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MULTINATIONAL CORPORATION What is a Multinational Corporation?

Amar KJR Nayak/IB/XIMB. MULTINATIONAL CORPORATION What is a Multinational Corporation? Which of these companies is not truly multinational? Proctor & Gamble Honda  Boeing Cemex SA. Amar KJR Nayak/IB/XIMB. MULTINATIONAL CORPORATION Trading Firms - Facilitators to Multinational Companies

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MULTINATIONAL CORPORATION What is a Multinational Corporation?

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  1. Amar KJR Nayak/IB/XIMB MULTINATIONAL CORPORATION What is a Multinational Corporation? Which of these companies is not truly multinational? Proctor & Gamble Honda  Boeing Cemex SA

  2. Amar KJR Nayak/IB/XIMB MULTINATIONAL CORPORATION Trading Firms - Facilitators to Multinational Companies Control of Joint-stock companies registered in India and working in tea, coal & jute industries, 1911 Contd…..

  3. Amar KJR Nayak/IB/XIMB Contd…..

  4. Amar KJR Nayak/IB/XIMB Source: Private Investment in India, 1900-1939, A.K. Bagchi, Cambridge University Press, 1972, Pg.177

  5. Amar KJR Nayak/IB/XIMB MULTINATIONAL CORPORATION Enterprise that own or control value-added activities in two or more countries

  6. Amar KJR Nayak/IB/XIMB French economist – Maurice Bye (1958) Transnational Corporation Internationalization of oil industry–integration of different stages of oil production Edith Penrose In the light of Theory of Growth of Firms rather than a theory of foreign investment. Case of General Motors manufacturing subsidiary in Australia

  7. Source Attribute Global Transnational Multi- domestic Perlmutter (1969) Management Style Ethnocentric Geocentric Geocentric Polycentric Kindleberger (1973) Various functional and attitudinal attributes National corporation with foreign operations International -- Multinational Porter (1986) Coordination and configuration needs Global Complex Global -- Multi-domestic Bartlett and Ghoshal (1989) Network / Inter-organizational Structure Global Transnational International Multinational Bartlett and Ghoshal (1990) Organizational Structure Centralized Networks Networks Decentralized Hierarchy (H form) Hierarchy Hierarchy Hierarchy (M Form) Hedlund (1986) Organizational Structure Amar KJR Nayak/IB/XIMB Organizing Framework for Previous MNE Definitions Source: The International Business Environment, Sundaram & Black, 1998

  8. Organizational Characteristics Multinational Global International Transnational Configuration of assets & capabilities Decentralized & nationally self-sufficient Centralized & globally scaled  Sources of core competencies centralized, others decentralized Dispersed, interdependent, & specialized Role of overseas operations Sensing & exploiting local opportunities Implementing parent company strategies Adapting & leveraging parent company competencies  Differentiated contributions by national units to integrated worldwide operations Development & diffusion of knowledge Knowledge developed & retained within each unit Knowledge developed & retained at the center  Knowledge developed at the center & transferred to overseas units  Knowledge developed jointly and shared worldwide Amar KJR Nayak/IB/XIMB Organizational Characteristics Source: Barlett & Ghosal

  9. Amar KJR Nayak/IB/XIMB Let’s look at a Case LAFARGE: A concrete multinational http://www.lafarge.com/cgi-bin/lafcom/jsp/home.do?lang=en http://www.lafarge-india.com/webapp/rainbow/map.jsp

  10. Amar KJR Nayak/IB/XIMB • Characteristics of MNEs • 1880s: Multinational enterprises • Highly industrialized economies of Western Europe and North America • Main characteristics of these enterprises • Diverse business operation • Mixture of large and small firms • Both Managerial and Family firms (but later type predominated)

  11. Amar KJR Nayak/IB/XIMB • The MNEs employ a variety of equity and non-equity modes of investments • Natural resources were the primary sector of exploitation like mining, oil exploration and trade in natural products like sugar, banana and rubber • Multinational trading companies, banks and utilities grew with time as the main service providers to the pioneers of international business during this time. • Affiliated firms are linked by ties of common ownership • A common pool of resources and And, • A strategic vision that guides all the affiliates

  12. Amar KJR Nayak/IB/XIMB • Location Advantages: • Resource allocation based upon the spatial distribution of factor endowments. • Ownership Advantages: • Access to new products and processes • Superior management and organization technology • Access to large finance • Economics of large scale

  13. Amar KJR Nayak/IB/XIMB Distinguishing Aspects of MNEs: Sundaram & Black • Multiple sources of external authority • Number of geographic locations • Variance in country environments • Lack of superstructure to mediate threats or opportunities that arise at the intersection of the variance in country environment • Multiple denomination of value • Translation exposure (valuation and setting up of past transaction) • Transaction exposure (problem of hedging) • Economic exposure (impact of unanticipated changes in real exchange rate)

  14. Amar KJR Nayak/IB/XIMB Why Firms Become Multinational? ·To protect themselves from the risks and uncertainties of the domestic business cycle ·To tap the growing world market for goods and services ·Increase foreign production ·To reduce costs (transport and middlemen) and improve overall efficiency by restructuring existing value-added activities

  15. Amar KJR Nayak/IB/XIMB • To overcome tariff walls • ·Totake advantage of technological expertise by manufacturing goods directly • ·To restructure existing foreign value added activities, so as to improve overall efficiency and change the range of products produced • ·To acquire assets that might be complementary to existing assets, or competitive to them, so as to reduce risk, capture the economies of scale or synergy, or generally strengthen the acquiring firms competitive position in national or world markets.

  16. Amar KJR Nayak/IB/XIMB Strategic Philosophy of MNEs MNEs make decisions that are best for the organization, even if it means transferring funds or jobs to other countries MNEs are considered as stateless corporations

  17. Amar KJR Nayak/IB/XIMB • Examples: • IBM has transferred 120 executives and the headquarters of its $ 10 billion a year communications business to Europe in order to capitalize on the expected growth in Europe. • Layoffs in Japanese companies: Nissan, Sony • In Japan, Xerox has over 12,000 employees, Texas Instrument has over 5000 employees, Hewlett-Packard has 3,000 employees

  18. Amar KJR Nayak/IB/XIMB • In US (1990), about 640 U.S plants that were either wholly or partially owned by the Japanese, employing about 160,000 workers • By 2000 A.D., 800,000 American were employed by the Japanese firms • Project involve people from a host of nations

  19. Amar KJR Nayak/IB/XIMB Mazda’s Sports car MX-5 Miata: Design - California Prototype - England Assembly - Michigan & Mexico Advanced electronic components invented - New Jersey Fabricated - Japan Finance - Tokyo & New York

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