Management of Multinational Companies - Problems & Prospects of Mncs in An International Environment

Management of Multinational Companies -
Problems & Prospects of MNCs in an

International environment
What are multinational corporations
A multinational corporation (MNC) is a business

with extensive international operations in more than
one country.

What do they do?
Mutual benefits for host country and MNC
– Shared growth opportunities
– Shared income opportunities
– Shared learning opportunities
– Shared development opportunities.

What do they do?
Host country complaints about MNCs

– Excessive profits
– Domination of local economy
– Interference with local government
– Hiring the best local talent
– Limited technology transfer
– Disrespect for local customs.
What are multinational corporations and what do they do?
MNC complaints about host countries
– Profit limitations
– Overpriced resources
– Exploitative rules
– Foreign exchange restrictions
– Failure to uphold contracts.

Objectives of MNCs
• To expand the business beyond the boundaries of home
country
• Minimize cost of production, especially labour cost
• Capture lucrative foreign market against international

competitors
• Establish an international corporate image
• Avail competitive advantage internationally

5 Major Characteristics of MNCs.
• It operates in many countries at different level of economic

development
• Its local subsidiaries are managed by nationals
• It maintains complete industrial organization including

research & development facilities in several countries
• It has multinational central management
• It has multinational stock ownership.

3 Types of MNC
1. Ethnocentric MNC
 exerts strict headquarters control over foreign
operations,
 tries to operate abroad the same way it does at home,
 often creates local resentment by failing to respect

local needs and customs.
• Sony corporate operations in the US typically follow this approach. Sony
corporation of America is a wholly owned subsidiary of Sony corporation
Japan , handles local HR issues , but top executives at the organisations
operations across the US are Japanese managers , from the company's
Japanese home office .
2. Polycentric MNC
 gives its foreign operations more operating freedom,
respects market differences among countries,
 pursues “multidomestic” strategies that treat each

country as a separate competitive domain.
 MNC's operations in East Asia and Australia often hire local

managers because hiring expatriates is too expensive. Hiring local
managers is advantageous because they are familiar with local
cultural needs , involve a lower cost in hiring and maintaining , & there
is continuity in management as locals stay longer in their respective
positions .

3. Geocentric MNC
 is more transnational and seeks total integration of global operations
by operating without home-based prejudices
 making major decisions from a global perspective

 employing senior executives from many different countries.
 In a geocentric approach , MNC's hire people mainly from third
country nations where neither subsidiaries or headquarters are
located . Recruitment and selection takes place worldwide ,
whereby the most competent employees can be identified . The
suitability of managers to the requirements of the job outweighs
any consideration of the individual country of origin or country of
employment
Country of Origin…
• Coca Cola – USA
• Dell – USA
• Ford – USA
• Google – USA
• Hitachi – Japan
• HSBC – UK
• LG – South Korea
• Nestle – Switzerland
• Samsung – South Korea
• Sony – Japan
• Virgin – UK
• Vodafone – UK
• Nokia - Finland
Multinational Corporations
• Have brought enormous benefits, including to developing

countries
– Movement of capital
– Transfer of technology
– Training of workers
– Access to markets
What are international management challenges of
globalisation?
 International management - describes management in

organisations with business interests in more than one
country
Problems with multinationals
• Some problems are shared by domestic

corporations
– Taking advantage of limited liability
• Mining companies take out resources, distribute
profits, leaving no money to clean up mess
– Use of economic power to get favorable legislation

• Campaign contributions
• Distorted information (cigarette companies, oil
companies)
– Massive cheating in hard-to-detect ways
• Even in U.S.—Exxon in Alaska and Alabama cases
– Required extra-ordinarily sophisticated
detection, beyond capability of most developing
countries
– If this happens in U.S., what must be happening

elsewhere?
Special Problems with multinationals
• Power—to get special legislation and treatment that
benefits themselves, regulations, short circuiting
environmental, health, worker regulations
• Sometimes they seek, and get, special tax and tariff
treatment; sometimes simply persuading governments not
to enforce existing regulations
• Sometimes special treatment is above board—necessary to
induce corporation to come; but sometimes based on
corruption
• Leverage economic power with political power
• Lack of “moral sensibilities” (or weaknesses in public
pressure)
What multinational companies want
• Strong protection
• Favorable treatment
• Low taxes
• Low regulation
• Right to establish, without burdensome red tape
• Right to move employees in and out, to move capital in and
out
• Uniform standards across countries—makes it easier to
conduct business
What others want of multinationals
• Make a contribution to national development efforts
• In ways consistent with domestic laws and regulations

– No special treatment
– Level playing field in taxes or regulations
• To be good citizens
Defining success for MNCs in India
Success for MNCs in India can be defined along 2

dimensions :
• Capturing the Domestic Market Opportunity
• Leveraging India’s resource base to derive additional value

for the corporation
– R&D / Manufacturing / Sourcing / BPO
Performance of MNCs – An Analysis
• Over the last few decades, most MNCs have shown typical
characteristics in their growth plans in India
– Prefers operations to be less assets intensive
– Lean operations as far as employees are concerned
– Preference of profitability over growth
– Most businesses generate high rises
– Extremely cagey to enter “non-Parent” growth areas

3 key success factors for MNCs operating in India
• Commitment at global level
– Raise the profile
– Formulation of bold long term targets
• Empowered local Management

– More cost effective, enhances continuity, leverages
understanding of local environment
• Localized product / market business models ; create

customized products and services in response to unique
environment
– Deliver the right product at the right price with right
positioning for India
What are the key issues in the Indian context which
have hindered MNCs growth?
• “Global parent strategy” dictates India plans
• Limitations of growth due to regulatory / legislation / IPR
issues
• Limited Autonomy for top MNC Managers
• Sometimes bureaucratic setups have delayed decision
making – sharp contrast to most Indian entrepreneur
companies
• Rigidity and insistence on evaluating India like any other
market
• Not being able to recognize early enough that India is a
price and quality conscious market
Thank
You

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Management of Multinational Companies -

Problems & Prospects of MNCs in an

A multinational corporation (MNC) is a business

Mutual benefits for host country and MNC

– Shared growth opportunities

– Shared income opportunities

– Shared learning opportunities

– Shared development opportunities.

Host country complaints about MNCs

MNC complaints about host countries

– Foreign exchange restrictions

– Failure to uphold contracts.

• Minimize cost of production, especially labour cost

• Capture lucrative foreign market against international

• Establish an international corporate image

• Avail competitive advantage internationally

• It operates in many countries at different level of economic

• Its local subsidiaries are managed by nationals

• It maintains complete industrial organization including

• It has multinational central management

• It has multinational stock ownership.

 tries to operate abroad the same way it does at home,

 often creates local resentment by failing to respect

 pursues “multidomestic” strategies that treat each

 MNC's operations in East Asia and Australia often hire local

 making major decisions from a global perspective

• Have brought enormous benefits, including to developing

 International management - describes management in

• Some problems are shared by domestic

– Use of economic power to get favorable legislation

– If this happens in U.S., what must be happening

• Make a contribution to national development efforts

• In ways consistent with domestic laws and regulations

Success for MNCs in India can be defined along 2

• Capturing the Domestic Market Opportunity

• Leveraging India’s resource base to derive additional value

– Prefers operations to be less assets intensive

– Lean operations as far as employees are concerned

– Preference of profitability over growth

– Most businesses generate high rises

– Extremely cagey to enter “non-Parent” growth areas

• Empowered local Management

• Localized product / market business models ; create

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