A detailed discription about MNCs, history of MNCs, features , benefits to home and host countries, entry strategies and the growth strategies adopted by MNCs with pros and cons and the role of mncs in India.

1. MULTINATIONAL
COMPANIES
ROSHNI SAJI

2. About the MNCs
History
Features
Benefits
Growth factors of MCNs
Entry strategies
Growth Plans
Expansion through
concentration
Expansion through
integration
Expansion through
diversification
Expansion through
cooperation
Growth In India
Criticisms

3. AboutMULTINATIONAL
COMPANIES
 A multinational company is a business that operates in many
different countries at the same time. In other words, it’s a
company that has business activities in more than one country.
 The MNCs came into existence in 1860, in 1862-63 the US
based Singer sewing machine established production
facility in England. In India the first MNCs came into existence
in 1921 i.e East India Company.
 According to ILO " the essential nature of the multinational
enterprises lies in the fact that its managerial headquarters are
located in one country (home country) while the enterprises
carries out operations in a number of other countries (host
countries).
 The MNC's are also referred as transactional corporations and
International corporations or global corporations.

4. History of MNCs
 Origin of Multi National Corporations can be traced in the Mercantilist Period when some big companies like
the Royal African Co., Hudson’s Bay Co. East India Company etc. diversified the market of their products in
different countries and collected their raw materials from distant countries in order to meet the requirements of
their machines.
 Again in the post-independence period, India experienced the entry of multinationals from different countries
of the world, especially from USA in the form of foreign collaborations.
 India adopted The New Economic Policy in 1991, in order to stabilize and restructure its growing deficit and
declining economic growth rate. This policy was geared towards neo-liberal economics and markets were
opened up to foreign trade.
 At present Multinational Corporations are having a stronghold over the Indian economy. Even during 1970s,
about 53.7 per cent of the total assets of the giant sector were controlled by the MNCs. As per the estimates of
the Industrial Licensing Policy Inquiry Committee, in 1966, there were about 112 MNCs operating in India
with assets worth Rs. 10 crore or more.

5.  Thus during the mid-1960s, Western foreign capital mostly dominated the big business of the country and
thereby controlled the apex of India’s industrial pyramid.
 Another important feature of MNCs in India is that they have been raising a major part of investment resources
within the boundary of Indian economy.
 In recent times, other reasons have made India an attractive destination for MNCS.
 Numerous tax breaks have been given to MNCs to set up manufacturing in India. States have competed with
each other in offering concessions to MNCs.
 While several MNCs have entered India, not all of them are doing well. This is evident when performances are
compared across industries. However, even within a given industry, some MNCs seem to be doing better than
the others.

6. Features
LOCATED AT ONE
COUNTRY
GIANT SIZED CENTRALIZED
OWNERSHIP AND
CONTROL
DIRECT INVESTMENT
BASE
MERGERS AND
TAKEOVERS

7. Benefits from MNCs
) Benefits to the host
countries
A) Benefits to the host countries
 Transfer of superior technology, capital and entrepreneurship.
 Improvement of balance of payment position.
 Creation of job opportunities.
 Better utilization of available resources.
 Availabilities of products to local consumers.
 Increase in investment and income levels.
 Encouragement to world economic unity

8. Benefits to home country
 Acquisition of raw materials from abroad at lower prices.
 Acquisition of technology and management expertise from competing in world markets.
 Export of components and finished goods for assembly or distribution in foreign markets.
 Inflow of income by way of profits, royalties, licensing fees and management contracts.
 Job opportunities at home and abroad in connection with overseas operations.

9. Entry Strategies
 A Multi National Company can commence operations in India through
incorporation of a company under the provisions of the Indian Companies Act,
2013.
 Foreign equity in such Indian companies can be up to 100% depending on the
business plan of the foreign investor, prevailing investment policies of the
Government and receipt of requisite approvals.
 For registration as an Indian company and its incorporation, an application has to
be filed with the Registrar of Companies. Once a company has been duly registered
and Incorporated as an Indian company, it will be subject to same Indian laws and
regulations as applicable to other domestic Indian companies.
 Direct investment by foreign companies can be done in the following ways.
 Branch Office and Liaison office or Representative officer.

