MULTINATIONAL ENTERPRISE

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OVERVIEW
o What is MNE?
o History and Evolution of MNE
o MNE Structure.
o Organization of MNE.
o Reasons for establishment of MNE.
o Advantage and Disadvantage of MNE o Criticism of MNE.
o MNE in India.
WHAT IS A MULTINATIONAL ENTERPRISE???
It is a Enterprise that:

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In more than one country
WHAT IS A MULTINATIONAL ENTERPRISE ?
o According to Franklin Root (1994), an MNE is a parent company that:
o Engages in foreign production through its affiliates located in several countries,
o Exercises direct control over the policies of its affiliates,
o Implements business strategies in production, marketing, finance and staffing that
transcend national
boundaries.
EXAMPLES OF MNE S:
o Ford o IBM
o British Petroleum o Mc Donald’s
o Phillips
The largest mnes:
oWal-Mart Stores
oExxon Mobil
ORoyal Dutch Shell
UThese companies have turnovers in excess of the GNPs of some
countries.
HOW IS A COMPANY CLASSIFIED
AS AN MNE?
—~ " Stakeholders
countries; a are from Operations in a v different number of High proportion ofountries.
countries; assets in or/ and
revenues from global operations;
HISTORY AND EVOLUTION OF MNES:
o These enterprise originated early in the 20th century and expanded after World War I.
o A Multinational Enterprise developed new products in its native country and
manufactured them abroad.
o Almost all the earliest and largest multinational firms were either American, Japanese, or
West European.
o During the last three decades, many smaller enterprise have also become multinational.
o Such enterprises maintain that they create employment, © create wealth, and improve
technology in countries.

MULTINATIONAL ENTERPRISE STRUCTURE:

7 r Horizontally integrated multinational enterprises.
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Vertically integrated y multinational enterprise.
Diversified multinational
enterprise.

ORGANIZATION OF MULTINATIONAL ENTERPRISE

© Subsidiaries 0 Joint Ventures Companies o Franchise Holders
o Turn Key Project.
REASONS FOR THE ESTABLISHMENT OF MNE’S
o To increase market share.
o To secure cheaper premises and labour.
o Employment and Health & Safety Legislations in other countries may be more relaxed.
0 To avoid or minimise the amount of tax to be paid.
0 To take advantage of government grants available. 0 To save on costs of transporting
goods to the market
place. ©
0 To develop an international brand.
ADVANTAGES OF MNE S TO THE HOST COUNTRY:
o Transfer of technology, capital and entrepreneurship.
o Increase in the investment level and thus, the income and employment in the host
country.
o Greater availability of products for local consumers.
o Increase in exports and decrease in imports.
ADVANTAGES OF MNE S TO THE HOME COUNTRY.
o Acquisition of raw materials from abroad.
o Technology and management expertise acquired from competing in global markets.
o Export of components and finished goods for assembly or distribution in foreign markets.
0 Inflow of income from overseas profits, royalties and management contracts.
DISADVANTAGES OF MNE S:
o Trade restrictions imposed at the government-level o Limited quantities (quotas) of
imports.
o Effective management of a globally dispersed organization.
o Slow down in the growth of employment in home countries.
o Destroy competition and acquire monopoly.
WHY FIRMS BECOME MULTINATIONAL ENTERPRISES ?
o Adesire to protect themselves from the risks and uncertainties of the domestic business
cycle.
o Agrowing world market for their goods or services. o Aresponse to increased foreign
competition.
o Adesire to internalize in order to reduce costs.
o Adesire to overcome tariffs barriers.
o And the chance to take advantage of technological expertise by manufacturing goods
directly rather than allowing others to do it under a license agreement
MNES in India have a long history and tradition:
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WHAT INDIA OFFERS???
One billion plus population.
India is ranked as the 10th largest economy, 4th largest in terms of Purchasing Power
Parity.
250-300 million middle class.
Gross Domestic Product (GDP) is growing atover 7-9 %, making it one of the fastest
growing economies in the world.
Opportunities for U.S. exporters with the right products or services.
Easier access to capital.
TRENDS OF MNES IN INDIA:
o First mne in India was the EAST INDIA Company. in 1600.
o American companies account for around 37% of the turnover of the top 20 firms
operating in India.
o Oil companies and Infrastructure builders from the Middle East are also flocking in India
to catch the boom.
Contd....... ©
o Increasing flocking of Europian Union companies to India.
v Italian automobile giants like Fiat, Ford Motors, Piaggio etc expanded their operations in
India with R&D wing attached.
o South Korean Electronics giants Samsung and LG Electronics and small and mid-segment
car giant Hyundai Motors are doing excellent business and using India as a hub for global
delivery.
KEY ADVANTAGES OF EXISTENCE OF MNE’S IN INDIA
o Work culture for employees. o Training and Learning.
o Technology — especially concept of working with better technologies.
o Safety, Health and Environmental Learning.
o Excellent training grounds for many entrepreneurs.
KEY CHALLENGES THAT INDIAN MNES FACE:
o Domestic market like India vis - a - vis International expansion.
o Language.
o Culture.
o Autonomy to “local” managers . o Styles of doing business.
o Handling of potential liabilities related to Labor, IPR etc.