Chapter 3
MNCs AND INTERNATIONAL BUSINESS
International Marketing Chapter-3 MNCs And International
Business
Learning Objectives
What is multinational corporationWhat is organizational transformationWhat is globalization of businessWhat is the role of MNCs in global economy
International Marketing Chapter-3 MNCs And International
Business
Learning Objectives
What are the merits, demerits and perspective of MNCsWhat is code of conductWhat is the role of multinationals in India
International Marketing Chapter-3 MNCs And International
Business
IntroductionThe total foreign affiliates of MNCs, only little were developed countriesForeign investment has been growing substantially faster than world output and exportMultinationals have been emerging from the developing countries The diversified corporations have many odds against them and focus strategy is more successful
International Marketing Chapter-3 MNCs And International
Business
Definition: Multinational corporation
The essential nature of the multinational enterprises lies in the fact that its managerial headquarters are located in one country while the enterprise carries out operations in a number of other countries as well
International Marketing Chapter-3 MNCs And International
Business
Five Criteria of MNC
1. It operates in many countries at different levels of economic development
2. Its local subsidiaries are managed by nationals
3. It maintains complete industrial organizations, including R and D and manufacturing facilities, in several countries
International Marketing Chapter-3 MNCs And International
Business
4. It has a multinational central management
5. It has multinational stock ownership
International Marketing Chapter-3 MNCs And International
Business
Organizational Transformation
MNC is now increasingly assuming the role of an orchestrator of production and transactions within a cluster, or network, of cross border internal-external relationships, which may or may not involve equity investment, but which are intended to serve its global interests.
International Marketing Chapter-3 MNCs And International
Business
Globalization of business
Globalization is a way of corporate life necessitated, facilitated and nourished by the transnationalisation of the world economy and developed by corporate strategies
International Marketing Chapter-3 MNCs And International
Business
Dimensions of Globalization1. Doing or planning of expand, business
globally.2. Giving up the distinction between the
domestic and foreign market and developing a global outlook of the business.
3. Locating the production and other physical facilities on a consideration of the global business dynamics, irrespective of national considerations.
International Marketing Chapter-3 MNCs And International
Business
Dimensions of Globalization4. Basing product development and
production planning on the global market consideration.
5. Global sourcing of factors of production i.e., raw materials, components, machinery/technology, finance etc. are obtained from the best source anywhere in the world
6. Global orientation of organizational structure and management culture.
International Marketing Chapter-3 MNCs And International
Business
Reno vision on the Art of Global Dominance1. Source raw materials wherever they are
cheapest.2. Manufacture wherever in the world is most
cost effective.3. Sell in those global markets where prices are
highest.4. Raise finances globally.5. Forge international strategic alliances.6. To manage all these, take on the best talent
from all over the world. International Marketing
Chapter-3 MNCs And International Business
Table 3.2 World’s Top 100 TNCs
International Marketing Chapter-3 MNCs And International
Business
Dominance of MNCs and global economy
The global liberalization has paved the way for fast expansion and growth of the MNCsThe economic clout of the MNCs is indicated by the GDP of most of the countries is smaller then the value of the annual sales turnover of the multinational giants
International Marketing Chapter-3 MNCs And International
Business
MNCs and international tradeThe sale of foreign subsidiaries in the host countries are three to four times as large as total world exportsSignificant increase in the export intensity of the foreign affiliates of MNCsThe abilities of multinationals to manipulate financial flows by the use of artificial transfer prices is bound to be a matter of concern governmentInternational Marketing
Chapter-3 MNCs And International Business
Merits of MNCs1. MNCs help increase the investment level and
thereby the income and employment in host country.
2. The transnational corporations have become vehicles for the transfer of technology, especially to the developing countries.
3. They also kindle a managerial revolution in the host countries through professional management and the employment of highly sophisticated management techniques.
International Marketing Chapter-3 MNCs And International
Business
Merits of MNCs4. The MNCs enable the host countries to increase
their exports and decrease their import requirements.
5. They work to equalize the cost of factors of production around the world.
6. MNCs provide an efficient means of integrating national economics.
7. The enormous resources of the multinational enterprises enable them to have very efficient research and development systems. Thus they make a commendable contribution to inventions and innovations.
International Marketing Chapter-3 MNCs And International
Business
Merits of MNCs
8. MNCs also stimulate domestic enterprise because to support their own operations, the MNCs may encourage and assist domestic suppliers.
9. MNCs help increase competition and break domestic monopolies.
International Marketing Chapter-3 MNCs And International
Business
Demerits of MNCs1. The MNCs technology is designed for world wide
profit maximization, not the development needs of poor countries. The imported technologies are not adapted to a. consumption needsb. size of domestic markets c. resource availabilities d. stage of development of many of the LDCs.
2. Through their power and flexibility, MNCs can evade or undermine national economic autonomy and control and their activities may be inimical to the national interests of particular countries.
International Marketing Chapter-3 MNCs And International
Business
Demerits of MNCs3. MNCs may destroy competition and acquire monopoly
powers.4. The tremendous power of the global corporations poses
the risk that they may threaten the sovereignty of the nations in which they do business.
5. MNCs retard growth of employment in the home country.
6. The transnational corporations cause fast depletion of some of the non-renewable natural resources in the host country.
7. The transfer pricing enables MNCs to avoid taxes by manipulating prices on intra-company transactions.
International Marketing Chapter-3 MNCs And International
Business
Growth Perspective of MNCs1. Increasing emphasis on market forces and a
growing role for the private sector in nearly all developing countries.
2. Rapidly changing technologies that are transforming the nature of organization and location of international production.
3. The globalization of firms and industries4. The rise of services to constitute the largest single
sector in the world economy5. Regional economic integration
International Marketing Chapter-3 MNCs And International
Business
Code of Conduct1. A framework to allow developing countries
as well as transnational corporations to benefit from direct investments on terms contractually agreed upon
2. Legislation3. Cooperation by governments4. Fiscal and other incentives and policies
towards foreign investment5. An international procedure for discussions
and consultationsInternational Marketing
Chapter-3 MNCs And International Business
Multinationals in India
In India the government policy confined the foreign investment to the priority areas like high technology and heavy investment sectors of national importance and export sectors. Firms which had been established in non-priority areas prior to the implementation of this policy have, however, been allowed to continue in those sectors.
International Marketing Chapter-3 MNCs And International
Business
Multinationals in India
Several Indian outfits of MNCs are in the low technology consumer goods sector. There are many MNCs which are in high technology area.Since the economic liberalization unshared in 1991, many multinationals in different lines of business have entered the Indian market.
International Marketing Chapter-3 MNCs And International
Business
SummaryMNCs are corporations that control production facilities in more than one country, such facilities having been acquired through the process of foreign direct investment. Firms that participate in international business, however large they may be, solely by exporting or by licensing technology are not multinational enterprises.
International Marketing Chapter-3 MNCs And International
Business
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