BCOC-132 BUSINESS MANAGEMENT AND ORGANISATION CHAPTER-8. INTERNATIONAL BUSINESS: MULTINATIONAL CORPORATION

 

BCOC-132 BUSINESS MANAGEMENT AND ORGANISATION CHAPTER-8. INTERNATIONAL BUSINESS: MULTINATIONAL CORPORATION

DEFINITION OF INTERNATIONAL BUSINESS

International business refers to commercial activities, including sales, investment, and transportation taking place between two or more countries, it involves transportation like trade investment and services, extending beyond national borders, various factors such as physical, social , economic and political influences impact international business. Research , development , technology management , investment, production and trade are crucial drivers that facilitate the smooth conduct of international business

IMPORTANCE OF INTERNATIONAL BUSINESS

International business involves transaction between countries, including trade, services and aids to trade like transportation and banking. Its driven by diversity of economic resources worldwide

1. Understanding different countries:

   Business in international trade analyse various aspects of foreign countries, such

   as their politics and economy

2. Globalisation facilitation:

   International business contributes to globalisation, integrating the world economy

   and fostering technological , investment and trade advancement

3. Technology diffusion:

   It promotes the global spread of technology as businesses seek to profit by selling

   innovation worldwide

4. Competition development:

   Introduction of product into new markets fosters competition, driving

   improvement in products , services and operations

5. Harmonious relationships:

   International business links countries , fostering harmonious relationships and

   potential socio-cultural development corporation

6. Optimal resources use:

   Countries utilize their resources efficiently, with some industries depending on

   foreign markets for their products

7. Economic development:

   Countries to rapid economic growth, and may developed nations attribute their

   prosperity to international trade

8. Price stability:

   Can help stabilize price globally be adjusting imports and exports to control

   fluctuations and counter monopolistic activities

9. Increased availability of goods:

   Enables access of goods a country may not produce efficiently, allowing consumers

   to bene:it from the cheapest sources

10. Employment opportunity:

Boosts employment by increasing production in agriculture and industry

11. Cost reduction:

By sourcing capital goods and raw materials from the cheapest markets, overall

production costs decreases , leading to lower prices

12. Government revenue:

GVT bene:its from duties imposed on import and exports generating significant revenue

DEFINITION OF INTERNATIONAL CORPORATION
A multinational corporation (MNC) or transnational corporation(TNC) is large organization that owns assets in different countries, operating with common strategy across borders . key points:

1. Ownership and strategy :

   MNCs have assets in various countries and share a common strategy for

   production and management across borders

2. International production:

   Involves in international production, where factors like research , development,

   manufacturing and services span different countries

3. Mergers and acquisition:

   Often formed trough mergers or acquisitions, combining from different countries

4. Large enterprises:

   Primarily large scale enterprise with operation in multiple countries

5. Headquarters:

   Managed primarily by a central headquarters based in one country

6. Global operation:

   Operates in numerous countries, with facilities and operations distributed

   internationally

7. UN DEFINITION:

   according to United Nation a transnational corporation operates in multiple countries, linked by ownership exercising significant influence over each other and sharing knowledge ,and resources and responsibility

WHY DO FIRMS BECOME MULTINATIONAL

Firms become multinational for various reasons:

• Economy scale:
  Expanding operations to new market allows firms to produce goods in larger quantities, benefiting from economies of scale

• Risk diversification:
  Setting up operations in different countries helps firms mitigate risks and uncertainties associated with the domestic business cycle

• Global market access:
  Firms aim to tap into the growing world market for goods and services due to globalization

• Competitive responses:
  Becoming multinational helps firms respond to increased foreign competition, protecting their marketing shares

• Cost reduce:
  Setting up operations close to foreign customers reduce cost by eliminating transportation expenses, avoiding middleman and utilising local resources

• Tariff impact reduction:
  Firms may overcome tariff by serving foreign markets from within, reducing the impact of trade barriers

• Technological expertise:
  Establishing presence in foreign markets allows firms to take advantage of technological expertise, stay close to advancements, and maintain international competitiveness

FEATURES OF MULTINATIONAL CORPORATION(MNC):

1. Large scale: MNCs are usually very large, with total sale of equivalent to the

   national income of some developing countries

2. Foreign sales dependence:-

   many MNCs rely significantly on foreign sales, with a growing share of total sales

   coming from international market

3. Multi product enterprises:- many MNCs are diverse multi product enterprises

   giving them substantial market power

4. Technology and innovation:-

   their strength lies in technology and innovation, as they invest signi:icantly in

   research and development

5. Responsive to environmental forces:-

   MNCs affiliates respond to various environment forces, including competitors, customers , suppliers , financial institution and GVT

6. Common pool resources :-

   MNCs share resources like assets , patents, trademarks, information and human

   resources across their affiliates

7. Common strategic vision:-

   affiliates of MNCs are linked by common strategic vision , and each MNCs formulates plans to harmonize their operation

8. Global growth trend:-

   the growth of MNCs from developing countries , particularly in south Asia ,southeast Asia , and Latin America is a relatively recent phenomenon

ISSUES AND CONTROVERSIES OF MNCs

1. Conflict interests:-

MNCs interests often clash with those of host countries , especially in developing

countries

2. Product diversion:-

they may produce non-essential products for host countries , diverting resources from necessary items

3. Technology transfer reluctance:-

MNCs are often hesitant to transfer the technology to host countries ,creating

dependency
4. Market dominance:-

MNCs domine high pro:it consumer sectors, using market power to monopolize

pro:its
5. Tax avoidance:-

through transfer pricing MNCs avoiding paying taxes in host countries , affecting

local GVT and partners
6. Lack of job opportunity :-

they may not appoint local to higher positions, limiting job opportunities in host

countries

7. Balance of payment issue:-

MNCs may create balance of payment problems for host countries through imports and repatriation of pro:it

8.Insufficient linkages:-
failure to create necessary backward and forward linkages can hinder host country industrialisation

9.Efficiency concerns:-

despite their size, some MNCs incur significant losses , rising question about their efficiency

10.Dominant power through mergers:-
MNCs increase dominance through mergers and acquisition , limiting

competition

11. Influence policies:-

MNCs can influence home GVT and international policies, potentially favoring their interest over those of countries , especially developing one

HOME COUNTRY PERSPECTIVE

1. Resources diversion:-

   MNCs divert resources from home countries

2. Unemployment creation:-

   they may establish production centers in countries with cheap labor, leading to unemployment in home country

3. Environment violation:-

   MNCs sometimes violate environmental regulations by setting up industries in countries with lax regulations

INDIAN PERSPECTIVE OF MNCs

1. Historical restriction:-

   India followed a restrictive foreign direct investment policy until1999

2. Liberalisation impact:-

   since liberalisation in1991, India has become an important market for MNCs,

   attracting major players across industries

3. Indian Companies as MNCs:-

   some Indian companies like ONGC, Reliance ,Wipro and TATA etc expanded globally, becoming multinational operators

4. Learning opportunity:-

   Indian enterprises should learn from MNCs technological and management skills to compete effectively