10. Growth strategies by MNCs
CONCENTRATION INTEGRATION DIVERSIFICATION COORPERATION

11. ExpansionThrough
Concentration
Concentration can be done through:
 Market Penetration: It involves selling more products to the
same market by focusing intensely on existing markets with
its present products, increasing usage by existing customers
and increasing market share and restructures a mature
market by driving out competitors .
 Market Development: It involves selling the same products
to new markets by attracting new users to its existing
products. Market development can be geographic wise and
demographic wise.
 Product Development: It involves selling new products to
the same markets by introducing newer products in existing
markets.
It Involves converging resources in
one or more of firms businesses in
terms of their respective customer
needs, customer functions, or
alternative technologies either
singly or jointly, in such a manner
that it results in expansions.

12. Reflecting back
HIGHLIGHTS
 Involves minimal organizational changes and is less
threatening.
 Enables the firm to specialize by gaining the in-
depth knowledge of the businesses.
 Enables the firm to develop competitive advantage.
 Decision-making can be made easily as there is a
high level of productivity.
 Systems and processes within the firm become
familiar to the people in the organization.
LOWLIGHTS
 It is dependent on one industry if there is any worse
condition in the industry the firm will be affected.
 Factors such as product obsolescence, fickleness of
market, emergence of newer technologies are threat
to concentrated firm
 Mangers may not be able to sustain interest and
find the work less challenging.
 It may lead to cash flow problems.

13. ExpansionthroughIntegration
 It is done where the company attempts to widen the scope of its business definition in such a manner
that it results in serving the same set of customers.
 The alternative technology of the business undergoes a change. It is combing activities related to the
present activity of a firm. Such a combination may be done through value chain.
 Vertical Integration: When an organization starts making new products that serve its own needs.
 Vertical Integration could be of two types Back ward and forward integration. Backward
Integration means moving back to the source of raw materials while forward integration moves the
organization nearer to the ultimate customer.
 Two such partial vertical integration. strategies are taper integration and 'quasi integration. Taper
integration requires firms to make a part of their own requirements and to buy the rest from outsiders.

14.  Through quasi integration strategies firm purchase most of their requirements from other firms in
which they have an ownership stake.
Horizontal Integration: When an organization takes up the same type of products at the same
level of production or marketing process.
 When a luggage company takes over its rival luggage company, It is horizontal integration.
 Horizontal integration strategy may be frequently adopted with a view to expand geographically by
buying a competitors business, to increase the market share or to benefit from economics of scale.

16. Expansionthrough
diversification
 Diversification is a much used
and much talked about set of
strategies. It involves a
substantial change in the
business definition - singly or
jointly in terms of customer
groups or alternative
technologies of one or more of a
firm's businesses. There are two
categories, concentric and
conglomerate diversification.
Concentric Diversification: When an organization takes up an
activity that is related to the existing business definition of one or
more of firms businesses, either in terms of customer groups,
customer's functions or alternative technologies, it is called
concentric diversification. Concentric diversification may be of
three types:
1.Marketing related concentric diversification: When a similar
type of product is offered with a help of unrelated technology.
2.Technology-related concentric diversification: When a new
type of product or service is provided with the help of related
technology.
3.Marketing technology related concentric diversification: When
a similar type of product is provided with the help of related
technology.

17.  Conglomerate Diversification: When an
organization adopts a strategy which
requires taking of those activities which
are unrelated to the existing businesses
definition of one or more of its businesses
either in terms of their respective
customer groups, customer functions or
alternative technologies. Example of
Indian company which have adopted
apart of growth and expansion through
conglomerate diversification the classic
examples is of ITC, a cigarette company
diversifying into the hotel industry.

18.  The term cooperation expresses the idea of simultaneous
competition and cooperation among rival firms for mutual
benefits. Cooperative strategies could be of the following types:
 1.Mergers
 2. Takeovers
 3.Joint ventures
 4.Strategic alliances
Mergers Strategies: A merger is a combination of
two or more organizations in which one acquires the assets and
liabilities of the other in exchange for shares or cash or both the
organization are dissolved and the assets and liabilities combined
and new stock is issued. If both the organization dissolves their
identity to create a new organization, it is consolidation.
Expansionthrough
Cooperation

19. Mergers Strategies
Horizontal Mergers Vertical Mergers: Concentric Mergers: Conglomerate Mergers
It takes place when there
is a combination of two or
more organizations in the
same business.
It takes place when there
is a combination of two or
more organizations, not
necessarily in the same
business, which create
complementarities either
in terms of supply of raw
materials (input) or
marketing of goods and
services (outputs).
It takes place when there
is a combination of two or
more organizations related
to each other either in
terms of customer
functions, customer
groups, or the alternative
technologies used.
It takes place when there
is a combination of two or
more
organizations unrelated to
each other, either in terms
of functions, customer
groups, or alternative
technologies used.

