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Multinational Company

An Enterprise which own or Control production or service facilities outside the country in which they are based. Multinational Corporation have a large scale capital, Production, Sales, Profits, Management and Administration, with the large quantity and life line quality of human resources.

Participation in Capital Investment Characteristics of Multinational Corporation International Operation Creation, Development & Research as the world Economy Permission of related countries Multinational Transfer of resources & Technology Multinational Ownership & Control Multinational Management & Administration

Giant in Size

International Operation Integrated world wide system. Parent company and foreign affiliates act in close alliance and cooperation with one another. Controlled by a sole institution, but interests and activities are spread out the boundaries of the nation. Called Global Factories to search the opportunities.

Creation, Development & Research as the world Economy

More than 200 Countries

Economy is benefited from multiplier and linkage effects Using the new Technology New creation New innovations and research under world economy, Including training, widening of markets and mobilization of resources. Example distribution pattern of coca cola in India.

Giant in Size Extend marketing activities through a network of branches. Having investment and business in a number of

countries, islands and constituents.

Multinational Management & Administration

Better and skilled management system as per the standards of world economy. Controlled by a single managerial authority, typically the top management group of the parent company. It makes key strategic decision relating to the operations of the parent firm and all its affiliates

Multinational Transfer of resources & Technology

Rich in advance and future Technology. Develop the resources and technology through continuous investigations, researches and developments as per the international norms. Development as an organization as per the international standard.

Participation in Capital Investment

Capital base is very strong.

More fixed Capital with financial resources and working capital.


Under adaptive circumstances to Find out the adequate capital from the market of the host country. Foreign aid is available for them in a easy way from their government.

Multinational Ownership & Control

Major Decision are made centrally and also controlled by the Parent Company. Overall Product mix Sourcing of Inputs Including Capital Funds ( Shares, Debentures and other kind of Securities) Location of Production facilities The Market to be served

Permission of related countries

Control on the Multinational made by the Department of Company Affairs Reserve Bank of India Ministry of Industrial Development of India

Advantage of Multinational
Increase the Investment level and thereby the income and employment in host country Vehicles for the transfer technology, especially to the developing countries. Managerial revolution in the host country through professional management and the employment of highly sophisticated management technique.

Contd
Make commendable contribution to inventions and innovations. Contribute the favourable balance of payment of the home country, in continuation or regularly. Host country can enjoy the benefits of foreign culture,

brought by MNC.

Contd
Stimulate domestic enterprises to support their own operations, MNCs may encourage and assist domestic suppliers.

Enables host countries to increase the export and decrease


the import requirement. Help to Increase the competition and break domestic monopolies.

Disadvantage of MNCs
May destroy competition and acquire monopoly powers. MNCs technology is designed for world wide profit maximization, not the development needs of poor countries. May threaten the Sovereignty of the nations in which they do business. 1. Paying bribes to secure political influence 2. Not respecting human Rights 3. Paying protection money to terrorists

Contd
Undermine the local cultures and traditions, changes the
consumption habits for their benefit against the long term interest of community, Promote conspicuous consumption. Fast depletion of some of the non renewable resources in

the host country & accused for following environmental


problem 1. Polluting the environment

2. Not paying the compensation for the environment


damage 3. Harmful changes in the local living condition

Contd
MNCs meets the requirements of highly middle income
group, rich income group and not for the poor population of developing countries generally. Ignore or neglect the home countrys industrial and

economic development as it makes the investment in more


profitable countries

May not create employment opportunities to the people of


home country.

MNCs in India
To Jump the tariff wall ( IBM, Coca- Cola) low cost back office, manufacturing and R&D ( Nokia has set up 3 R&D centers that work on next generation packet switched mobile technology and communication solutions)

Skilled and cheap manpower


Command on International language compared to China

Degree of Success
Suzuki and Hyundai are way ahead of Formidable rival such as General Motors and Ford.

Procter & Gamble remains a marginal player Compared to Hindustan Unilever.


MNCs has been beaten by local players Ex.- Asian paints

MNCs which entered India since 1990s have been more aggressively and proactive in liberalized business environment. Ex. Hyundai, Samsung and LG Out of 50 plus MNCs, 9 Market leaders Including British American Tobacco, Hyundai Motor, Suzuki Motors and Unilever have and average Return on capital Employed is 48%. Rest 26 have an average ROCE is 36%.

Common Characteristics of Successful MNCs in India


Have invested time and resources to understands local consumers and business conditions. Have understood that price points in that matter in India are different from those in other countries.

Middle and lower end segments are critically important , affordability is crucial matter.

Role and Importance of MNCs in India


1. Concentration on consumer goods 2nd larger after China communism. Large consumer base and high profits ( Hindustan lever limited).

2. Profit Maximization Operate fairly and behave like a corporate citizen Significant objective is profit maximization

3. Public Acceptability Techniques to get the public acceptability.

Colgate- Palmolive, Cadbury and so on use Hindu Sentiments in their large scale advertisements.

4. No social Service Believe in superiority of free market economy. Invest according to market demand Concentrating in designing, producing, pricing and services for higher standard living segments.

5. Cultural and Civilization Erosion Youth is under illusion of the products. Products like Cigarette, liquor, pizza and fast foods 6. No Social responsibility and Business Ethics Ignore the fundamental principal of business ethics. Prices of products based on business principles rather then the social consideration and ethical means.

Foreign Collaboration

Agreements are made in between Indian and


foreign companies, for technology, sale of spare-

parts, ultimate products or by using the name of


foreign brand in hosts countrys markets.

Cause to invite foreign skill & capital


Rate of saving is so less (developing country) that Economic development is not possible. Heavy investment projects, adequate capital is necessary. It can be brought by MNCs. Lack of extra ordinary and managerial know how. Difficulties of foreign exchange resources, raw material and capitalized goods are in turn of deficit in balance of payments. For Scientific and Industrial research. Solve the problem of deficit financial management.

Advantage of Foreign Collaboration


Capable to enter in foreign market even after

limited capital and human resources.


Managerial know how and the experiences of multinationals have resulted in low risk. Host country enjoy the liaison activities with the guest country ( MNCs in Charge) towards their attitude, culture, norms and intellectual means.

Limitations/ Disadvantages
Profits are divisible in between two countries. But Host country remain in loss due to privileges given to MNCs by Govt. May be some conflicts.

Working may be ineffective due to new market.


Increase monopoly

Sometime govt. imported same technology by paying price again & again. No any acknowledgement and increasing in the stock of technology

Mode of overseas market entry or foreign collaboration

Exporting
Licensing Franchising

Special Modes
Contract manufacturing Management contract Turnkey projects

Contd
Foreign Direct Investment without alliances The Green field Strategy Foreign Direct Investment with Strategic alliances Mergers and Acquisitions