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ISSUED IN PUBLIC INTEREST Advisable “All material in slides need not be understood. Use your current working environment and experience to relate to situations. Errors and omissions regrettable. Subject to corrections on Being brought to notice” Syllabus MNC’s & International Business; Definitions Organisational Transformation; Globalisation of Business; dominance of MNC’s; MNC’s & International Trade; Merits of MNC’s; demerits; perspectives; code of conduct; MNC’s in India; International Marketing Intelligence; Information requirements; sources of Information; phases of Research Projects; problems in International Research Contents MNC-Meaning MNC-Definition Five Criteria of MNC Types of MNC’s History of MNC Features of MNC Objectives of MNC Reasons for the Growth of MNCs Hierarchy Of MNC Activities MNC’s And International Trade Dominance Of MNC’s And Global Economy Growth Perspective of MNCs Code of Conduct Dominance Of MNC’s And Global Economy Multinationals in India Few Examples of MNCs in India Contents…. Merits of MNCs Demerits of MNC’s Globalisation-International Business Business Environment for an MNC Elements of Strategic Planning for International Management Formulation of MNC Goals International Marketing Intelligence Information Requirements Sources of Information International Marketing Information system and Marketing Research Scope of Marketing Research Phases of a Research project Limitations of Marketing Research Problems In International Research Concept of Organisational Transformation Quote-1 “Globalization is the inexorable integration of markets, transportation systems, and communication systems to a degree never witnessed before -- in a way that is enabling corporations, countries, and individuals to reach around the world farther, faster, deeper, and cheaper than ever before...” Thomas Friedman, The World is Flat (2005) MNC-Meaning An enterprise operating in several countries but managed from one (home) country. Generally, any company or group that derives a quarter of its revenue from operations outside of its home country is considered a multinational corporation. MNC-Definition Definition: Multinational Corporation The essential nature of the multinational enterprises lies in the fact that its managerial headquarters are located in one country while the enterprise carries out operations in a number of other countries as well. Five Criteria of MNC It operates in many countries at different levels of economic development Its local subsidiaries are managed by nationals It maintains complete industrial organizations, including R and D and manufacturing facilities, in several countries It has a multinational central management It has multinational stock ownership Types of MNC’s Service MNC-Vodafone Manufacturing MNC-Sony, LG Trading MNC-Franklin Templeton, Citi Corp Financial Services History of MNC Multinational business operation is not a new concept. The British east India company, Hudson’s Bay corporation and Royal Africa Companies are example of MNCs. The post second world war period has however, witnessed a changing hand in colonialism and there emerged a new thrusts for industrial and technological development as well as rise of the USA as the largest industrial power. The Dutch East India Company was the first multinational corporation in the world and the first company to issue stock It was also arguably the world's first mega corporation possessing quasigovernmental powers, including the ability to wage war, negotiate treaties, coin money , and establish colonies. The first modern multinational corporation is generally thought to be the East India Company. Many MNC’s have offices, branches or manufacturing plants in different countries from where their original and main headquarters is located. 1st MNC in world Dutch East India Company 1st MNC In India IBM 1st Indian MNC’s Infosys Features of MNC 1. Big size 2. Huge intellectual capital 3.Operates in many countries 4.Large number of customer 5.Large number of competitors 6.Structured way of decision making Objectives of MNC To expand the business beyond the boundaries of the home country. Minimize cost of production, especially labour cost. Capture lucrative foreign market against international competitors. Avail of competitive advantage internationally. Achieve greater efficiency by producing in local market and then exporting the products. Make best use of technological advantages by setting up production facilities abroad. Establish an international corporate image. Reasons for the Growth of MNCs Factor mobility. Development in communication technology. Economic reforms. Risk minimize. Growth urge. Market potential. • Sales or marketing Office • Simple assembly plants • Full-Scale manufacturing (final products and components manufacturing abroad) • R & D operations MNC’s And International Trade Big sale base-the sale of foreign subsidiaries in the host countries are three to four times as large as total world exports. Exports rise-significant increase in the export intensity of the foreign affiliates of MNCs. Save on taxation in countries they operate-the abilities of multinationals to manipulate financial flows by the use of artificial transfer prices is bound to be a matter of concern government. Dominance Of MNC’s And Global Economy • The global liberalization has paved the way for fast expansion and growth of the MNCs. • The economic clout of the MNCs is indicated by the GDP of most of the countries is smaller then the value of the annual sales turnover of the multinational giants Reno vision on the Art of Global Dominance Source raw materials wherever they are cheapest. Manufacture wherever in the world is most cost effective. Sell in those global markets where prices are highest. Raise finances globally. Forge international strategic alliances. Growth Perspective of MNCs 1. 