MNC and International Business

Chapter 3
MNCs AND INTERNATIONAL BUSINESS

International Marketing
Chapter-3 MNCs And International
Business

Learning Objectives

What is multinational corporation
What is organizational transformation
What is globalization of business
What is the role of MNCs in global
economy

Business

Learning Objectives

What are the merits, demerits and
perspective of MNCs
What is code of conduct
What is the role of multinationals in India

Business

Introduction
The total foreign affiliates of MNCs, only little
were developed countries
Foreign investment has been growing
substantially faster than world output and
export
Multinationals have been emerging from the
developing countries
The diversified corporations have many odds
against them and focus strategy is more
successful International Marketing
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

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
Business

4. It has a multinational central
management
5. It has multinational stock ownership

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.
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

Business

Dimensions of Globalization
1. 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.
Business

Dimensions of Globalization
4. 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.
Business

Reno vision on the Art of
Global Dominance
1. 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.
Business

Table 3.2 World’s Top 100
TNCs

Business

Dominance of MNCs and
global economy
The global liberalization has paved the
way for fast expansion and growth of
the MNCs
The 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
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MNCs and international trade
The sale of foreign subsidiaries in the host
countries are three to four times as large as
total world exports
Significant increase in the export intensity of
the foreign affiliates of MNCs
The abilities of multinationals to manipulate
financial flows by the use of artificial
transfer prices is bound to be a matter of
concern government MNCs And International
Chapter-3
Business

Merits of MNCs
1. 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.
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Merits of MNCs
4. 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.
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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.
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Demerits of MNCs
1. 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 needs
b. 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.
Business

Demerits of MNCs
3. 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.
Business

Growth Perspective of MNCs
1. 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 industries
4. The rise of services to constitute the largest single
sector in the world economy
5. Regional economic integration
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Code of Conduct
1. A framework to allow developing countries
as well as transnational corporations to
benefit from direct investments on terms
contractually agreed upon
2. Legislation
3. Cooperation by governments
4. Fiscal and other incentives and policies
towards foreign investment
5. An international procedure for discussions
and consultations MNCs And International
Chapter-3
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.
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.
Business

Summary
MNCs 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.
Business

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