Understanding Multi national Companies

1. MNCs
(Classroom Deliberations)
CA. Dr. Prithvi Ranjan Parhi
3:58 AM © CA. Dr Prithvi R Parhi

2. 2 /132
703- INTERNATIONAL TRADE AND BUSINESS
MODULE- I
International Trade: Concept, Importance, Benefits of International Trade, international
Marking vs. Domestic Marking (differences).
Theory of International Trade: theory of comparative Cost, factor proportion Theory.
MODULE-II
Multinational corporations (MNCs): Definition, Role of MNCs in International marking.
International Trade barriers: Meaning, tariff and non-Tariff Barriers, Impact of Non-tariff
barriers.
MODULE-III
Organizational and Agreements: WTO (Functions, Principle, agreements), IMF
(Purposes, Facilities Provided by IMF), World Bank (Purpose, Principle, Policies).
MODULE-IV
Foreign Trade of India: Organizational Setup (Autonomous Bodies, Attached and
subordinate offices), Major Export and Imports, Concept of Export House, EXIM Policy
(2002-2007) of India (Features and Objectives of the Policy).
MODULE-V
Foreign Exchange market: Concept, Functions, Methods of international Payment,
concept of Balance of Payment, Concept of Fixed and Flexible Exchange Rate and
Convertibility of Rupee.
3:58 AM
© CA. Dr Prithvi R Parhi

3. 3 /132
Not a New Concept
• One of the first multinational business
organizations, the East India Company, was
established in 1601.
• After the East India Company, came the Dutch
East India Company, founded March 20, 1603,
which would become the largest company in
the world for nearly 200 years.
3:58 AM
© CA. Dr Prithvi R Parhi

4. 4 /132
Multinational Corporation (MNC)
• A multinational corporation (MNC) has facilities
and other assets in at least one country other
than its home country.
• A multinational company generally has offices
and/or factories in different countries and a
centralized head office where they coordinate
global management.
3:58 AM
© CA. Dr Prithvi R Parhi

5. 5 /132
Key Takeaways
• Multinational corporations participate in business in
two or more countries.
• MNC can have a positive economic effect on the
country where the business is taking place.
• Many believe manufacturing outside of the home
country has a negative effect on the economy with
fewer job opportunities.
• MNCs do business by diversifying the investment.
3:58 AM
© CA. Dr Prithvi R Parhi

6. 6 /132
How a Multinational Corporation (MNC) Works
• MNCs derive at least a part of its revenues outside its home
country.
• Many multinational enterprises are based in developed
nations.
• Multinational advocates say they create high-paying jobs and
technologically advanced goods in countries that otherwise
would not have access to such opportunities or goods.
• However, critics of these enterprises believe these
corporations have undue political influence over governments,
exploit developing nations, and create job losses in their own
home countries.
3:58 AM
© CA. Dr Prithvi R Parhi

7. 7 /132
Forms of MNCs
1. International companies are importers and exporters, they have no
investment outside of their home country.
2. Multinational companies have investment in other countries, but do not
have coordinated product offerings in each country. More focused on
adapting their products and service to each individual local market.
3. Global companies have invested and are present in many countries. They
market their products through the use of the same coordinated image/brand
in all markets. Generally one corporate office that is responsible for global
strategy. Emphasis on volume, cost management and efficiency.
4. Transnational companies are much more complex organizations. They have
invested in foreign operations, have a central corporate facility but give
decision-making, R&D and marketing powers to each individual foreign
market.
5. Multidomestic Company :A company with international operations
that allows operations in one country to be relatively independent of those in
another.
© CA. Pritvi R Parho
3:58 AM
7

8. 8 /132
4 Types of MNCs
1. MULTINATIONAL DECENTRALIZED CORPORATION
• A decentralized multinational corporation maintains a prominent presence in its home
country. With decentralization, the corporation’s organizational structure doesn’t have
management or administrative centers. Instead, each office or asset hosts a unique
management structure.
• Decentralization allows for rapid expansion. Each new unit can operate as a separate
entity within a local market.
• Branch managers also have the freedom to respond to opportunities or emergencies
without constrictions from a tedious chain of command.
2. GLOBAL CENTRALIZED CORPORATION
• The organizational structure of a centralized global corporation has a chief
administrative and management office or head office. The corporation may outsource
production to developing economies to lower costs, for example.
• These businesses may also develop production infrastructure in these countries to
optimize affordable resources and acquire cost advantages.
• A centralized international organization facilitates proximity to its international target
markets. The main advantage of affiliates and subsidiaries in target markets is
distribution cost reduction. It also makes potential consumers and their information
more accessible.
3:58 AM
© CA. Dr Prithvi R Parhi

9. 9 /132
4 Types of MNCs
3. INTERNATIONAL COMPANY
• One of the objectives of an international company is to build on the research
and development of its parent company. Effective R&D allows for the creation
of new products or the addition of features to existing successes.
• Building on existing R&D gives these global companies a competitive edge in
local markets, too. Other benefits include an increase in market participation
and better cost management.
4. TRANSNATIONAL ENTERPRISE
• Transnational enterprises generally have a decentralized organizational
structure. These corporations do business in several countries without one
location as a corporate home.
• Transnational enterprise structures engage in value creation in various
countries while maintaining high levels of responsiveness. It is a flexible and
efficient approach that is gaining popularity.
3:58 AM
© CA. Dr Prithvi R Parhi

