MULTINATIONAL CORPORATIONS AND GLOBAL CAPITAL: LESSONS FROM INDIA. Raza Mir. MNCs ARE DOMINANT. Inflows of Foreign Direct Investment crossed $1.6 trillion in 2012, with over $500b reported as mergers and acquisitions.
MULTINATIONAL CORPORATIONS AND GLOBAL CAPITAL: LESSONS FROM INDIA
MNCs ARE DOMINANT Inflows of Foreign Direct Investment crossed $1.6 trillion in 2012, with over $500b reported as mergers and acquisitions. The top 500 MNCs of the world showed revenue growths in excess of 10% and profit growths in excess of 15% in 2012 despite the global economic downturn.
NATIONS AND CORPORATIONS RANKED TOGETHER
BASIC MNC THEORY Internalization theory MNCs profit from internalizing activities that are difficult to enforce by contracts (such as licensing) Get around trade barriers Exploit assets at large scale Increasing size, unequal development MNCs help make a core-periphery possible Small, wealthy core, large exploited periphery
WHAT IS GOOD ABOUT MNCs? Bring investment to different parts of the world (also innovation, technology, management skills) Provide better consumption choices (more goods, cheaper) Facilitate specialization, and promote economic growth (China) Provide competition to complacent domestic firms
WHAT IS BAD ABOUT MNCS? Exploitation of labor, violation of labor laws Environmental degradation Destruction of local economies Using financial power to change pricing cycles (low followed by high) Avoiding local taxes (by using spatial breadth, transfer pricing) (Apple) Influencing governments (Ken SaroWiwa)
CRITICAL THEORIES OF THE MNC MNCs take advantage of spatial and temporal arbitrage (at global level in case of MNCs) and thus appropriate surplus value Factor advantages (natural resources/labor) Governance advantages (laws) Technological advantages (absorptive capacity) Temporal advantages (global assembly line, level of development) Often, these take on unjust dimensions
RESEARCH QUESTIONS Macro How do changes in the macro economic policies (of poorer nations) affect the strategy and structure of MNCs? Conversely, how do MNCs play a part in the changing macroeconomic policies of nations? What are the specific ways in which these policies are evaluated and resisted?
RESEARCH QUESTIONS Micro What are the ways in which technology is transferred within corporations? How does the headquarter of the MNC prepare the subsidiary for knowledge transfer? How do various groups within the subsidiary receive and resist the demands made by the headquarters related to knowledge transfer?
MY RESEARCH An ethnographic study of the Indian subsidiaries of 2 US-based MNCs One old (economy), one new (economy) Spent several months on site, and used a variety of secondary documents A detailed study of four ‘episodes’ of knowledge transfer in these corporations Data gathered through interviews, observations, documents, websites, communiqués Episodes identified after preliminary reports, and followed up Theorized, narrativized, frameworks created
ORGANIZING PROVERB How can you pour tea into a cup that is already full? (Sufi proverb) Subtext: How can you ‘teach’ someone who already ‘knows’?
