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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
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
ld i
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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
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