Multinational Corporations MNCs or Transnational Corporation TNCor Multinational Enterprise MNE is a business unit mncs operates simultaneously in different countries of the world. In some cases the manufacturing unit may be in one country, while the marketing and investment may be in other country. In other cases all the business operations are carried out in different countries, with the strategic head quarters in any part the world. The Two are huge business organisations risks extend their business operations beyond the country of forex through a network of industries and marketing operations. They are multi-process and multi-product enterprises. The few examples of Based, are, Sony of Japan, IBM of USA, Siemens of Germany, Videocon and ITC of India, etc. There are over 40, MNCs with over 2, 50, overseas affiliates. The india MNCs control over 25 percent of the world economy. Previously American based multinationals ruled the world, but today, many Japanese, Korean, European and Indian multinational companies have spread their wings in many parts of the world. Before entering into any country, at the headquarters india MNCs, experts from various fields such as political science, economics, commerce international trade and diplomacy are analysing the business environment of a country and advising the top management. MNCs will always look out for opportunities. They carry out risk analysis, and send their personnel to learn and understand the business climate. They develop expertise understanding the culture, politics, economy and legal aspects of the country that they are planning to enter. The MNC has considerable freedom in selecting the financial channel through which funds or profits or both are moved, e. Similarly, the MNC can move profits and cash from one unit to another based adjusting transfer prices on intercompany sales and purchases of goods and services. MNCs can use these various channels, singly or in combination, to transfer funds internationally, depending on the specific circumstances encountered. By shifting profits risks high-tax to low-tax nations, MNCs can reduce their global tax payments. In addition, they can transfer funds among their various units, which allow them to circumvents currency controls and other regulations and to tap previously inaccessible investment and financing opportunities. Some to the internationally generated claims require a fixed payment schedule; other can be accelerated or delayed. MNCs can extend trade credit to their other subsidiaries through open account terms, say from 90 to days. This give a major leverage to financial status. In addition, the timing for payment of fees and royalties may be modified when all parties to the agreement are related. To run a new and potentially profitable project, a good understanding of multinational strategies is necessary. The three broad categories of multinationals and their associated strategies are explained below: Companies such as IBM, Philips and Sony create barriers to entry for others, by continually introducing new products and differentiating existing ones. Their products are typically designed to fill a need perceived locally that often exists abroad as well. The primary approach in such companies is the presence of economies of scale. It exists whenever there is an increase in the scale of production, marketing and distribution costs could be increased in order to retain the existing position or india aggressive. The existence of economics of scale means there are inherent based advantages of being large. The more significant these economies of scale are, the mncs will be the costs disadvantage faced by a new entrant in the same field in a given market. Some companies like Coca-Cola and Proctor and Gamble take advantage of the facts that potential entrants are wary of the high costs involved in advertising and marketing a new product. Such firms are able to exploit the premium associated with their strong brand names. Other companies take advantage of economics of scope. Economies of scope exists whenever the some investment can support multi-profitable activities, which are less expensive. Examples abound of the cost advantages of producing and selling multiple products related to common technology, production facilities and distribution network. For example, Honda has increased its investment in small engine technology in the automobile, motorcycle, marine engine, and generator business. One possibility is to enter new markets where little competition currently exists. Many electronics and textile firm in the United States US shifted their production facilities to Asian locations such as Taiwan and Hong-Kong to take advantage of the lower labour costs. It is often possible for an MNC to sell its knowledge in the form of patent rights and mncs licence foreign producer. This relieves the MNC of the need to make foreign direct investment. However, sometimes an MNC that has a Production Process or Product Patent can risks a larger profit by carrying out the production in risks foreign country itself. The reason for this is that some kinds of knowledge cannot be sold and which are the result of years of experience. In some situation, MNCs mncs to exploit their reputation rather than protect their reputation. This motive is of particular importance in the case of foreign direct investment by banks because in the banking business an international reputation can attract deposits. If the goodwill is established the bank can expand and build a strong customer base. Quality service to a large number of customers is bound to ensure success. This probably explains the tremendous forex of foreign banks such as Citibank, Grind-lays and Standard Chartered in India. Normally, products, develop a good or bad name, which transcends international boundaries. It would be very difficult for an MNC to protect in reputation if a foreign licensee does an inferior job. Therefore, MNCs prefer to invest in a country rather than licensing and transfer expertise, to ensure the maintenance of their good name. MNCs prefer direct investment, rather than granting a license to a foreign company if protecting the secrecy of the india is important. While it may be true that a license will take precautions to protect patent rights, it is equally true that it may be less conscientious than the original owner of the patent. The fact that MNCs have access to capital markets has been advocated as another reason why firms two moved abroad. A firm operating in only one country does not have the same access to cheaper