UNIT-IV

MULTINATIONALS

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MULTINATIONALS (MNCs) CONCEPT

A MULTINATIONAL COMPANY IS A COMPANY THAT OPERATES IN SEVERAL COUNTRIES. COMPANY HAS FACTORIES, BRANCHES OR OFFICES IN MORE THAN ONE COUNTRY. IT IS ALSO CALLED

TRANSNATIONAL CORPORATIONS.
GLOBAL GIANT WORLD ENTERPRISE INTERNATIONAL ENTERPRISES

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AS PER UNITED NATIONS A TRANSNATIONAL CORPORATION IS THE CORPORATION THAT OPERATES, IN ADDITION TO THE COUNTRY IN WHICH IT IS INCORPORATED, IN ONE OR MORE OTHER COUNTRIES. THE HEADQUARTERS OF A MNC LOCATED IN ONE COUNTRY (HOME COUNTRY) AND IN ADDITION IT CARRIES ON BUSINESS IN OTHER COUNTRIES (HOST COUNTRIES). EXAMPLE: MICROSOFT, COCA-COLA, SONY, LG, SAMSUNG ETC.

CONTROLS PRODUCTION & MARKETING FACILITIES IN MORE

THAN ONE COUNTRY. BO- 3

CHARACTERSTICS OF MNC
1. GIANT SIZE: ASSETS, SALES, PROFITS ARE LARGE. 2. CENTRALISED CONTROL: HQRS IN THE HOME COUNTRY FROM WHERE CONTROL OVER

ALL BRANCHES, SUBSIDIARIES EXCERCISED.

PARENT CORP. PROVIDES POLICY FRAMEWORK AND

GUIDELINES.

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3. INTERNATIONAL OPERATIONS: PRODUCTION/MARKETING AND OTHER FACILITIES IN SEVERAL COUNTRIES. OPERATES THROUGH A NETWORK OF SUBSIDIARIES, BRANCHES AND AFFILIATES IN HOST COUNTRIES. OWNS & CONTROLS ASSETS IN FOREIGN COUNTRIES.

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4. SOPHISTICATED TECHNOLOGIES: FOR PROVIDING WORLD CLASS PRODUCTS EVERYWHERE, MNCs GENERALLY USES ADVANCED TECHNOLOGY.

5. PROFESSIONAL MANAGEMENT: EMPLOY PROFESSIONALLY TRAINED MANAGERS TO HANDLE ADVANCED TECHNOLOGY, HUGE FUNDS, INTERNATIONAL

BUSINESS OPERATIONS DIVERSE MANPOWER.

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6. INTERNATIONAL MARKETS: DUE TO VAST RESOURCES AND SUPERIOR MARKETING SKILLS, MNC HAS VAST ACCESS TO INTERNATIONAL MARKETS.

ABLE TO SELL WHATEVER PRODUCTS PRODUCED IN DIFFERENT

COUNTRIES.

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ROLE OF MNCs
TAKE CARE OF COMMON NEEDS OF THE CUSTOMERS SPREAD ALL OVER THE WORLD BY PROVIDING QUALITY PRODUCTS. PLAY BOTH POSITIVE AND NEGATIVE ROLES. AS A POSITIVE FORCE, THEY ARE A DYNAMIC FORCE FOR WIDER

DISTRIBUTION OF CAPITAL, TECHNOLOGY, EMPLOYMENT.

AS A NEGATIVE FORCE, CAN BE MONESTERS BEYOND THE CONTROL OF NATIONAL GOVERNMENTS AND SOMETIMES

WORKING AGAINST PUBLIC INTERESTS.

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BENEFITS TO HOST COUNTRY

1. AVAILABILITY OF FOREIGN CAPITAL: MOST DEVELOPING COUNTRIES SUFFER FROM SHORTAGE OF

CAPITAL.
MNCs BRING MUCH NEEDED CAPITAL. MAKE FDI LEADING TO ECONOMIC DEVELOPMENT.

