MULTINATIONAL

CORPORATIONS
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 OVERVIEW

 What is MNC?
 History and Evolution of MNC

 MNC Structure.

 Organization of MNC.

 SWOT Analysis of MNC.

 Reasons for establishment of MNC.

 Advantage and Disadvantage of MNC

 Criticism of MNC.

 MNCs in India.

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 WHAT IS A MULTINATIONAL
CORPORATION???
 It is a corporation that:

Manages And/or
Delivers
production services

In more than
one country
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 WHAT IS A MULTINATIONAL
CORPORATION? (CONTINUED)
 According to Franklin Root (1994), an MNC is a
parent company that:
 engages in foreign production through its affiliates
located in several countries,
 exercises direct control over the policies of its
affiliates,
 implements business strategies in production,
marketing, finance and staffing that go beyond
national boundaries.

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 EXAMPLES OF MNCS:
The largest MNCs:
 Ford
Wal-Mart Stores
 IBM
Exxon Mobil
 British Petroleum
Royal Dutch Shell
 Mc Donald’s
These companies have
turnovers in excess of
 Phillips the GNPs of some
countries. 5
 HOW IS A COMPANY CLASSIFIED
AS AN MNC?

Subsidiaries Stakeholders
in foreign are from
countries;
Operations in different
a number of High proportion countries.
countries; of assets in or/
and revenues
from global
operations;
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 HISTORY AND EVOLUTION OF MNCS:

 These corporations originated early in the 20th

century and expanded after World War II.

 A multinational corporation developed new

products in its native country and manufactured
them abroad.

 Almost all the earliest and largest multinational

firms were either American, Japanese, or West
European. 8
 HISTORY AND EVOLUTION OF MNCS:

 Duringthe last three decades, many smaller

corporations have also become
multinational.

 Suchenterprises maintain that they create

employment, create wealth, and improve
technology in countries.

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MULTINATIONAL CORPORATION
STRUCTURE:

Horizontally integrated
multinational
corporations.

Vertically integrated
multinational
corporations.

Diversified multinational
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corporations.
MULTINATIONAL CORPORATE STRUCTURE
 Horizontally integrated multinational corporations
manage production establishments located in different
countries to produce the same or similar products.
(example: Mac Donald. )
 Vertically integrated multinational corporations
manage production establishment in certain
country/countries to produce products that serve as input
to its production establishments in other country/countries.
(example: Adidas)
 Diversified multinational corporations manage
production establishments located in different countries
that are neither horizontally nor vertically nor straight, nor
non-straight integrated. (example: Microsoft or Siemens)
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 SWOT Analysis of MNCs:

Strengths Weakness
• Low Cost • Location is often very distant
• Well Developed • Lack of Transportation facilities
Infrastructure • Relative Inflexibility

Opportunities
Threats
• Leverage Government
• Attract new industries • Govt. restrictions
•Quotas
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 REASONS FOR THE
ESTABLISHMENT OF MNCS
 To increase market share.

 To secure cheaper premises and labour.

 Employment and Health & Safety Legislations in

other countries may be more relaxed.

 To avoid or minimise the amount of tax to be paid.

 To take advantage of government grants available.

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Conti...
 To save on costs of transporting goods to the
market place.

 To develop an international brand.

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 Advantages

To the Host To the Home

Country Country
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 ADVANTAGES OF MNCS TO THE
HOST COUNTRY:
 Transfer of technology, capital and
entrepreneurship.

 Increase in the investment level and thus, the

income and employment in the host country.

 Greater availability of products for local

consumers.

 Increase in exports and decrease in imports.

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ADVANTAGES OF MNCS TO THE
HOME COUNTRY.
 Acquisition of raw materials from abroad.

 Technology and management expertise acquired

for competing in global markets.

 Export of components and finished goods for

assembly or distribution in foreign markets.