20.  Takeover or acquisition is a
popular strategic alternative
adopted by Indian companies.
Acquisitions usually are
based on the strong
motivation of the buyer firm
to acquire. Takeovers are
frequently classified as
Hostile Takeovers and
Friendly Takeovers.
Takeover Strategies

21. Joint Venture
Strategies Joint ventures may be useful to gain access to a
new business mainly under these conditions
 When an activity is uneconomical for an organization
to do alone.
 When the risk of business has to be shared.
 When the distinctive competence of two or more
organization can be brought together
 When the organization has to overcome the hurdles,
such as import quotas, tariffs nationalistic-political
interests, and cultural roadblocks.
Joint ventures are a special case
of consolidation where two or
more companies from a
temporary form a partnership
(also called a consortium) for a
specified purpose. They occur
when an independent firm is
created by at least two other
firms.

22. Strategic
Alliances
Value Creation in Strategic Alliances are:
 Current operations are improved due to:
• Economies of scale from successful strategic alliances
• The ability to learn from the other partner(s)
• Risk and cost being shared between partner(s)
 Changing the competitive environment through:
• Creating technology standards
• Easing entry and exit of companies through:
• A low-cost entry into new industries (a company can form a strategic
partnership to easily enter into a new industry).
• A low-cost exit from industries (A new entrant can form a strategic
alliance with a company already in the industry and slowly take over that
company, allowing the company that is already in the industry to exit).
A strategic alliance is an arrangement
between two companies to undertake a
mutually beneficial project while each
retains its independence.
The agreement is less complex and less
binding than a joint venture, in which
two businesses pool resources to create a
separate business entity..

23. Problems brought by MNCs
 Profit oriented
 Interference in the economic sovereignty of the
host country
 Transfer of technology at high cost
 Strain on foreign exchange reserves
 Promotes regional disparities
 Exploitation of labour
 Loss of culture
 Creation of monopolies
 Corruption
 Depletion of natural resources

24. Role of MNCs in India

25. Role of Multinational Corporations in the Indian Economy!
Prior to 1991 Multinational companies did not play much role in the Indian economy. In the pre-reform
period the Indian economy was dominated by public enterprises.
Since 1991 with the adoption of industrial policy of Liberalisation and Privatisation role of private
foreign capital has been recognized as important for rapid growth of the Indian economy.
The following are the important reasons for this change in policy towards multinational companies in
the post-reform period.
Promotion Foreign Investment:
In the recent years, external assistance to developing countries has been declining. MNCs can bridge the
gap between the requirements of foreign capital for increasing foreign investment in India.
Technology Transfer:
Another important role of multinational corporations is that they transfer high sophisticated technology
to developing countries which are essential for raising productivity of working class and enable us to
start new productive ventures requiring high technology.

26. Promotion of Exports
Historically in India, multinationals made large investment in plantations whose products they exported.
As a matter of fact until recently, when giving permission to a multinational firm for investment in
India, Government granted the permission subject to the condition that the concerned multinational
company would export the product so as to earn foreign exchange for India.
Investment in Infrastructure
The investment in infrastructure will give a boost to industrial growth and help in creating income and
employment in the India economy. The external economies generated by investment in infrastructure by
MNCs will therefore crowd in investment by the indigenous private sector and will therefore stimulate
economic growth.
Managerial Practices
MNCs have also brought best managerial practices to India. The human resource management, financial
controls, operation and advertising strategies have been emulated by Indian companies to their
advantage.
Increase in Competition
Entry of MNCs promotes competition in the economy of the host country. This increase in competition
results in lowering of prices, which is beneficial to the end.

27.  Less Foreign capital
 Violation of Law
 Evasion of Tax
 More costs
 Setting up of Environmental Polluting
Industries
CRITICISMS