Unit -1 Lecture-5(characteristics and role of mncs)

1. MNCs: Characteristics and
Role of MNCs

2. Multi National Corporation
Multinational corporation (MNC) is a enterprise
that manages production or delivers services in
more than one country can also be referred to as
an international corporation.

3. Cont……
Multinational Corporations or Multinational Companies are corporate
organizations that operate in more than one country other than home country.
Multinational Companies (MNCs) have their central head office in the home
country and secondary offices, facilities, factories, industries, and other such
assets in other countries.
These companies operate worldwide and hence also known as global
enterprises. The activities are controlled and operated by the parent company
worldwide. Products and services of MNCs are sold around various countries
which require global management.
High turnover and many assets, aggressive marketing are some of the features
of Multinational Companies. LTI, TCS, Tech Mahindra, Deloitte, Capgemini
are some of the examples of MNCs in India.

5. Models of Multinational Corporations
The following are the different models of multinational corporations:
1. Centralized: In the centralized model, companies put up an executive
headquarters in their home country and then build various manufacturing plants and
production facilities in other countries. Its most important advantage is being able to
avoid tariffs and import quotas and take advantage of lower production costs.
2. Regional: The regionalized model states that a company keeps its headquarters in
one country that supervises a collection of offices that are located in other countries.
Unlike the centralized model, the regionalized model includes subsidiaries and
affiliates that all report to the headquarters.
3. Multinational: n the multinational model, a parent company operates in the home
country and puts up subsidiaries in different countries. The difference is that the
subsidiaries and affiliates are more independent in their operations.

6. Multi National Corporation

7. Some popular examples of multinationals are given
below:

8. Characteristics or Features of Multinational Corporations
(MNCs):
(i) Huge Assets and Turnover: Because of operations on a global basis, MNCs have huge
physical and financial assets. This also results in huge turnover (sales) of MNCs. In fact, in
terms of assets and turnover, many MNCs are bigger than national economies of several
countries.
(ii) International Operations Through a Network of Branches: MNCs have production
and marketing operations in several countries; operating through a network of branches,
subsidiaries and affiliates in host countries.
(iii) Unity of Control: MNCs are characterized by unity of control. MNCs control business
activities of their branches in foreign countries through head office located in the home
country. Managements of branches operate within the policy framework of the parent
corporation.
(iv) Mighty Economic Power: MNCs are powerful economic entities. They keep on adding
to their economic power through constant mergers and acquisitions of companies, in host
countries.

9. Cont…..
(v) Advanced and Sophisticated Technology: Generally, a MNC has at its
command advanced and sophisticated technology. It employs capital intensive
technology in manufacturing and marketing.
(vi) Professional Management: A MNC employs professionally trained managers
to handle huge funds, advanced technology and international business operations.
(vii)Aggressive Advertising and Marketing: MNCs spend huge sums of money
on advertising and marketing to secure international business. This is, perhaps, the
biggest strategy of success of MNCs. Because of this strategy, they are able to sell
whatever products/services, they produce/generate.
(viii) Better Quality of Products: A MNC has to compete on the world level. It,
therefore, has to pay special attention to the quality of its products.

10. Cont…..
(IX) Ownership and control: ownership of company remains on both parent and
host country. Parent company control, manage and help in the operation of all
host countries. They have control in capital, high technology, and trade mark.
(X) Network of branches: Multinational companies maintain production and
marketing operations in different countries. In each country, the business may
oversee multiple offices that function through several branches and subsidiaries.
(XI) Sophisticated technology: When a company goes global, they need to make
sure that their investment will grow substantially. In order to achieve substantial
growth, they need to make use of capital-intensive technology, especially in
their production and marketing activities.

11. Merits:
1. Economic Development: -The Developing countries need both foreign capital and
technology to make use of available resources for economic and industrial growth. MNCs can provide
the required financial, technical and other resources to needy countries in exchange for economic gains.
2. Technology Gap: - MNCs are the instruments of transfer of technology to the host country.
Technology is necessary to bring down cost of production and produce quality goods on a large scale.
The services of MNCs can be of great help to bridge the technological gab between developed and
developing countries.
3. Industrial Growth: - MNCs are dynamic and offer growth opportunities for domestic
industries. MNCs assist local producers to enter the global markets through their well established
international network of production and marketing. And there by ensure industrial growth.
4. Marketing Opportunities: - MNCs have access to many markets in different countries. They
have the necessary skills and expertise to market products at international level. For example, an Indian
Company can enter into Joint Venture with a foreign company to sell its product in the international
market.

12. Cont….
5. Work Culture: - MNCs introduces a work culture of excellence,
professionalism and fairness in deals. The sole objective of Multinational is profit
Maximation. To achieve this, the Multinationals use various strategies like
product innovation, technology up gradation, professional management etc.
6. Export Promotion: - MNCs assist developing countries in earnings
foreign exchange. This can be done by promoting and developing export oriented
and import substitute industries.
7. Research and Development: -The resources and experience of MNCs in
the field of research enables the host country to establish efficient research and
development system. It is a fact that many MNCs are now shifting their research
units to countries like India to avail of monetary incentives and cheap labour.

13. De-merits:
1. Problem of Technology: - Technology developed by MNCs from
developed countries does not fully fit in the needs of developing countries. This
is because, such technology is mostly capital intensive.
2. Political Interference: -The MNCs from developed countries are
criticized for their interference in the political affairs of developing nations.
Through their financial and other resources, they influence the decision-making
process of the governments of developing nations.
3. Self-Interest: -MNCs work towards their own self-interest rather than
working for the development of host country. They are more interested in
making profits at any cost.

14. Cont….
4. Outflow of foreign Exchange: -The working of MNC is a burden on the limited
resources of developing countries. They charge high price in the form of commission and
royalty paid by local subsidiary to its parent company. This leads to outflow of foreign
exchange.
5. Exploitation: - MNCs are criticised for exploiting the consumers and companies in the
host country. MNCs are financially very strong and adopt aggressive marketing strategies to
sell their products, adopt all means to eliminate competition and create monopoly in the
market.
6. Investment: -MNCs prefer to invest in areas of low risk and high profitability. Issues
like social welfare, national priority do not find any place on the agenda of MNCs.
7. Artificial Demand: -MNCs are criticised on the ground that they create artificial and
unwarranted demand by making extensive use of the advertising and sales promotion
techniques.

15. Present Scenario:
According to the Fortune Global 500 List, the top five
multinational corporations in the world as of 2019 based on
consolidated revenue were:
1. Walmart ($514 billion),
2. Sinopec Group ($415 billion),
3. Royal Dutch Shell ($397 billion),
4. China National Petroleum ($393.01 billion),
5. State Grid ($387 billion).

16. Which country has the most MNC?
1. The world's 500 largest MNCs have, on average, 58%
of their equity affiliates located within their home countries and
42% placed internationally.
2. The United States, Japan, and the major economic forces of
Western Europe are developed countries whose infrastructures
and well-established financial markets are conducive to the
operation and potential success of multinational corporations
(MNCs).

17. Fortune Global 500 list of 2019

18. Breakdown by Country: As of July 2019, this is the
list of the top 10 countries with the most Global 500 companies.

19. THANKYOU