2. 3. 4. 5. Increasing emphasis on market forces and a growing role for the private sector in nearly all developing countries. Rapidly changing technologies that are transforming the nature of organization and location of international production. The globalization of firms and industries. The rise of services to constitute the largest single sector in the world economy Regional Economic Integration Code of Conduct A framework to allow developing countries as well as transnational corporations to benefit from direct investments on terms contractually agreed upon Legislation Cooperation by governments Fiscal and other incentives and policies towards foreign investment An international procedure for discussions and consultations One way to view codes of conduct is by grouping them into three main categories: Externally generated codes of conduct that are developed by governments or international organizations Corporate codes of conduct that represent individual companies’ ethical standards, and Industry-specific codes. The multinational corporation shall : Provide clear statement of the basic mission and policies of the company Confirm to the established policies and the laws of the host country . Supply appropriate information to local authorities about health, safety and environment effects of company‘s products . Respond affirmatively to the social and economic plans of the host country. Be concerned about human rights in decision making. Seriously consider credible complaints and try to eliminate them . Dominance Of MNC’s And Global Economy The global liberalization has paved the way for fast expansion and growth of the MNCs The economic clout of the MNCs is indicated by the GDP of most of the countries is smaller then the value of the annual sales turnover of the multinational giants Multinationals in India In India the government policy confined the foreign investment to the priority areas like high technology and heavy investment sectors of national importance and export sectors. Firms which had been established in non-priority areas prior to the implementation of this policy have, however, been allowed to continue in those sectors. Several Indian outfits of MNCs are in the low technology consumer goods sector. There are many MNCs which are in high technology area. Since the economic liberalization unshared in 1991, many multinationals in different lines of business have entered the Indian market. Few Examples of MNCs in India British Petroleum Vodafone Ford Motors Reebok LG Skoda motors Sony and many more Merits of MNCs • Helps removal of monopoly and improve the quality of domestic • • • • • made products. MNCs also stimulate domestic enterprise because to support their own operations, the MNCs may encourage and assist domestic suppliers. Promotes exports and reduce imports by raising domestic productions. Goods are made available at cheaper price due to economies of scale. MNCs help increase the investment level and thereby the income and employment in host country. They also kindle a managerial revolution in the host countries through professional management and the employment of highly sophisticated management techniques. Merits of MNC’s… • The enormous resources of the multinational enterprises enable them to have very efficient research and development systems. Thus they make a commendable contribution to inventions and innovations. • The transnational corporations have become vehicles for the transfer of technology, especially to the developing countries. • MNCs provide an efficient means of integrating national economics. Encourages the world unity and all resulting in world harmony Demerits of MNC’s Reduced control over economy-The host nation may also experience some loss of control over its own economy . Economic sovereignty loss-the host county is likely to lose its economic sovereignty The MNCs technology is designed for world wide profit maximization, not the development needs of poor countries. The imported technologies are not adapted to Consumption needs ƒ Size of domestic markets ƒ Resource availabilities Stage of development of many of the LDCs. MNCs may destroy competition and acquire monopoly powers. MNCs retard growth of employment in the home country. Feeling that labour is being exploited by the MNC/ Outsourcing Lost of cultural moorings Demerits of MNC’s • The transnational corporations cause fast depletion of some of the non-renewable natural resources in the host country. • The transfer pricing enables MNCs to avoid taxes by manipulating prices on intra-company transactions. • The problem of Dumping Globalisation-International Business Globalization sometimes used to refer specifically to the integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, and the spread of technology. Globalization is a