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Multinational Enterprises

Sapna Module 1

Introduction to MNE Meaning of International Corporations Role & Importance of MNC in International Business Elements of Multinational enterprise strategy Market Entry mode strategies International Strategic alliances Cross Border Integration & coordination Knowledge Management MNEs from Emerging Economies

An enterprise operating in several countries but managed from one (home) country. Generally, any company or group that derives a quarter of its revenue from operations outside of its home country is considered a multinational corporation.

Mr. Jacques Maisonrouge, president , IBM world trade corporation describe MNCs: It operates in many countries at different levels of economic development. Its local subsidiaries are managed by nationals. It maintains complete industrial organisation including R&D facilities in several countries. It has a multinational central management. It has multinational stock ownership.

According to the ILO

The essential nature of the multinational enterprises lies in the fact that its managerial headquarters are located in one country, while the enterprise carries out operations in a number of other countries as well.

Multinational business operation is not a new concept.
The British east India company, Hudsons bay corporation and Royal Africa companies are example of MNCs. The post second world war period has however, witnessed a changing hand in colonialism and there emerged a new thrusts for industrial and technological development as well as rise of the USA as the largest industrial power.

corporation in the world and the first company to issue stock It was also arguably the world's first mega corporation possessing quasi-governmental powers, including the ability to wage war, negotiate treaties, coin money , and establish colonies.

The Dutch East India Company was the first multinational

The first modern multinational corporation is generally thought to be the East India Company. Many corporations have offices, branches or manufacturing plants in different countries from where their original and main headquarters is located.

Features of MNC
1. Big size

2. Huge intellectual capital

3.Operates in many countries

4.Large number of customer

5.Large number of competitors

6.Structured way of decision making


To expand the business beyond the boundaries of the home country. Minimize cost of production, especially labour cost. Capture lucrative foreign market against international competitors. Avail of competitive advantage internationally.

Achieve greater efficiency by producing in local market and then exporting the products.

Make best use of technological advantages by setting up production facilities abroad. Establish an international corporate image.


Reasons for the Growth of MNCs

Factor mobility.

Development in communication technology.

Economic reforms.

Risk minimize.

Growth urge.

Market potential.


Favourable Impact of MNCs

1. MNCs create employment opportunities in the host countries. It helps to create a pool of managerial talent in the host country. 2. Helps removal of monopoly and improve the quality of domestic made products. 3. Promotes exports and reduce imports by raising domestic productions. 4. Goods are made available at cheaper price due to economies of scale.

Favourable Impact of MNCs

5. Job and career opportunities at home and abroad in connection with overseas operations.

6. Encourages the world unity and all resulting in world harmony


Harmful effect of MNCs

1. The host county is likely to lose its economic sovereignty 2. The host nation may also experience some loss of control over its own economy 3. Feeling that labour is being exploited by the MNC/ Outsourcing 4. Lost of cultural moorings 5. The problem of Dumping Example Chinese products are priced low in Indian market.


MNCs in India
India is the home of a number of multinational companies since the countrys market was liberalized in 1991. Initially The MNC from United States account 37% of turnover of first 20 firm operated in India Now scenario has changed a lot more enterprises from European union like Britain, France, Netherlands, Italy, Germany, Belgium and Finland have come to India and outsourced their work to this country Example Finnish mobile giant Nokia has their second largest base in India

Why India attracting the multinational companies?

Fastest Growing economy

Huge market potential

FDI attractiveness

Labor competitiveness

Macro economic stability

Elements of MNC Strategy

Global Standardization strategy- These firms increase profitability & growth by cost reductions resulting from economies of scale - They have a standard product worldwide - E.g.- Intel, Coke etc

Elements of MNC Strategy

Localization Strategy - These firms customize the goods & services according to local markets - By customizing according to local taste & preferences, it increases the value of the product - Cost reductions are limited - E.g.- MTV Networks

Elements of MNC Strategy

Transnational strategy - These firms are simultaneously trying to achieve low cost, economies of scale & also differentiate their product across the geographical markets - E.g.- Caterpillar- centralized manufacturing of components along with assembly plants in each major global markets - At these plants, it also adds local product features for local needs

Elements of MNC Strategy

International Strategy - These firms first produce for their domestic markets, & selling them internationally with minimum local customization - These firms sell a product, that serves the universal needs, but they do not face significant competition. - E.g.- Xerox- the technology of the photocopier was protected with strong patents( Monopoly) - Thus minimum pressure of minimum cost & therefore high cost product

Market Entry Mode Strategies

Trade Mode a) Export & Import - Indirect exportingPublishing houses - Direct exporting- Intra corporate transfersUnilever to Hindustan levers b) Counter trade
Contractual Mode a) Licensing- Licensorintellectual property use & licensee pays Royalty United bottlers in Zimbabwe has license to make coke b) Franchising- form of licensing, here franchisor helps with trade marks, operating systems, product reputations, advertising, employee training etc- KFC, Mc D Special Mode a) Contract Manufacturingcompanies outsource some part/ entire manufacturing. E.g.- Bata, Nike b) FDI c) Business Process Outsourcing- IT d) Management Contractscompanies with low technology & Mgt Expertise. E.g.- Air France to other small airlines e) Turnkey Projects- here 1 firms fully designs, constructs & equips a manufacturing/ servicing facility & turn the product over to the purchaser when its ready for operation for a remuneration- E.g.Indonesia govt & Japan company for sugar factory in former.

Market Entry Mode StrategiesStrategic Alliances

- Its a co-operative & collaborative approach to achieve the larger goals - Role of Alliances 1) Complicated issues can be solved- IBM & Sun Micro systems 2)In providing the parties each other strengths- Ford & Mazda, technical knowledge to Ford & Marketing knowledge to latter. 3) Helps in developing new products 4)To meet challenges of Technical revolution- IBM, Apple & Motorola joined their unique technological capabilities 5) Companies can bear heavy costs of R & D with alliances 6) To have advantage of synergy & become strong- Fujitsu & IBM 7)To enter local markets

Strategic Alliances
Mergers & Acquisitions- Mittal steel & Arcelor SA- Mittal- Arcelor Wholly owned subsidiaries Joint ventures- two or more firms join together to become a new entity, that is legally separate & distinct from its parentsFuji Xerox- JV between Xerox & Fuji photo
Main Advantages of International Strategic alliancesa) Cross Border integration b) Knowledge Management


Find out the New MNEs/MNCs in Emerging markets??

End of Module 1