 Inflow of income from overseas profits, royalties

and management contracts.
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DISADVANTAGES OF MNCS:
 Trade restrictions imposed at the government-level

 Limited quantities (quotas) of imports.

 Effective management of a globally dispersed

organization.

 Slow down in the growth of employment in home

countries.

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 Destroy competition and acquire monopoly.
WORLD’S TOP MNCS:

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TOP 10 CO.S IN FORTUNE 500 LIST 2016

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FORTUNE GLOBAL 500 2016:
COUNTRY WISE:

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 CRITICISM OF MNCS:

 Creation of false needs in consumers.

 Interference and dominance in the
internal affairs of sovereign nations.
 Invasive advertising and corporate
lobbying.
 Creation of monopolies in the market and
elimination of local competitors.

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contd…
 Depletion of resources due to their
continuous use by these corporations.

 Centralization of R&D operations in their

home country.

 Low consideration for human rights and

welfare.

 The problem of Dumping.

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MNCS IN INDIA:

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MNCs in India have a long history and tradition:

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 WHAT INDIA OFFERS???
 One billion plus population.

 India is ranked as the 10th largest economy, 4th largest in

terms of Purchasing Power Parity.

 250-300 million middle class.

 Gross Domestic Product (GDP) is growing at over 7-9 %,

making it one of the fastest growing economies in the
world.

 Opportunities for U.S. exporters with the right products or

services.
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 Easier access to capital.

INDIAN COMPANIES IN FORTUNE
GLOBAL 500 LIST 2016:

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 TRENDS OF MNCS IN INDIA:

 First MNC in India was the EAST INDIA Company. in

1600.

 American companies account for around 37% of the

turnover of the top 20 firms operating in India.

 Oil companies and Infrastructure builders from the

Middle East are also gather in India to catch the boom.

Contd……. 29
 Increasing flocking of Europian Union companies
to India.
 Mobile handset manufacturing giant SAMSUNG
is the largest Multinational Corporation In India.
 Italian automobile giants like Fiat, Ford Motors,
Piaggio etc expanded their operations in India
with R&D wing attached.

 South Korean Electronics giants Samsung and

LG Electronics and small and mid-segment car
giant Hyundai Motors are doing excellent
business and using India as a hub for global
delivery.
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KEY ADVANTAGES OF EXISTENCE
OF MNCS IN INDIA
 Work culture for employees.

 Training and Learning.

 Technology – especially concept of working with

better technologies.

 Safety, Health and Environmental Learning.

 Excellent training grounds for many entrepreneurs.

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 KEY CHALLENGES THAT INDIAN
MNCS FACE:
 Language.

 Culture.

 Styles of doing business.

 Handling of potential liabilities related to Labor, IPR etc.

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 Definitions

Multinational Companies (MNC’s)

As defined by I. L. O. or the International Labor Organization, a M.

N. C. is one, which has its operational headquarters based in one
country with several other operating branches in different other
countries. The country where the head quarter is located is called
the home country whereas, the other countries with operational
branches are called the host countries.

Transnational Companies
(TNC’s)
As defined by United Nations Commission on Transnational
Corporations as ‘enterprises which own or control production or
service facilities outside the country in which they are based.
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D i f f e r e n c e B e t w e e n M N C ’s & T N C ’s
• Transnational corporations are a type of Multinational
corporations.

• MNC have an international identity as belonging to a particular

home country where they are headquartered. On the other hand,
transnational corporations are more or less borderless in this
regard as they do not consider a particular country as their base.

• MNC’s have branches in other countries, whereas TNC’s have

subsidiaries

• MNC have investment in other countries, but do not have

coordinated product offerings in each country. It is more focused on
adapting their products and service to each individual local market.
A TNC, on the other hand, have invested in foreign operations,
have a central corporate facility but give decision-making, R&D and
marketing powers to each individual foreign market.

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 BIBLIOGRAPHY
 www.wikkipedia.com

 www.investopedia.com

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