process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade and investment and aided by information technology. This process has effects on the environment, on culture, on political systems, on economic development and prosperity, and on human physical well-being in societies around the world. Globalisation-International Business Globalisation is synonymously used with International Business. Globalisation is the economic integration among the countries across the globe. Global Village tends to be mainly economic integration of countries, but not political amalgamation. Globalisation-How does it happen? Internationalisation of business can be viewed as a four dimensional construct that enterprise can be more or less global along each of four characteristics. Four areas play a role in Globalization in sequential manner Globalisation of Market Presence Internationalisation of Supply Chain Globalisation of Capital Base Globalisation of Corporate Mindset Internationalisation of Business-Accessing Corporate Globality Globalisation of Capital Globalisation of Corporate Mindset Globalisation of Supply Chain Globalisation of Market Presence A true global company is one which scores high on all the four dimensions Internationalisation of Business-Accessing Corporate Globality Globalisation of Market Presence-(1st dimension)refers to the extent to which a company targets customers in all major markets within its industry throughout the world. Internationalisation of Supply Chain-(2nd dimension)refers to the extent to which the company is accessing the most optimal locations for the performance of various activities in its supply chain. It may be possible for a firm to have a fairly regional market presence and yet a highly globalised supply chain or vice versa. Globalisation of Capital Base-(3rd dimension)refers to the extent to which the company is accessing optimal sources of capital on a worldwide basis. Globalisation of Corporate Mindset-(4th dimension)refers to the ability of a company to understand and integrate diversity across cultures and markets. Business environment “Complex internal and external factor, directly and indirectly influence the performance of company.” Business Environment for an MNC Macro Environment Micro Environment Internal Environment Financiers Suppliers Customers Competitors Public Mktg Intermediaries Mission / Objectives Management Structure Internal Power Relationship Physical Assets & facilities Business Decision Company image Human resources Financial Capabilities Technological Capabilities Marketing Capabilities Economic Technological Global Demographic Socio-Cultural Political Elements of Strategic Planning for International Management External Environmental Scanning for MNC Opportunities and Threats Internal Resource Analysis of MNC Strengths and Weaknesses Strategic Planning Goals IMPLEMENTATION Environmental Scanning-External • • • • Environmental Analysis has three goals: • Provides an understanding of current and potential changes taking place • Should provide input for strategic decision making. • Facilitate and lead to strategic decisions within an organization. Strategists Proactive Planning-Environmental Analysis and diagnosis give strategists time to anticipate opportunities and to plan to take optional responses to tap these opportunities. It also helps strategists to develop an early warning system to prevent threats or to develop strategies which can turn a threat to a firm’s advantage”. Firms which systematically analyze and diagnose the environment are more effective than those which do not. Internal Resource Analysis • Evaluate managerial, technical, material, and financial strengths and weaknesses • • • Determine ability to take advantage of international market opportunities Match external opportunities (environmental scan) with internal capabilities (internal resource analysis) Key question for MNC: Do we have the people and resources that can help us develop and sustain necessary Key Success Factors, or can we acquire them? Elements of Strategic Planning Strategic Planning Goals Goal formulation often precedes first two steps (environmental scanning, internal analysis) Profitability and marketing goals almost always dominate strategic plans Once set strategic goals, MNC develops specific operational goals and controls for subsidiary or affiliate level Formulation of MNC Goals Profitability Level of profits Return on assets, assets, investment, equity, sales Yearly profit growth Yearly earnings per share growth Marketing Total sales volume Market share-world-wide, region, country Growth in sales Growth in market share Integration of country markets for marketing efficiency and effectiveness Formulation of MNC Goals Operations Rate of foreign to domestic production volume Economies of scale via international production integration Quality and cost control Introduction of cost efficient production methods Finance Financing of foreign affiliates Taxation-minimising tax burden globally Optimum capital structure Foreign exchange management-minimising losses from foreign fluctuations’ Human Resource Recruitment and selection Management development of host country nationals Development of managers with global orientation Compensation and benefits International Marketing Intelligence Sufficient and reliable information is pre-requisite for proper decision making be it domestic