funds as a larger firm. However, this argument, which has been put forward for the growth of MNCs has been rejected by many critics. It has been argued that opportunities for further gains at home eventually dry up. To maintain the growth of profits, a corporation must venture abroad where markets are not so well penetrated and where there is perhaps less competition. This hypothesis perfectly explains the growth of American MNCs in other countries where they can fully exploit all the stages of the life cycle of a product. A prime example would be Gillette, which has revolutionized the shaving systems industry. MNCs prefer to invest directly in a country in order to avoid import tariffs and quotas that the firm may have to face if it produces the goods at home and ship them. For example, a number of foreign automobile and truck producers opened plants in the US to avoid restrictions on-selling foreign made cars. Fiat, Volkswagen, Honda and Mazda are entering different countries not with the products but with technology and money. The strategic motive for making investments has been advocated as another reason for the growth of MNCs. MNCs enters foreign markets to protect their market share when this is being threatened by the potential entry of indigenous firms or multinationals from other countries. Some firms have followed clients who have made direct investment. This is especially true in the case of accountancy and consulting firms. Large US accounting firms, which know the parent companies special needs and practices have opened offices in countries where their clients have opened subsidiaries. These US accounting firms have an advantage over local firms because of their knowledge of the parent company and because the client may prefer to engage only one firm in order to reduce the number of two with access to sensitive information. Templeton, Goldman Sachs and Earnest and Young are moving with their clients even to small countries like Sri Lanka, Panama and Mauritius. When making over direct investment it is necessary to allow for risk due to investments being made in a foreign country. Country risk is one of the special issues faced by MNCs when investing abroad. In involves the possibility of losses due to country-specific economic, political and social events. Among the country risks that are faced by MNCs are those related to the local economy, those due to the possibility of confiscation i. Government take over without any compensation, and those due to expropriation i. Even though none of these latter events are specifically directed towards on MNC by the foreign government, they can damage or destroy an investment. There are also risks of currency non-convertibility and restriction the repatriation of income. International magazines like Euro Money and the Economist regularly conduct country risk evaluations in order to facilitate MNCs. Most of the MNCs try to prevent operations in developing countries by other local entities without their cooperation. This can be achieved if the company maintains control of an element of operations. For example, food and soft drink manufacturers keep their special ingredients secret. Forex companies may produce vital parts such as engines in some other country and refuse to supply these parts if their operations are seized. There is an alternative technique to handover ownership and control to local people in future. This is sometimes a requirement of the host government. There is a calculated move to involve themselves in stages. Instead of promising shared ownership in future, an alternative technique for reducing the risk of expropriation is to share ownership with private or official partners in the host country from the very beginning. Such shared ownerships, known as joint ventures rely on the reluctance of local partners, if private, to accept the interference of their own Government as a means of reducing expropriation. When the partner is the government itself, the disincentive to expropriation is concerned over the loss of future investments. Multiple forex ventures in different countries reduce the risk of expropriation, even if there is no local participation. If the government of one country does expropriate the business, it faces the risk of being isolated simultaneously by numerous foreign powers. Much of the concern about MNCs stems from their size, which can be formidable. MNCs may impose on their host governments to the advantages of their own shareholders and the disadvantages of citizens and shareholders in the country based shareholders in the past. It can be difficult to manage economics in which MNCs have extensive investments. Since MNCs often have ready access to external sources of finance, they can blunt local monetary policy. When the Government wishes to constrain any economic activity, MNCs may nevertheless expand through foreign borrowing. Similarly, efforts at economic expansion may be frustrated if MNCs move funds abroad in search of advantages elsewhere. Although it is true that any firm can frustrate plans for economic expansion due to integrated financial markets, MNCs are likely to take advantage of any opportunity to gain profits. When the host Government wishes to constrain any economic activity, MNCs may nevertheless expand through foreign borrowing. As we have seen, MNCs can also shift profits to reduce their total tax burden by showing larger profits in countries with lower tax rates. MNCs have been operating in India even prior to Independence, like Singer, Parry, Philips, Unit- Lever, Proctor and Gamble. They either operated in the form of subsidiaries or entered into collaboration with Indian companies involving sale of technology as well as use of foreign brand names for the final products. The entry of MNCs in India was controlled by existing industrial policy statements, MRTP Act, and FERA. In the pre-reform period the operations of MNCs in India were restricted. The New Industrial Policyremoved the restrictions two entry to MNCs through various concessions. The amendment of FERA in provided further concession to MNCs in India. Subsequently MNCs are free to own a majority share in equity in most products. Thus, MNCs have been placed at par with Indian Companies and would not be subjected to any special restrictions under FERA. National interests and problems are generally ignored. Moreover, transfer of technology proves very costly.
L3/P2: Rupee Devaluation & Exchange rate regimes
L3/P2: Rupee Devaluation & Exchange rate regimes
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