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2. ADVANCED TECHNOLOGY: MANY NATIONS LACK RESOURCES FOR R&D. MNCs TRANSFER ADVANCED/UPDATED TECHNOLOGY TO SUCH COUNTIES. BRING IN NEW INVENTORIES AND INNOVATIONS. MAKE AVAILABLE BETTER PRODUCTS.

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3. EMPLOYMENT GENERATION: CREATE LARGE SCALE EMPLOYMENT OPPORTUNITIES IN HOST COUNTRIES BY BRINGING IN HUGE INSTRUMENTS. OFFER EXCELLENT PAY SCALES AND CAREER OPPORTUNITIES TO MANAGERS, TECHNICAL, CLERICAL STAFF.

4. FOREIGN EXCHANGE: HELPS HOST COUNTIRES TO INCREASE EXPORTS AND ALSO REDUCE THEIR IMPORTS.

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5. HEALTHY COMPETITION: INCREASE COMPETITION, BREAK DOMESTIC MONOPOLY. COMPEL DOMESTIC COMPANIES TO IMPROVE EFFICIENCY OR

WITHDRAWN FROM THE MARKET.

MANY INDIAN COMPANIES HAVE ACQUIRED ISO-9000.

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6. MANAGERIAL REVOLUTIONS: HELPS TO PROFESSIONALISE MANAGEMENT IN HOST

COUNTRIES. EMPLOY MODERN MANAGEMENT TECHNQUES AND TRAINED MANAGERS. CONCEPTS BUSINESS LIKE CORPORATE PLANING, AND RESTRUCTURING, RE-ENGINEERING

PROCESS

OUTSOURCING.

EVOLVED BY MNCs (ALSO BPO).

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7. GROWTH OF DOMESTIC FIRMS: STIMULATE GROWTH OF LOCAL ENVIRONMENT AND

AVAILABILITY UNITS.

8. IMPROVED STANDARD OF LIVING:

SUPERIOR PRODUCTS AND SERVICES HELP TO IMPROVE LIVING STANDARDS IN HOST COUNTRIES.

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9. WORLD ECONOMY: HELP TO INTEGRATE NATIONAL ECONOMICS INTO A WORLD ECONOMY.

ECOURAGE INTERNATIONAL BROTHERHOOD AND CULTURAL

EXCHANGE THROUGH INTERNATIONAL BUSINESS.

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BENEFITS OF MNCs TO THE HOME COUNTRY

1. THE HOME COUNTRY CAN EARN HUGE REVENUES BY WAY OF LICENSING FEE, ROYALTY, DIVIDEND ETC.

2. CAN PROCURE CHEAPER RAW MATERIAL AND LABOUR FROM

OTHER COUNTRIES. 3. WIDEN Its MARKET BY EXPORTING COMPONENTS AND FINISHED PRODUCTS. 4. UTILISE THE TALENT AVAILABLE IN OTHER COUNTRIES. 5. CAN GENERATE EMPLOYMENT FOR Its NATIONALS IN FOEIGN COUNTRIES.

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FOREIGN TRANSNATIONAL CORPORATIONS

1. LARGE SIZED
BUT

COMPANIES
HAVING

INCORPORATED
PRODUCTION

IN

FOREIGN

COUNTRY

AND

MARKETING

FACILITIES IN INDIA. 2. VERY LARGE IN SIZE, SOPHISTICATED TECHNOLOGY AND LARGE FINANCIAL RESOURCES.

3. OPERATE IN INDIA THROUGH THEIR SUBSIDIARIES BRANCHES

AND AFFILIATES. 4. MANY HAVE COLLOBORATION AGREEMENT WITH INDIAN

COMPANIES PROVIDE CAPITAL, TECHNOLOGIES AND BRAND NAMES. EG. CADBURY, GILETTE, PHILIPS, UNILEVER BO- 17

INDIAN TRANSNATIONAL CORPORATIONS

1. A COMPANY INCORPORATED IN INDIA AND HAVING

SUBSIDIARY/AFFILIATE IN A FOREIGN COUNTRY. 2. BIRLAS, TATAS, ARVIND MILLS, UB GROUP, ITC HAVE JOINT VENTURES ABROAD OR HAVE SUBSIDIARIES. 3. INDIAN TRANSNATIONAL CORPORATIONS OPERATE ABROAD MAINLY IN TEXTILES, ENGINEERING, BANKING PUBLISHING

ETC.