business or international marketing. International marketing intelligence includes the collection, processing, analysis and interpretation of all types of information, from all available sources, to aid business management in making international marketing decision. Proper business intelligence is essential to make all the series of strategic decisions in international marketing viz., International marketing decision Market selection decision Entry and operating decision Marketing mix decision Organization decision. Information Requirements Different types of information are needed to take the critical decision as to whether to go international or not. The broad areas of information requirement for international marketing are the following. International Marketing Related Information-These include information about the prospects of the foreign markets, competition, other characteristics of the foreign market, domestic market prospects etc. International Marketing Selection Related Information-Information on a large number of factors is needed for evaluation and selection of the markets like political and economic stability, currency stability, government policy and regulations, etc. Product Related Information-Market selection also requires specific information about the product or industry concerned like the demand trends, government policy and regulations, competitive situation etc. This also includes consumer tastes and preference about the product like unit size/ quantity, shape, color, product form, packaging etc; mode, time, frequencies and rates of consumption; purpose of use/uses etc; regulatory aspects and so on. Information Requirements Price Related Information needed include prevailing price ranges, price trends, margins, pricing practices, government policies and regulations, price elasticity of demand, role of price as a strategic marketing variable etc. Promotion Related Information-For formulating the promotion strategy data on many aspects like media availability and effectiveness, Government regulations, customs/practices of promotion in the market concerned, competitive behavior etc are required. Distribution Related Information-This includes information on factors like channel alternatives and characteristics, relative effectiveness of different channels, customs and practices of the trade, power and influence of channel members etc. Competition Related Information-A company will also need information about the competitive environment including the extent of competition, major competitors, relative strengths and weaknesses of competitors, strategies and behavior of competitors etc. Sources of Information Internal Sources-Experienced companies may have a great deal of available information internally. But companies new to international business may have to rely on external sources. External Sources-include sources of both primary and secondary data. A company will have to collect primary data when secondary data are not available, not adequate or reliable. Sources of Information There are a number of export promotion organizations in India which are important sources of information pertaining to foreign markets. While some of these are general, others are product specific. Most of them have periodic publications which disseminate useful information. Several of them have also brought out publications intended to provide general guidance and education to exporters. They also carry out market potential studies and other relevant studies. Sources of Information These organizations include India Trade Promotion Organization (ITPO) State Trading Corporations Chambers of Commerce Confederation of Indian Industry (CII) FIEO, (The Federation of Indian Export Organisations) Export Promotion Councils/Commodity Boards / Export Development Authorities. Organizations like the Indian Institute of Packaging, Export Inspection Council are also important sources for certain types of information. The Exim Bank has carried out a number of market studies. Although the Exim Bank is primarily a financial institution, it is also an important source of guidance for exporters. The offices of the consulates/embassies in India of foreign governments provide a lot of information about the respective countries. Sources of Information Educational and research organizations like Indian Institute of Foreign Trade, Management Schools/Departments of Universities etc, could be useful to exporters. Valuable information can sometimes be obtained from other exporters, export houses and trading houses, banks, ECGC (Export Credit Guarantee Corporation of India), etc. The international Trade Centre, Geneva is a very important source of information and assistance to exporters, particularly from developing countries Offices of the Indian embassies abroad and concerned departments/organizations of the foreign governments may be approached for certain types of information. There are also certain international organizations related to specific products. Organizations like the World Bank also make studies and reports regarding certain products. The World Trade Organization (WTO) is an important source for different types of information. In many case a lot of information can be obtained from publications like journals and research publications as national, foreign and international. International Marketing Information system