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MNCs
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
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