Meaning:
A multinational corporation is a business unit which operates
simulanteasly (regularly) in different part of would either by manufacturing, marketing
or both by keeping its headquarter elsewhere as a strategic nerve centre.
5 criteria of MNC
1. It operates in many countries at
different levels of economic development.(based on economic condition/ after doing
research )
2. Its local subsidiaries are managed by
nationals of the local country. (finding local company to do business)
3. It maintains complete industrial
organizations including R&D and manufacturing facilities in several countries.
4. It has direct investment base in
different countries.( has one
headquarter to invest several parts)
5. It derives from foreign operations.
Types of
MNC’s
1. Pyramid model / conglomerate MNC
2. Umbrella model MNC
3. Inter conglomerate model MNC
1. Pyramid model / conglomerate
MNC
These organization have strange headquarters and weak subsidiaries.
The headquarter mostly is arrogant and gives no power to its subsidiaries and
the decision making capacity is also not centralized.
Eg; IBM, Mc Donald’s, Siemens and marks and sponsor etc.
2. Umbrella model MNC
This model of MNC is very good among others and there is a
relationship of mutual help between the headquarter and its subsidiary. Ideas
and money flow freely where making money and using power is not the primary
motive of these organization . headquarters give full freedom to its
subsidiaries and both headquarter and its subsidiaries were very strong.
Eg; Procter and humble, price water house.
3. Inter conglomerate
model MNC
For such organization money is the main aim , investment and rate
of investments are very high and it shows no loyalty towards any subsidiary
company. these companies enter any segment and adopt the approach of multi
products etc. such companies try to acquire monopoly and take over its
competitors there by reducing competition .
Eg; HLL (Hindustan lover ltd) and unlevel etc
How MNC’s
expands their business
1. International licensing
2. International franchising
3. Turnkey projects
4. Joint ventures
5. Collaborations.
1. International
licensing:
MNC permits their demotic company to use its trade mark, brand name
or technical knowhow go manufacturing and marketing purpose. The license is
given against payment of fee which acts as sorts of income to the MNC’s
Eg; brand ‘555’ is the license user of British American Tobacco
Company. In India it is manufactured by ‘ITC’ ( the license which has the market
os 600cr and company pays 5% of the total sale sto British American tobacco
company ( the licenser) as license fees. The British American tobacco company
does not provide any raw material but just the brand name is given.
This company took 45 years to establish the licenser generally
keeps supervisor in the plant of licensee.
2. International
franchising
The licenser not only provides the brand name but also the raw
material required for creation of the products or goods.
Eg; Mc Donald’s company provides syrup to pharmaceutical and Pepsi
provides its essence to ‘panjab agrow’.
3. Turnkey projects
MNC’s if undertake to complete the whole project and hand over the
same when ready to the host country. Such project may be supplied on tender
basis which provides new opportunity to MNC’s for expanding the business
activities.
4. Joint ventures
Joint ventures is the binding between home country representative
and foreign country representative to set up a project either in home country,
host country or 3rd country (same other) with a commitment of joint
risk taking and joint profit sharing .
Eg; joint ventures in between ‘Taj’ group of hotels with Russian
government.
5. Collaborations
It deals with any one part of management function either finance or
technology collaboration ( it is not possible to have collaboration) in
consumer products or FMCG products but it happen generally with medicines and technological
products
Eg; kinetic Honda Bajaj and Kawasaki
Merits of MNC’s
1. MNC are said to be the agents of change
and progress on would wide.
2. Suitable maximum use of resources
3. To the host countries the plants,
equipments and technical knowhow , necessary for its operation which is not
available through MNC’s
4. MNC create employment opportunities in
the host country and local requirement of junior managers create a pool of
managerial talent in the country.
5. Goods are made available at cheaper price
due to economic of scale.
6. MNC’s contribute enormously to technology
transfer between rich and poor countries.
7. MNC’s helps in removal of monopoly and
improve the quality of domestic made products
8. Provides benefit of research and
development
Demerits
of MNC’s
1. Some MNC’s exploits local labor by paying
relatively lesser rates
2. MNC’s involvement often result in the
lack of development of local research and development activities.
3. Use of capital intensive technologies
reduce jobs in local country
4. MNC’s ruin domestic companies.
5. Adverse effect on lifestyle or culture in
host countries
6. Some MNC’s like Ranbaxy, Wipro, Infosys,
charges very high fees compared to the domestic companies
