session 3 Dtd 21.12.11

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Module I :

MNCsSession 3

21.12.11

Session

1


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The world is dominated by a handful

of global companies!


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Why Companies go Global

Profitability

Saturated home marketsGrowth (75% of market potential for US companies is outside US ;

94% of market potential for German companies is outside of Germany)

Excess Capacity

Economies of scale

Geographic diversification & spread risk

Product life cycle opportunities

Access to imported inputs

Spreading R&D cost

Competition


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MNCs Multi national corporation (MNC)

Multi national enterprise (MNE)

International Corporation

Corporation that manages production or deliver

goods/services in more than one country.ILO definition:

An MNC is a corporation that has its

management headquarters in one country,known as the home country, and operates in

several other countries, known as host

countries.


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Global MNCs

McDonald's

Coca-cola

PepsiCo

General Motors

Ford Motor Company

Toyota

Samsung LG

Whirlpool

Siemens

American Express Cadbury Schweppes

Canon Inc

Caterpillar Inc.

Oracle Corporation

Sony

Shell

Philips

Microsoft

Apple

Google

IBM Nestle

Procter & Gamble

Unilever

Alcatel-Lucent Ernst & Young

Citibank

Bridgestone

Dell5


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Indian MNCs

Adani Group

Lanco Infratech

Aditya Birla Group Essar Steel

Tata Steel

TCS

Godrej

GVK

Dr. Reddys

ICICI Bank

HDFC

Bank of Baroda

Jindal Poly Films

GMR Energy

Tata Chemicals

Hindalco

HCL Technologies

Reliance Industries

Tata Tea

Wipro Infosys

Sesa Goa

Essar Oil

Avanta Group

Crompton Greaves

L&T

Ranbaxy

United Phosphorous

SBI

Biocon

Indian Oil Corp.

ONGC

Bharti Airtel

ACC 6


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MNCs oldest MNCBritish East India Company (1612-1857)

Founded 1600 as an English joint-stock company

Formed initially for pursuing trade with the East

Indies, but ended up trading mainly with India

and China. Traded mainly in cotton, silk, indigo dye, saltpetre

(Potassium nitrate for gunpowder), tea & opium

(1612-1757) Company ruled India (1757-1857)

British Raj (1858-1947)

British ruled India 16131947 (334 yrs)


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MNCs 2nd oldest MNCDutch East India Company (1602-1798)

2nd MNC (after British East India Company)

A chartered company established in 1602, when

the State of Netherlands granted it a 21-year

monopoly to carry out colonial activities in Asia. HQ in Amsterdam

Paid 18% annual dividend for almost 200 years.

Anglo-Dutch presence in Indonesia, Malaysia,Iran, Thailand, S. China, Taiwan, Sri Lanka etc.

Dissolved in 1800


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MNCs - FeaturesMulti-country operationshave assets, offices

and/or factories in different countries.Home/host country relationship

Economies of scale high quality at low cost

Transfer of resources bring capital, technology,

skills, raw material etc

Large number of customers & competitors

Big size- budgets that exceed some national GDPs.


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MNCs - FeaturesPowerful influence - in local & world economies by

increasing tax revenue, employment & economicactivity and playing an important role in intl

relations & globalization

Better standard of living- (i) By providingemployment (ii) by providing quality of product at

low cost to host country.

Huge intellectual capital - strength in technology,R&D, management and marketing technologies.

Think globally, act locally & manage regionally !!


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MNCs Organizational ModelsEvolutionary stages in internationalization

1. InternationalCos- firm that builds on the parentfirm's technology or R&D (postwar years).

2. Multinationals - decentralized firm with strong

home country presence.

3. Global Cos - centralized firm that acquires cost

advantage through centralized production

wherever cheaper resources are available (70-80)

4. Transnational Corp.s (80s onward)


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Transnational Corporations (TNCs)TNCS do not identify with any one national

home country. While MNCs are national companies with foreign

subsidiaries, TNCs spread out their operations in

many countries with very high levels oflocalization.

e.g.Nestl & Unilever - employ senior executives

from many countries and try to make decisionsfrom a global perspective.

TNC and MNC are often used interchangeably.


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Micro-nationalsIB is no longer the domain of large MNCs.

Enabled by Internet based communication tools, a

new breed of micro business or virtual MNCs called

Micro-nationals is growing in numbers.

These virtual business start operating in different

countries from the very early stages.

Actively market their products & services ; hireemployees; have clients and resources located in

various countries.


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Micro-nationals Rapid growth is the direct result of being able to

use the internet, cheaper telephony and lowertraveling costs to create unique business

opportunities

Low cost SaaS (Software As A Service) make iteasier for these companies to operate w/o

physical office.

Internet tools like Google, Yahoo, MSN, Ebay &Amazon make it easier for them to reach

potential customers in other countries.

e.g. Start-ups,Face book,Alibaba, Lonelyplanet.com


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MNC Success - McDonalds World's largest chain of fast food restaurants

Founded in 1940s in U.S. 33,000+ outlets in 119 countries

Serves 64 mill customers daily

HQ - Oak Brook, Illinois, U.S.

Revenue - US$ 24 billion (2010)

Net income - US$ 4.949 billion (2010)

Total assets - US$ 31.975 billion (2010)

Total equity - US$ 14.634 billion (2010)

Employees - 400,000 (January 2010)


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MNC Success - McDonalds Franchisee, affiliate & self-owned outlets.

Adapts to the different cultures:o France - added tablecloths and candles to improve the

ambience at some eateries and introduced waiter service

at certain outlets because they found that most

Europeans prefer leisurely rather than fast food dining

Changes menus to offer food suiting local taste:

o France - rolls instead of regular buns.

o Japan - fried egg burgers

o IndiaAloo tikki & Veg burger


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MNC - failuresWal-Mart expanded in Germany in 1997

By July 2006, it had to close its German operationswith $1 billion losses.

Unlike Americans, who scoop up low-priced items at

one-stop shops ; Germans preferred buying from

specialty stores.

Daimler AG failed in its acquisitionof Chrysler because its disciplined, buttoned-down

executives could never gel with their more informal

& freewheeling American counterparts.


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MNCs - Benefits Higher level of investment & production

Reduction of technological gap Better utilization of natural resources

Boosts to economic activity

Create employment & career opportunities athome/abroad

Help create a pool of managerial talent

Remove domestic monopoly & improve quality.

Promote exports & reduce imports- reduce fx gap

Lower cost due to economies of scale


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MNCs - Criticism1. Create consumerism & unnecessary spending

2. Interference in the policies of sovereign nations.3. Loss of economic sovereignty of host country.

4. Dependence on foreign companies.

5. Exploitation of resources6. Income disparities

7. Loss of cultural identity & Homogeneity of culture

8. Dumping of goods/technology

9. MNCs answer only to shareholders and disregard

human rights and other issues.


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MNC Corporate StructureBased on configuration of their production facilities:

1. Horizontally integrated - manage productionlocated in different countries to produce the same

or similar products. e.g. McDonalds

2. Vertically integrated - manage production incertain country/countries to produce products that

serve as input to its production facilities in other

country/countries. e.g. Adidas

3. Diversified - manage production located in

different countries that are neither horizontally or

vertically integrated. e.g. Microsoft

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Worlds Largest CompaniesSource : Fortune 500 - 2011

W ld L C i


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Worlds Largest CompaniesSource : Fortune 500 - 2011

2. Module I. - MNC's Session 3 Dtd 21.12.11

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