EMPIRICAL CONTEXT Reagent, a large US-based MNC Reagent-India, 50 years old Pre-1991 scenario Restrictions on level of foreign ownership Histories of import-substitution policies Organizations rarely “risked” introducing global brands
EMPIRICAL CONTEXT (contd.) Post-1991 scenario Reagent was able to ramp up its ownership Corporate decision to introduce well-known pharmaceutical brand “Soledone” Cost profile was simply unfeasible (5x generic competition) Decision to outsource to a local sub-contractor (Satish Enterprises) Tremendous worries about the “theft” of IP (processes)
THE REALITY… QUITE THE OPPOSITE When the R&D people of Reagent came up to me and showed me their plans, they acted as if they were dealing with very big secrets. They gave me these big multicolored binders and said, “you should be very careful – this material should not be photocopied. You should just look at it and tell us whether you can do it or not.” At first I got a little excited, thinking that I would see some very new information. But after I studied it for 2-3 days, I called them up and asked them to take it back. I told them, “Thank you very much. But really your process is not going to work at all because it is far too expensive. You are asking me to buy completely all new kinds of equipment just to manufacture a simple product, one that I already manufacture far more efficiently. There are many companies with similar products as yours, who give me their manufacturing contracts, and they are all happy with my way. Why do you want your process to be three times as expensive when the product itself is quite the same?” SreekanthReddy Owner of Satish Enterprises, a Reagent contractor
A CORPORATE “RASHOMON” Cast of principal characters Scott Burbank (Head of Global Marketing, Reagent USA) PinchooKapoor (CEO, Reagent India) Sreekanth Reddy (Owner/CEO of Satish Enterprises)
SATISH’S INGENUITY They (Reagent corporate) said they did not like chlorination because of two things – one is that it is carcinogenic. Any residue of chlorine that was more than 2 ppm. (parts per million) is bad for human beings in the long run. I told them that in my process, the residual chlorine is brought down to 1 ppm. or less without any problem. Nobody believed me when I said that, but I have achieved it batch after batch. The second thing they said was that you have to use ozonization in the process in order to achieve some kind of bactericidal quality. I said there’s no need to ozonize, because one can achieve the same with hydrogen peroxide and 0.4% chloroform and that will do the exact same job by itself. They did not believe me at first. So I said that, you know, chlorination will help you also not to use preservatives. And the less preservatives you use, the more your manufacturing efficiency. And they asked, how can that be done? So I said you add bromidium to the process. And that will take care of it. Then they asked how I would get rid of the bromidium catalyst. I said I have a good recovery system and I have been using it for many of the products that I manufacture. When they found I was giving technically feasible answers to all their questions, they had no choice. So they said OK, you can try. And I used aluminum chloride, which I made by adding some hydrochloric acid to aluminum scrap. And did the reaction with sodium carbonate - actually through the bicarbonate route. And I was able to get about 80% efficiencies. Once I made a full batch, they subjected it to a number of really comprehensive tests for taste, flavor, color, and carcinogenics. And they found that it was as good as any of their other products in other plants. Sreekanth Reddy, Owner of Satish Enterprises
ONE TYPE OF “CAPABILITY TRANSFER” Excerpt from PinchooKapoor’s annual R&D report (co-signed by Scott Burbank): “This year, we have, under the guidance of corporate, developed a new way of manufacturing Soledone that uses chlorination instead of pasteurization. “This process, which uses a chlorination technique, has led to an over-50% reduction in the production cost of Soledone. The process has been thoroughly documented for ISO 9000 certification (annexure enclosed), and is under consideration for manufacture at other Reagent locations in Europe and USA.”
A CORPORATE “RASHOMON” Kapoor/Burbank: “Of course the process is ours. Satish had some ideas, but most of them came from studying the plans supplied to them by Tarrytown (Reagent’s headquarter city). And my team worked constantly with them to fine-tune their process. It is not as if they came up with it on their own. And once we stabilized the process, we documented it as a matter of routine. It is part of our corporate policy. Anyway, before we began manufacture, Reddy had signed an agreement that all patents derived from this process would belong to us.”
DÉNOUEMENT Reddy passed up on an invitation to a gala party to celebrate the success of Soledone. “They mentioned that this would be a celebration for the entire ‘Reagent family.’ Why should the family servant be part of the family celebration?” Somewhere in a server housing the electronic archives of Reagent’s production processes, there is a stored document about the patent protected process by which Reagent manufactures Soledone using the technique of chlorination.
DEFINING A CAPABILITY Fluidity Judgmental component Tacit (good) vs. Explicit (not so good) Embedded The challenge of strategy is to monetize and commoditize a capability (transform it into a strategic resource) PROPERTY RIGHTS underlie it all
INTRA-ORGANIZATIONAL CAPABILITY TRANSFER Creation Turning individual knowledge to organizational knowledge Codification Paradox: Codifiability reduces value Transfer Absorptive capacity issues
WHAT IS LEFT OUT Power relationships The presence of the colony in the imperial corporation Imperialism through signification and hegemony Paleo-Imperialism (the return of place Resistance as dialogical
WE NEED TO SEE… Everyday resistance in the global workplace Uncontested appropriations as normalized organizational “strategy,” legitimated as “capability transfer” The role of national and global symbols in the power struggle Production of the “global subject”