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WK7 - Introduction to MNCs

Prominent Multinational Corporations

  • Examples of MNCs:

    • SOFT: SAIMA, Colgate, Sanofi, Siemens, Ericsson

    • TECH + SERVICE: P&G, Unilever, Lucent Technologies, Johnson & Johnson, Xerox

    • AUTO + FINANCE: Nissan, Merrill Lynch, Ford

    • PHARMA: Pfizer, Bristol-Myers Squibb

    • ENTERTAINMENT: Disney

    • OTHER SECTORS: Abbott Laboratories, Thales, Citibank, Vodafone, Oracle

Top 10 Multinational Corporations

  1. Microsoft (US) - CEO: Bill Gates

  2. Nestle (Switzerland) - CEO: Ulf Mark Schneider

  3. Pepsi (US) - CEO: Ramon Laguerta

  4. Hewlett Packard (US) - CEO: Enrique Lores

  5. Coca-Cola (US) - CEO: James Quincey

  6. Sony (Japan) - CEO: Kenichiro Yoshida

  7. Procter & Gamble (US) - CEO: David Taylor

  8. Citigroup (US) - CEO: Michael Corbat

  9. Nike (US) - CEO: Mark Parker

  10. Apple (US) - CEO: Tim Cook

Definition of Multinational Corporation (MNC)

  • A multinational corporation is a company that

    • Operates in its home country and multiple other countries.

    • Maintains a central office for coordination of global operations.

  • Reasons for becoming international include:

    • Profit maximization

    • Access to new markets

    • Financial capital acquisition

    • Sourcing raw materials

    • Labor cost reduction

Managerial Control in MNCs

  • Control enables decision-making regarding resource allocation.

  • Strategies are based on global corporate success rather than local conditions.

  • Tensions exist between globalized economies and national political systems.

Types of Multinational Corporations

  • Transnational Corporations (TNC): Operate across borders with no national identity (e.g., McDonald’s, Apple)

  • Ethnocentric MNCs: Centralized control with strict adherence to home practices (e.g., Sony, Panasonic)

  • Polycentric MNCs: Adapt operations to local markets, treating countries as separate entities (e.g., Phillips, John Deere)

  • Geocentric MNCs: Integrated global operations without home country biases (e.g., McDonald’s, KFC)

Positive Perspectives on MNCs

  • MNCs as drivers of economic liberalization

    • Capital distribution to scarce regions

    • Technology and management expertise transfer

    • Efficient resource allocation in global economies

Negative Perspectives on MNCs

  • MNCs as tools for capitalist domination

    • Control over critical local sectors

    • Decisions often disregard local needs

    • Potential for weakened labor and environmental standards

  • MNCs are pivotal players in globalization dynamics.

Characteristics of MNCs

  • High asset turnover

  • Extensive branch networks

  • Strategic managerial control

  • Continuous growth trajectory

  • Utilization of sophisticated technology

  • Highly skilled workforce

  • Aggressive marketing strategies

Advantages of MNCs

  • Increased investment influx in host countries

  • Generation of tax revenues for home countries

  • Enhanced potential for research and development

  • Job creation in the global economy

  • Improved consumer consistency across markets

Disadvantages of MNCs

  • Preference for MNCs can harm local industries

  • Job losses in home countries

  • Potential for monopolies

  • Environmental issues related to MNC operations

Host Country Complaints about MNCs

  • Extraction of excessive profits from local economies

  • Economic domination and influence over local political systems

  • Failure to support domestic firms

  • Preferential hiring practices disadvantaging local talent

  • Limited technology transfer and cultural respect

MNC Complaints about Host Countries

  • Restrictions on profit-making potential

  • Overpriced resources

  • Exploitative local regulations

  • Infringement on contractual agreements

Rapid Growth of MNCs

Microeconomic Explanations

  • Firm-specific motivations for growth:

    • Vertical and horizontal integration

    • Technological changes facilitating international operations

    • Licensing and franchising strategies

Political Explanations

  • Structural motivations include:

    • Global economic growth dynamics

    • Liberalized financial markets

    • Strong investment security

    • Liberal trade environments

    • Shareholder and stakeholder wealth maximization

Foreign Direct Investment (FDI)

  • Definition: International capital flow by MNCs.

  • Types of FDI:

    • Greenfield investment: Establishment of a new facility in the host country.

    • Brownfield investment: Acquisition or expansion of existing facilities (Mergers & Acquisitions).

Reasons for MNCs & FDI

  1. Access to new markets

  2. Expansion beyond domestic market

  3. Competitive advantages through cost reductions

Economic Openness and FDI

Advantages

  • Productive capital allocation

  • Enhanced risk sharing

  • Mitigation of domestic recessions

  • Lower capital costs

Disadvantages

  • Misallocation of capital

  • Financial instability due to rapid capital flight

  • Challenges in taxing profits effectively

  • Reduced efficacy of capital controls