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288 33 Powerpoint Slides Chapter 13 Multinational Enterprises

Apr 14, 2018

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    Copyright @ Oxford University PressInternational Business R. M. Joshi Chapter 13: MultinationalEnterprises

    International BusinessRakesh Mohan Joshi

    Professor & Chairperson, IIFT New Delhi

    1

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    MULTINATIONALENTERPRISES

    Chapter 13

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    L earn ing Object ives

    To explain the concept of an MultinationalEnterprises (MNEs)To discuss various types of MNEs

    To examine the impact of MNEs on hosteconomiesTo explore various techniques to measureMNEs internationalization

    To assess emerging MNEs from rapidlydeveloping economies

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    Sig nif icanc e of MNEs

    MNEs are considered powerful drivers of globalization. They account for about two-

    third of world trade and about one-third of the total world trade is intra-firm trade. Theuniverse of MNEs is considered to be large,

    diverse, and expanding. This makes thestudy of multinationals imperative for

    international managers .

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    Mult inat io n al En terp r ise

    A firm that operates in more than one, that is,multiple countries. For a firm to be an MNE, thefollowing criteria need to be fulfilled:

    Should own or control operations in multiplecountries.

    Should generate a substantial portion of itsrevenues by its foreign operations.

    Should employ workforce from multiplecountries.

    Should have a strategic managementperspective and a vision of multinationaloperations.

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    Typ es o f Mul t ination als

    On the basis of Investment

    Associates : An enterprise in which anon-resident investor owns between 10 to50 per cent

    Subsidiaries : An enterprise in which anon-resident investor owns more than 50percent

    Branches: Unincorporated enterpriseswholly or jointly owned by a non-resident

    investor

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    On th e B as is o f Operat ions Horizontally integrated multinationals have manufacturing

    operations located in different countriesto produce same or similar products. Vertically integrated multinationals have manufacturing operations incertain countries to produce productsthat serve as inputs to its production inother country/countries.

    Diversified multinationals havemanufacturing operations located indifferent countries that are eitherhorizontally or vertically integrated.

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    On th e Bas is o f Managem ent Or ientat ion

    Ethnocentric firms The headquarters of the parent company,located in the home country, exert high

    level of control over the subsidiaries throughcentralized decision-making

    Polycentric firms

    Highly oriented to overseas markets whereinsubsidiaries have autonomy in decision-making.

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    Regiocentric firms

    Foreign affiliates consolidate their

    decision-making and organization onregional basis and the level of integrationis high within the regions but not across the regions.Geocentric firms

    Organization of geocentric firms isrelatively more complex and inter-

    dependent than that of the other types.The firm follows a collaborative approachto decision-making between headquartersand subsidiaries.

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    Pos i t ive Effects o f MNEs

    Bring in FDI

    Transfer of technology

    Promote competitionPromote research and development

    Benefit customers

    Promote exports in the host economies

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    Neg at ive Effects of MNEs Influencing host-country government decisions

    Transfer of inappropriate technologyCultural imperialismExploitation of host country resourcesPerceived as agents of neo-colonialismPromotes unhealthy market competitionPromotes hostile mergers & acquisitionsCrowding out domestic entrepreneurshipLimited benefits to host countriesCircumventing host countries regulatoryframework

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    Measuring the Extent of MNEsInternationalizat ion

    Size : It is generally believed that firm size

    has a positive influence on its

    internationalization, though not accepted

    universally. Major criteria used for

    determining the size of a firm include salesrevenue, profits, market value, return of

    equity, etc.

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    Structure: Structure implies the number

    of countries an MNE operates in and the

    citizenship of its top managers and

    corporate owners influence the level of its

    internationalization.

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    Performance: The extent of

    commitment of the firms resources toforeign operations and the reward from

    these commitments. Various performance

    based parameters, such as foreign sales,

    profits, assets, etc., may be used to

    gauge the extent of a firms internationalization.

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    Chapter 13: MultinationalEnterprises

    Man agem ent Orien tat ion

    Attitude and behaviour of top management

    towards internationalization, though

    abstract, are crucial factors in determining

    the extent of a firms internationalization.

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    Chapter 13: MultinationalEnterprises

    Ethnocentrism : A predisposition whereall strategic decisions are guided by thevalues and interests of the parent firmPolycentrism : A predisposition wherestrategic decisions are made to suit thecountries of the firms operations Regiocentrism : A predisposition thattries to blend the interest of the parentfirm with that of subsidiaries on aregional basisGeocentrism : A predisposition thatseeks to integrate diverse subsidiariesthrough a global systems approach todecision-making.

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    Chapter 13: MultinationalEnterprises

    Ind ices fo r Measu r ing the Extent of MNEs Internationalization

    Transnationality Index (TNI) : Theaverage of the ratios of foreign assets to

    total assets; foreign sales to total sales;foreign employment to total employment

    Internationalization Index (II) : The

    ratio of the number of foreign affiliates tothe total number of affiliates in the firm

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    Chapter 13: MultinationalEnterprises

    Em ergin g MNEs f ro m Rapid ly Develop ing Eco no m ies

    Companies from rapidly developing economies (RDEs) areon the fast track to become major multinationals. Thesefirms are fast gaining global market share, makingworldwide acquisitions and emerging as importantcustomers, business partners, and competitors for theworlds largest companies, which include:

    Bharat Forge (India)

    Ranbaxy Pharmaceuticals (India) Wipro (India)

    ONGC (India)

    Infosys (India)

    Johnson Electric (China) Pearl River Piano Group (China)

    Techtronic Industries Company (China)

    Cemex (Mexico)

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    Chapter 13: MultinationalEnterprises

    A dv ent of Ind ian Mul t ina t ion als

    Consequent to economic liberalization

    Indian companies are fast expanding

    overseas to become multinationals eg.

    Hindalco industries, Infosys technologies,

    Larsen & Toubro, ONGC, Ranbaxy, Reliance,

    Tata steels, Videocon, Wipro etc.