10. 10 /132
Types of MNCs
1. Manufacturing MNCs
2. Trading MNCs
3. Servicing MNCs
4. Vertical MNCs
5. Horizontal MNCs
6. Diversified MNCs (conglomerate)
3:58 AM
© CA. Dr Prithvi R Parhi

11. 11 /132
MNC Operations
• MNCs may gain from their global presence in a variety of
ways.
• First of all, MNCs can benefit from the economy of
scale by spreading R&D expenditures and advertising
costs over their global sales, pooling global purchasing
power over suppliers, and utilizing their technological and
managerial know-how globally with minimal additional
costs.
• Furthermore, MNCs can use their global presence to take
advantage of underpriced labor services available in
certain developing countries, and gain access to special
R&D capabilities residing in advanced foreign countries.
3:58 AM
© CA. Dr Prithvi R Parhi

12. MNCs : Characteristics
• Consider opportunities
throughout the globe.
• Invest on their assets
internationally.
• Produce internationally &
Operate plants in a
number of countries.
• Take managerial decisions
on global perspective
3:58 AM © CA. Pritvi R Parho 12

13. 13 /132
Why MNC ?
• To protect themselves from uncertainties / risks/ political
policies/ social uncertainties.
• To tap global market.
• To increase market share
• To reduce cost
• To overcome tariffs
• To have technological advantage.
3:58 AM
13
© CA. Pritvi R Parho

14. 14 /132
Why MNCs grow ?
• Expansion of market territory
• Market Superiority
• Financial Superiority
• Technological superiority
• Product Innovation
3:58 AM
14
© CA. Pritvi R Parho

15. 15 /132
Regulations over MNCs
• RBI
• Ministry of Corporate affairs
• Ministry of Industrial Development
• Ministry of Finance
3:58 AM
15
© CA. Pritvi R Parho

16. 16 /132
Impact / Roll of MNCs in India
1. Profit maximization
2. International Marketing network
3. Diversification Policy
4. Concentration in Consumer goods
5. Central control
6. Techniques to achieve public acceptability
7. Existence of modern, sophisticated technology
8. Business, not social justice.
9. Unconcern towards social responsibility & business
ethics.
10. Incompatibility with countries economic plans
11. Cultural erosion
12. Environmental pollution / Ecological Balance
3:58 AM
16
© CA. Dr. Pritvi R Parho

17. 17 /132
Advantages
1. Free flow of capital
2. Free flow of technology
3. Increase in industrialization
4. Spread up of production facility throughout globe.
5. Balanced development of world of economics.
6. Increase in production & consumption
7. Lower prices with high quality
8. Cultural exchange & demand for a variety of product.
9. Increase in employment & income
10. Higher standard of living
11. Balanced human development
12. Increase in welfare & prosperity
3:58 AM
17
© CA. Pritvi R Parho

18. 18 /132
Disadvantages
1. Kills domestic business
2. Exploit human resources
3. Violation of labour & environmental laws
4. Unemployment/ Underemployment
5. Decline demand for domestic product
6. Decline Income
7. Widening gap between rich & poor
8. Transfer of natural resources
9. Leads to commercial & political colonialism
3:58 AM
18
© CA. Pritvi R Parho

19. 19 /132
Methods/ Modes Business
1. Exporting directly
2. Exporting indirectly
3. Licensing/ Franchising
4. Contract Manufacturing
5. Establishing Full Marketing facilities
6. Establishing Manufacturing facilities
7. Joint ventures
8. Mergers
9. Strategic alliance
3:58 AM
19
© CA. Pritvi R Parho

20. 20 /132
MNCs in International Marketing
• MNCs spend huge sums of money on advertising
and marketing to secure international business.
• This is, perhaps, the biggest strategy of success
of MNCs.
• Because of this strategy, they are able to sell
whatever products/services, they
produce/generate.
3:58 AM
© CA. Dr Prithvi R Parhi

21. 21 /132
Distinct characteristics of MNC’s
1. Centralized Control − MNCs have their branches in different
countries. These branches are monitored, controlled and managed
by centralized offices or the headquarters usually located in the
home countries.
2. Professional management − MNCs hire qualified, professional, and
skilled people. They make all possible efforts to keep their
employees updated by ensuring proper training on a regular basis.
3. International operation − MNCs establish their branches, plants,
and offices in more than one country. They operate through a
network of branches, subsidiaries and affiliates in host countries.
For example, Coca Cola, Apple, etc.
4. Sophisticated Technology − MNCs adapt to the latest trends and
follow advanced technology to supply world class products. They
use capital-intensive technology and innovative techniques of
production.
3:58 AM
© CA. Dr Prithvi R Parhi

22. 22 /132
Essential Conditions for globalisation/
MNC participation
• Liberalization of rules & regulation
• Removal of quotas & tariff.
• Providing freedom to business/ industry
• Providing infrastructural facility
• Removal of bureaucratic huddles.
• Encouraging R & D
• Encouraging competitiveness in quality, price, delivery,
customer service.
• Providing autonomy to public sector to compete with
private sector.
• Providing administrative & Governmental support.
• Developing money & capital markets.
3:58 AM
22
© CA. Pritvi R Parho

23. 23 /132
Globalization in India
• New economic policy
• FEMA
• FDI
• Removal of export subsidies
• ECB
• EoU/ SEZ
• Convertibility of INR
• ADR/ GDR/ Euro issues
• Anti dumping measures
• Incentives to MNCs & NRIs
3:58 AM
23
© CA. Pritvi R Parho

24. 24 /132
Thanx.
CA. Dr Prithvi R Parhi
prithvi.baps@gmail.com
3:58 AM
© CA. Dr Prithvi R Parhi