and Marketing Research IM involves the creation of an information system, which should be a part of the company’s overall system information business for international decision making. (Secondary Data, MIS, GIS-ERP, SAP) When international information system is not having adequate /right data for decision making then Market Research or Primary data is collected for knowing more about marketing provlem or exploring marketing opportunity. Objectives of Marketing Research Identify the deficiencies Products Pricing Distribution Promotion Identify existing and emerging marketing opportunities Identify the relative weaknesses and strength of the company Monitor the environmental changes Scope of Marketing Research 1. Product research 2. Pricing research 3. Distribution research 4. Promotion research 5. Consumer research 6. Marketing environment research 7. Market trend research 8. Marketing efficiency research Phases of a Research project 1. Definition of the problem 2. Conducting of a situational analysis 3. Conducting an informal study 4. Formulation of the research design 5. Collection of information 6. Analysis and interpretation of data 7. Presentation of research findings Limitations of Marketing Research Research findings are not always dependable. The performance of many products have been in contradiction to the research indications. In underdeveloped countries marketing research has its own limitations arising from non availability of adequate and reliable data, problems in collecting and so on. It involves costs. It is a time consuming process. Problems In International Research The cultural differences make foreign market research a difficult task. It is often very expensive The research methodology suitable for one market may not be suitable for another market. Concept of Organisational Transformation Organizations today are faced increasingly with fierce competition, demanding customers, economic pressures, and financial crises. To be effective, they must reduce costs, improve product and service quality, and respond quickly to new opportunities in the marketplace. This means transforming an enterprise in practical terms, describing common practices, comparing structural options, and identifying relevant issues in planning, implementing, and measuring the success of organizational transformation. The transformation involves complex and simultaneous interactions. In his process, a variety of possible forms can emerge. Each of these forms is a possible alternative future of the system-which may range from complete destruction and annihilation of the system to a complete transformation to a higher level of complexity. Organizational Transformation MNC is now increasingly assuming the role of an orchestrator of production and transactions within a cluster, or network, of cross border internal-external relationships, which may or may not involve equity investment, but which are intended to serve its global interests. Concept of Organisational Transformation Definition Organisational Transformation is a term referring collectively to such activities as reengineering, redesigning and redefining business systems. The dominant enabling technology in transforming organization is information and technology. As business model change rapidly in the financial environment and mergers and acquisition change the face of the organization. So, organization continually need to A flexible, effective and efficient organization. A customer-centric approach to organizational activities. Recognition of current strengths to create a more productive environment. Understanding and reaping the benefits of competitive IT and business alignment. Promotion of an integrated approach to IT and business Concept of Organisational Transformation Three Types of Transformation Improving Operation: To achieve a quantum improvement in the firm's efficiency, often by reducing costs, improving quality and services and reducing development time. Strategic Transformation: The process of changing strategy seeks to regain a sustainable competitive advantage by redefining business objectives, creating new competences and harnessing these capabilities to meet market opportunities. Corporate Self-Renewal: Self-Renewal creates the ability for a firm to anticipate and cope with change so that strategic and operational gap does not develop. Concept of Organisational Transformation Phases of Transformation Phase-1: It begins with the automation of existing activities to reduce cost and raise capacities and expands to encompass a broader range of applications to optimize operations. Phase-2: It focuses on adding features, functions, value-added processes and new service to the core business. Phase 3: It may become principal vehicles for growth; the existing business can be redefined. Concept of Organisational Transformation Transformation Strategies 1. Transformation through Values 2. Transformation through Organisation Development 3. Transformation through Reengineering 4. Transformation through McKinsey's Plan 5. Transformation through Competitive Benchmarking 6. Transformation through Six Sigma 7. Transformation through Kaizen Principle Concept of Organisational Transformation 1. Transformation through Values In the changing business environment, values are guiding force for the companies. Values are nothing but something we hold dear, something that reflects an ideal or an ethic. A value to individual is purpose & meaning of life. Values to an organisation are foundations of culture. Organisation should choose values i) compatible with society's core values, ii) Based on sublimation of basic human urges, iii) compatible with purpose & operating context and iv) compatible with third world context. 