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INDIAN TRANSNATIONAL CORPORATIONS CHARACTERISTICS

1. SMALLER IN SIZE AS COMPARED TO FOREIGN. 2. GENERALLY LOCATED IN FEW DEVELOPING COUNTRIES LIKE NIGERIA, THAILAND, INDONESIA. 3. ADOPTED TECHNOLOGY WHICH THEY IMPORTED EARLIER.

4. ONLY FEW BIG BUSINESS HOUSES OWN THESE.

5. MAJORITY OF THEM OPERATE ON JOINT VENTURE. 6. HIGH MORTALITY RATE. MANY HAVE FAILED DUE TO UNCLEAR OBJECTIVES, INCOMPLETE PROJECT PROPOSALS, POOR UNDERSTANDING OF FOREIGN MARKETS.

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INTERNATIONAL BUSINESS RISKS

BUSINESS HAS INHERENT RISKS. IT IS THE POSSIBILITY OF LOSS DUE TO SOME UNCERTAIN FUTURE OCCURANCE. INTERNATIONAL BUSINESS RISKS IN THE POSSIBILITY OF LOSS CAUSED BY SOME UNFAVOURABLE OR UNDESIRABLE EVENT IN INTRNATIONAL BUSINESS OPERATIONS.

PROFITS AND GROWTH ARE HIGH IN INTERNATIONAL BUSINESS

BUT SO ARE THE RISKS TOO. CHANGES IN INTERNATIONAL ENVIRONMENT AND DIFFERENCES IN THE ECONOMIC SYSTEMS, CULTURES OF DIFFERENT COUNTRIES ARE MAIN CAUSES OF INTERNATIONAL BUSINESS RISKS.

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TYPE OF INTERNATIONAL BUSINESS RISKS

1. POLITICAL RISKS: UCERTAIN POLITICAL EVENTS AND ACTIVITIES LEAD TO

POLITICAL RISKS. THE GOVT. OF A HOST COUNTRY MAY NATIONALISE, TAKE OVER

THE ASSETS OF FOREIGN FIRMS.

WAR BETWEEN TWO COUNTRIES OR POLITICAL UPHEAVALS MAY CAUSE INTERNATIONAL RISKS. EG. BREAKUP OF RUSSIA

CREATED RISKS FOR INDIAN FIRMS.

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2. MARKET RISKS: SEVERE COMPETITION IN INTERNATIONAL BUSINESS AND ALSO MARKET CONDITION CHANGE FREQUENTLY.

SOME FIRMS MAY FIND IT VERY DIFFICULT TO COMPETE IN

INTERNATIONAL MARKETS. 3. EXCHANGE RISKS: EVERY COUNTRY HAS Its OWN CURRENCY. CURRENCIES GET EXCHANGED AT SOME RATES.

EXCHANGE RATES KEEPS ON CHANGING CAUSING RISKS OF

LOSS TO PARTICIPANTS. BO- 22

4. CREDIT RISKS: CREDIT IS PART OF BUSINESS. BUYERS/SELLERS IN INTERNATIONAL BUSINESS ARE OFTEN UNKNOWN TO EACH OTHER VERY DIFFICULTY TO ASCERTAIN THE CREDIT WORTHINESS OF THE FOREIGN BUYERS.

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5. TRANSPORT RISKS:
DUE TO LARGE DISTANCES BETWEEN COUNTRIES, GOODS DESPATCHED BY SHIPS OR AIRWAYS. SEA AND AIR TRANSPORT ARE EXPOSED TO MANY ADDITIONAL RISKS. 6. CULTURAL RISKS: DIFFERENT COUNTRIES HAVE DIFFICULTIES. BUSINESS FIRMS FACE ADDITIONAL RISKS DUE TO DIFFERENT LANGUAGES, CUSTOMS, RELIGIOUS FEELINGS, TASTES, LIFE STYLES ETC.

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