Agents of Globalization

MULTINATIONAL CORPORATION

What is a Multinational Corporation?

Which of these companies is not truly multinational?

Proctor & Gamble

Honda

Boeing

Cemex SA

Amar KJR Nayak/IB/XIMB


Trading Firms - Facilitators to Multinational Companies

Control of Joint-stock companies registered in India and working in tea, coal & jute industries, 1911

Name of Managing Agents or Secretary

No. of joint-stock companies controlled in

Tea Coal Jute Total

Andrew Yule & Co. 10 11 6 27Begg. Dunlop & Co. 10 - 2 12Bird & Co. - 11 8 19Shaw Wallace & Co. 2 11 - 13Williamson, Magor & Co. 10 5 - 15George, Henderson & Co. 2 - - 2Planter’s Stores & Agency 1 - - 1Kilburn & Co. 6 2 - 8Octavius Steel & Co. 10 2 - 12Contd…..




Tea Coal Jute Total

Gillanders, Arbuthnot & Co. 1 - 1 2Kettlewell, Bullen & Co. 1 - 1 2J. Mackillican & Co. 2 - - 2C. A. Stewart 4 - - 4Duncan Bros. 12 - - 12Davenport & Co. 8 - - 8Hoare, Miller & Co. 1 3 - 4Jardine, Skinner & Co. 2 2 2 6McLeod & Co. 3 5 2 10Barry & Co. 3 - 1 4Macneill & Co. - 5 - 5H. V. Low & Co. - 4 - 4


Contd…..



Tea Coal Jute Total

F. W. Heilgers & Co. - 7 2 9Stanley, Oaks & Co. - 1 - 1Apcar & Co. - - 1 1Anderson Wright & Co. - 2 1 3Ernsthausen Ltd. - 1 2 3Balmer Lawrie & Co. - 4 - 4Martin & Co. - 3 - 3Lyall, Marshall & Co. - 1 - 1N. C. Sircar & Sons - 7 - 7Total 88 87 29 204

Source: Private Investment in India, 1900-1939, A.K. Bagchi, Cambridge University Press, 1972, Pg.177



Enterprise that own or control value-added activities in two or more countries


French economist – Maurice Bye (1958) Transnational Corporation

Internationalization of oil industry–integration of different stages of oil production

Edith Penrose In the light of Theory of Growth of Firms rather than a theory of foreign investment. Case of General Motors manufacturing

subsidiary in Australia


Organizing Framework for Previous MNE DefinitionsSource Attribute Global Transnational Multi- domestic

Perlmutter (1969)

Management Style

Ethnocentric Geocentric Geocentric Polycentric

Kindleberger (1973)

Various functional and attitudinal attributes

National corporation with foreign operations

International -- Multinational

Porter (1986) Coordination and configuration needs

Global Complex Global

-- Multi-domestic

Bartlett and Ghoshal (1989)

Network / Inter-organizational Structure

Global Transnational International Multinational

Bartlett and Ghoshal (1990)

Organizational Structure

Centralized Networks Networks Decentralized

Hedlund (1986)

Organizational Structure

Hierarchy (H form)

Hierarchy Hierarchy Hierarchy (M Form)

Source: The International Business Environment, Sundaram & Black, 1998


Organizational CharacteristicsOrganizational Characteristics

Multinational

Global

International

Transnational

Configuration

of assets & capabilities

Decentralized & nationally self-

sufficient

Centralized &

globally scaled

Sources of core competencies centralized,

others decentralized

Dispersed,

interdependent, & specialized

Role of

overseas operations

Sensing &

exploiting local opportunities

Implementing

parent company strategies

Adapting & leveraging

parent company competencies

Differentiated contributions by national units to

integrated worldwide operations

Development &

diffusion of knowledge

Knowledge

developed & retained within

each unit

Knowledge

developed & retained at the

center

Knowledge developed at the center &

transferred to overseas units

Knowledge developed jointly and

shared worldwide

Source: Barlett & Ghosal


Let’s look at a Case

LAFARGE: A concrete multinational

http://www.lafarge.com/cgi-bin/lafcom/jsp/home.do?lang=en

http://www.lafarge-india.com/webapp/rainbow/map.jsp


http://www.lafarge.com/cgi-bin/lafcom/jsp/home.do?lang=en

http://www.lafarge-india.com/webapp/rainbow/map.jsp

Characteristics of MNEs1880s: Multinational enterprises

Highly industrialized economies of Western Europe and North America

Main characteristics of these enterprises Diverse business operation

Mixture of large and small firms

Both Managerial and Family firms (but later type predominated)


The MNEs employ a variety of equity and non-equity modes of investments

Natural resources were the primary sector of exploitation like mining, oil exploration and trade in natural products like sugar, banana and rubber

Multinational trading companies, banks and utilities grew with time as the main service providers to the pioneers of international business during this time.

• Affiliated firms are linked by ties of common ownership• A common pool of resources and

And,

• A strategic vision that guides all the affiliates


Location Advantages:Resource allocation based upon the spatial distribution of

factor endowments.

Ownership Advantages: Access to new products and processes

Superior management and organization technology

Access to large finance

Economics of large scale


Multiple sources of external authorityNumber of geographic locationsVariance in country environmentsLack of superstructure to mediate threats or opportunities

that arise at the intersection of the variance in country environment

Multiple denomination of value

Translation exposure (valuation and setting up of past transaction)

Transaction exposure (problem of hedging)Economic exposure (impact of unanticipated changes in

real exchange rate)


Distinguishing Aspects of MNEs: Sundaram & Black

Why Firms Become Multinational?

To protect themselves from the risks and uncertainties of the domestic business cycle

To tap the growing world market for goods and services

Increase foreign production

To reduce costs (transport and middlemen) and improve overall efficiency by restructuring existing value-added activities


• To overcome tariff walls

To take advantage of technological expertise by manufacturing goods directly

To restructure existing foreign value added activities, so as to improve overall efficiency and change the range of products produced

To acquire assets that might be complementary to existing assets, or competitive to them, so as to reduce risk, capture the economies of scale or synergy, or generally strengthen the acquiring firms competitive position in national or world markets.


Strategic Philosophy of MNEs

MNEs make decisions that are best for the organization, even if it means transferring funds or jobs to other countries

MNEs are considered as stateless corporations


Examples:

IBM has transferred 120 executives and the headquarters of its $ 10 billion a year communications business to Europe in order to capitalize on the expected growth in Europe.

Layoffs in Japanese companies: Nissan, Sony

In Japan, Xerox has over 12,000 employees, Texas Instrument has over 5000 employees, Hewlett-Packard has 3,000 employees


In US (1990), about 640 U.S plants that were either wholly or partially owned by the Japanese, employing about 160,000 workers

By 2000 A.D., 800,000 American were employed by the Japanese firms

Project involve people from a host of nations


Mazda’s Sports car MX-5 Miata:

Design - California

Prototype - England

Assembly - Michigan & Mexico

Advanced electronic components invented - New Jersey

Fabricated - Japan

Finance - Tokyo & New York


Agents of Globalization

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