2. Transformation through Organisation Development Most people and organisations are riot prepared for the vastly accelerated pace of change. OD appears to be one of the primarily methods for this. Organisation Development rests on three basic propositions (Bennis, 1969) Organisations change forms throughout the age. The changes taking place in that age make it necessary to revitalize and rebuild organizations. The only way to change organizations lies in changing the climate of the organization. A new social awareness is required by people in organizations. Concept of Organisational Transformation In short, the basic thrust behind OD is that the world is rapidly changing and that our organizations must follow suit. Greiner identified what he considered to be the seven most commonly used approaches to change. a) The Decree Approach b) The Replacement Approach c) The Structural Approach d) The Group Decision Approach e) The Data Discussion Approach f) The Group Problem Solving Approach g) The T-Group Approach 3. Transformation through Reengineering Reengineering is revolutionary, challenging the operation and even existence of fundamental processes. It not only improves the old way of doing business, it seeks to create a new and better way. Concept of Organisational Transformation 4. Transformation through McKinsey's Plan A ten point blue print for an organization a) Organise primarily around process, not task. b) Flatten the hierarchy by minimizing subdivision of processes. c) Give senior leaders charge of processes & process performance. d) Link performance objectives & evaluation of all activities to customer satisfaction. e) More teams, not individuals, the focus of organization performance and design. f) Combine managerial and non-managerial activities as often as possible. g) Emphasise that each employee should develop several competencies. h) Inform & Train people on a just-in-time, need to perform basis. i) Maximise supplier and customer contact with every one in the organization. j) Reward individual skill development and team performance instead of individual performance alone. Concept of Organisational Transformation 5. Transformation through Competitive Benchmarking Benchmarking is the continuous process of measuring products, services and practices against the toughest competitions or those companies recognize as industry leaders. 6. Transformation through Six Sigma It is the statistical parameter used to describe variation. It can be described as going from appx 35,000 defects per million operation to not more than 3 defects per million. It focuses on achieving tangible results as well as speaks the language of business. It uses as an infrastructure of highly trained employees from various sectors of the company. 7. Transformation through Kaizen Principle a) Small Improvement b) Conventional Knowledge c) Personal Involvement d) Many people e) Improve the process f) Standardise- Do- Check- Act to Plan-Do-Check-Act Quote-2 “"The most serious mistakes are not being made as a result of wrong answers. The truly dangerous thing is not asking the right questions." Dr Ravindra Pratap Gupta Questions Q1. Fill in the blanks MNC is an enterprise operating in several countries but managed from one (home) country. The global liberalization has paved the way for fast expansion and growth of the MNCs. The economic clout of the MNCs is indicated by the GDP of most of the countries is smaller then the value of the annual sales turnover of the multinational giants. MNC helps removal of monopoly and improve the quality of domestic made products. The MNCs technology is designed for world wide profit maximization, not the development needs of poor countries. Globalization sometimes used to refer specifically to the integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, and the spread of technology. Organisational Transformation is a term referring collectively to such activities as reengineering, redesigning and redefining business systems. The dominant enabling technology in transforming organization is information and technology. Questions Q2. Define MNC? Discuss five criteria of MNC? Types of MNC’s? Features & objectives of MNC’s? Q3. Write notes on Reasons for the Growth of MNCs MNC’s And International Trade Dominance Of MNC’s And Global Economy Growth Perspective of MNCs Code of Conduct Dominance Of MNC’s And Global Economy Multinationals in India Q4. Discuss the merits & demerits of MNC? Q5. Discuss Globalisation-International Business? Q6. Discuss business environment for an MNC? Questions Q7. Write notes on Elements of Strategic Planning for International Management Formulation of MNC Goals International Marketing Intelligence Information Requirements Sources of Information International Marketing Information system and Marketing Research Scope of Marketing Research Phases of a Research project Limitations of Marketing Research Problems In International Research Q8. Discuss the Concept of Organisational Transformation?