Amar KJR Nayak/IB/XIMB

MULTINATIONAL CORPORATION
What is a Multinational Corporation?
Which of these companies is not truly multinational?
Proctor & Gamble
Honda
Boeing
Cemex SA

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MULTINATIONAL CORPORATION

Trading Firms - Facilitators to Multinational

Companies
ControlofJoint-stockcompaniesregisteredinIndiaandworkingin
tea,coal&juteindustries,1911
No. of joint-stock companies
controlled in
Name of Managing Agents or
Secretary
Tea
Coal
Jute
Total
Andrew Yule & Co.

10

11

27

Begg. Dunlop & Co.

10

12

Bird & Co.

11

19

Shaw Wallace & Co.

11

13

Williamson, Magor & Co.

10

15

George, Henderson & Co.

Planters Stores & Agency

Kilburn & Co.

Octavius Steel & Co.

10

12
Contd..

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Name of Managing Agents or

Secretary

No. of joint-stock companies

controlled in
Tea

Coal

Jute

Total

Gillanders, Arbuthnot & Co.

Kettlewell, Bullen & Co.

J. Mackillican & Co.

C. A. Stewart

Duncan Bros.

12

12

Davenport & Co.

Hoare, Miller & Co.

Jardine, Skinner & Co.

McLeod & Co.

10

Barry & Co.

Macneill & Co.

H. V. Low & Co.

4
Contd..

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Name of Managing Agents or

Secretary

No. of joint-stock companies

controlled in
Tea

Coal

Jute

Total

F. W. Heilgers & Co.

Stanley, Oaks & Co.

Apcar & Co.

Anderson Wright & Co.

Ernsthausen Ltd.

Balmer Lawrie & Co.

Martin & Co.

Lyall, Marshall & Co.

N. C. Sircar & Sons

88

87

29

204

Total

Source: Private Investment in India, 1900-1939, A.K. Bagchi, Cambridge University

Press, 1972, Pg.177

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MULTINATIONAL CORPORATION

Enterprise that own or control value-added activities

in two or more countries

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FrencheconomistMauriceBye(1958)
Transnational Corporation
Internationalization of oil industryintegration of different
stages of oil production

EdithPenrose
In the light of Theory of Growth of Firms rather than a theory
of foreign investment. Case of General Motors manufacturing
subsidiary in Australia

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OrganizingFrameworkforPreviousMNEDefinitions
Source

Attribute

Perlmutter
(1969)

Management
Style

Ethnocentric

Geocentric

Geocentric

Polycentric

Kindleberger
(1973)

Various
functional and
attitudinal
attributes

National
corporation with
foreign
operations

International

--

Multinational

Porter (1986)

Coordination
and
configuration
needs

Global

Complex
Global

--

Multi-domestic

Bartlett and
Ghoshal
(1989)

Network /
Interorganizational
Structure

Global

Transnational

International

Multinational

Bartlett and
Ghoshal
(1990)

Organizational
Structure

Centralized

Networks

Networks

Decentralized

Hedlund
(1986)

Organizational
Structure

Hierarchy (H
form)

Hierarchy

Hierarchy

Hierarchy
(M Form)

Global

Transnational

Source: The International Business Environment, Sundaram & Black, 1998

Multi- domestic

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OrganizationalCharacteristics
Organizational
Characteristics

Configuration
ofassets&
capabilities

Roleof
overseas
operations

Development&
diffusionof
knowledge

Multinational

Decentralized &
nationally selfsufficient

Sensing &
exploiting local
opportunities

Knowledge
developed &
retained within
each unit

Global

Centralized &
globally scaled

Implementing
parent company
strategies

Knowledge
developed &
retained at the
center

Source:Barlett&Ghosal

International

Transnational

Sources of core
competencies
centralized,
others
decentralized

Dispersed,
interdependent,
& specialized

Adapting &
leveraging
parent company
competencies

Differentiated
contributions by
national units to
integrated
worldwide
operations

Knowledge
developed at
the center &
transferred to
overseas units

Knowledge
developed
jointly and
shared
worldwide

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LetslookataCase

LAFARGE:Aconcrete
multinational

http://www.lafarge.com/cgi-bin/lafcom/jsp/home.do?lang=en

http://www.lafarge-india.com/webapp/rainbow/map.jsp

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CharacteristicsofMNEs
1880s: Multinational enterprises
Highly industrialized economies of Western Europe and North
America

Maincharacteristicsoftheseenterprises
Diverse business operation
Mixture of large and small firms
Both Managerial
predominated)

and

Family

firms

(but

later

type

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The MNEs employ a variety of equity and non-equity modes

of investments
Natural resources were the primary sector of exploitation
like mining, oil exploration and trade in natural products like
sugar, banana and rubber
Multinational trading companies, banks and utilities grew
with time as the main service providers to the pioneers of
international business during this time.
Affiliated firms are linked by ties of common ownership
A common pool of resources and
And,

A strategic vision that guides all the affiliates

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LocationAdvantages:
Resource allocation based upon the spatial distribution of
factor endowments.

OwnershipAdvantages:

Access to new products and processes

Superior management and organization
Access to large finance
Economics of large scale

technology

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Distinguishing Aspects of MNEs: Sundaram & Black

Multiplesourcesofexternalauthority
Number of geographic locations
Variance in country environments
Lack of superstructure to mediate threats or opportunities
that arise at the intersection of the variance in country
environment
Multipledenominationofvalue
Translationexposure(valuation and setting up of past
transaction)
Transactionexposure(problem of hedging)
Economicexposure(impact of unanticipated changes in
real exchange rate)

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WhyFirmsBecomeMultinational?
To protect themselves

from the risks and uncertainties of

the domestic business cycle

Totapthe growing world market for goods and services

Increaseforeign production
To reduce costs (transport and middlemen) and improve
overall
efficiency by restructuring existing value-added
activities

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Toovercometariff walls
To takeadvantageof technological expertise by
manufacturing goods directly
Torestructureexisting foreign value added activities, so
as to improve overallefficiencyand change the range of
products produced
To acquire assets that might becomplementaryto existing
assets, or competitive to them, so as to reduce risk,
capture the economies of scale or synergy, or generally
strengthen the acquiring firms competitive position in
national or world markets.

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StrategicPhilosophyofMNEs

MNEs make decisions that are best for the organization,

even if it means transferring funds or jobs to other countries
MNEs are considered asstatelesscorporations

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Examples:
IBM has transferred 120 executives and the
headquarters of its $ 10 billion a year communications
business toEuropein order to capitalize on the expected
growth in Europe.
Layoffs in Japanese companies:Nissan,Sony
In Japan, Xerox has over 12,000 employees, Texas
Instrumenthas over 5000 employees,Hewlett-Packard
has 3,000 employees

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In US (1990), about640U.Splantsthat were either

wholly or partially owned by theJapanese,employing
about 160,000 workers

By 2000 A.D.,800,000Americanwere employed by

theJapanesefirms

Project involve people from ahostofnations

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MazdasSportscarMX-5Miata:
Design

- California

Prototype

- England

Assembly

- Michigan & Mexico

Advanced electronic
components invented

- New Jersey

Fabricated

- Japan

Finance

- Tokyo & New York