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Unit 1 Lecture-5(characteristics and role of mncs)

Unit -1 Lecture-5(characteristics and role of mncs)

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Unit 1 Lecture-5(characteristics and role of mncs)

  1. 1. MNCs: Characteristics and Role of MNCs
  2. 2. Multi National Corporation Multinational corporation (MNC) is a enterprise that manages production or delivers services in more than one country can also be referred to as an international corporation.
  3. 3. Cont…… Multinational Corporations or Multinational Companies are corporate organizations that operate in more than one country other than home country. Multinational Companies (MNCs) have their central head office in the home country and secondary offices, facilities, factories, industries, and other such assets in other countries. These companies operate worldwide and hence also known as global enterprises. The activities are controlled and operated by the parent company worldwide. Products and services of MNCs are sold around various countries which require global management. High turnover and many assets, aggressive marketing are some of the features of Multinational Companies. LTI, TCS, Tech Mahindra, Deloitte, Capgemini are some of the examples of MNCs in India.
  4. 4. Models of Multinational Corporations The following are the different models of multinational corporations: 1. Centralized: In the centralized model, companies put up an executive headquarters in their home country and then build various manufacturing plants and production facilities in other countries. Its most important advantage is being able to avoid tariffs and import quotas and take advantage of lower production costs. 2. Regional: The regionalized model states that a company keeps its headquarters in one country that supervises a collection of offices that are located in other countries. Unlike the centralized model, the regionalized model includes subsidiaries and affiliates that all report to the headquarters. 3. Multinational: n the multinational model, a parent company operates in the home country and puts up subsidiaries in different countries. The difference is that the subsidiaries and affiliates are more independent in their operations.
  5. 5. Multi National Corporation
  6. 6. Some popular examples of multinationals are given below:
  7. 7. Characteristics or Features of Multinational Corporations (MNCs): (i) Huge Assets and Turnover: Because of operations on a global basis, MNCs have huge physical and financial assets. This also results in huge turnover (sales) of MNCs. In fact, in terms of assets and turnover, many MNCs are bigger than national economies of several countries. (ii) International Operations Through a Network of Branches: MNCs have production and marketing operations in several countries; operating through a network of branches, subsidiaries and affiliates in host countries. (iii) Unity of Control: MNCs are characterized by unity of control. MNCs control business activities of their branches in foreign countries through head office located in the home country. Managements of branches operate within the policy framework of the parent corporation. (iv) Mighty Economic Power: MNCs are powerful economic entities. They keep on adding to their economic power through constant mergers and acquisitions of companies, in host countries.
  8. 8. Cont….. (v) Advanced and Sophisticated Technology: Generally, a MNC has at its command advanced and sophisticated technology. It employs capital intensive technology in manufacturing and marketing. (vi) Professional Management: A MNC employs professionally trained managers to handle huge funds, advanced technology and international business operations. (vii)Aggressive Advertising and 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. (viii) Better Quality of Products: A MNC has to compete on the world level. It, therefore, has to pay special attention to the quality of its products.
  9. 9. Cont….. (IX) Ownership and control: ownership of company remains on both parent and host country. Parent company control, manage and help in the operation of all host countries. They have control in capital, high technology, and trade mark. (X) Network of branches: Multinational companies maintain production and marketing operations in different countries. In each country, the business may oversee multiple offices that function through several branches and subsidiaries. (XI) Sophisticated technology: When a company goes global, they need to make sure that their investment will grow substantially. In order to achieve substantial growth, they need to make use of capital-intensive technology, especially in their production and marketing activities.
  10. 10. Merits: 1. Economic Development: -The Developing countries need both foreign capital and technology to make use of available resources for economic and industrial growth. MNCs can provide the required financial, technical and other resources to needy countries in exchange for economic gains. 2. Technology Gap: - MNCs are the instruments of transfer of technology to the host country. Technology is necessary to bring down cost of production and produce quality goods on a large scale. The services of MNCs can be of great help to bridge the technological gab between developed and developing countries. 3. Industrial Growth: - MNCs are dynamic and offer growth opportunities for domestic industries. MNCs assist local producers to enter the global markets through their well established international network of production and marketing. And there by ensure industrial growth. 4. Marketing Opportunities: - MNCs have access to many markets in different countries. They have the necessary skills and expertise to market products at international level. For example, an Indian Company can enter into Joint Venture with a foreign company to sell its product in the international market.
  11. 11. Cont…. 5. Work Culture: - MNCs introduces a work culture of excellence, professionalism and fairness in deals. The sole objective of Multinational is profit Maximation. To achieve this, the Multinationals use various strategies like product innovation, technology up gradation, professional management etc. 6. Export Promotion: - MNCs assist developing countries in earnings foreign exchange. This can be done by promoting and developing export oriented and import substitute industries. 7. Research and Development: -The resources and experience of MNCs in the field of research enables the host country to establish efficient research and development system. It is a fact that many MNCs are now shifting their research units to countries like India to avail of monetary incentives and cheap labour.
  12. 12. De-merits: 1. Problem of Technology: - Technology developed by MNCs from developed countries does not fully fit in the needs of developing countries. This is because, such technology is mostly capital intensive. 2. Political Interference: -The MNCs from developed countries are criticized for their interference in the political affairs of developing nations. Through their financial and other resources, they influence the decision-making process of the governments of developing nations. 3. Self-Interest: -MNCs work towards their own self-interest rather than working for the development of host country. They are more interested in making profits at any cost.
  13. 13. Cont…. 4. Outflow of foreign Exchange: -The working of MNC is a burden on the limited resources of developing countries. They charge high price in the form of commission and royalty paid by local subsidiary to its parent company. This leads to outflow of foreign exchange. 5. Exploitation: - MNCs are criticised for exploiting the consumers and companies in the host country. MNCs are financially very strong and adopt aggressive marketing strategies to sell their products, adopt all means to eliminate competition and create monopoly in the market. 6. Investment: -MNCs prefer to invest in areas of low risk and high profitability. Issues like social welfare, national priority do not find any place on the agenda of MNCs. 7. Artificial Demand: -MNCs are criticised on the ground that they create artificial and unwarranted demand by making extensive use of the advertising and sales promotion techniques.
  14. 14. Present Scenario: According to the Fortune Global 500 List, the top five multinational corporations in the world as of 2019 based on consolidated revenue were: 1. Walmart ($514 billion), 2. Sinopec Group ($415 billion), 3. Royal Dutch Shell ($397 billion), 4. China National Petroleum ($393.01 billion), 5. State Grid ($387 billion).
  15. 15. Which country has the most MNC? 1. The world's 500 largest MNCs have, on average, 58% of their equity affiliates located within their home countries and 42% placed internationally. 2. The United States, Japan, and the major economic forces of Western Europe are developed countries whose infrastructures and well-established financial markets are conducive to the operation and potential success of multinational corporations (MNCs).
  16. 16. Fortune Global 500 list of 2019
  17. 17. Breakdown by Country: As of July 2019, this is the list of the top 10 countries with the most Global 500 companies.
  18. 18. THANKYOU