Topic: Multinational Enterprises (MNEs)

Introduction; Concepts of MNEs, Types of MNEs, Impact of MNEs on Host

Economics; Emerging MNEs from Rapidly Developing Economics.

9.1 INTRODUCTION:
Multinational Enterprises (MNEs) are business entities that operate in multiple countries,
engaging in various economic activities such as production, sales, and investments. MNEs play a
significant role in the global economy, facilitating international trade, creating employment
opportunities, and driving economic growth. This lecture will explore the concepts of MNEs,
different types of MNEs, their impact on host economies, and the emergence of MNEs from
rapidly developing economies.

A multinational corporation (MNC) is an organization that has assets or facilities in

multiple countries. While they typically have a main office in their home country, these
organizations may have offices, factories and other locations spread out across the
world. To be considered a multinational corporation, an organization must have at least
one location in another country, even if they already export goods abroad. Throughout
your career, you may also hear multinational corporations referred to as MNCs,
international corporations, multinational enterprises or stateless corporations.

Many business owners want to diversify their portfolios by expanding their companies
into new markets. This can create international exposure, and an MNC often has a
positive impact on each of the countries where it operates. However, it's important to
consider how MNCs may affect the politics, resources and economies of the countries
where they operate.

9.2 How do multinational corporations work?

The structure and operations of multinational corporations may vary depending on the
industry they're in, the size of their organization and the goods or services they produce.
While some authorities define a multinational corporation as any organization that has
at least one foreign branch, others think companies need to generate at least one-
quarter of their revenue from foreign countries to earn this title. However, the primary
requirement to become a multinational corporation is to make a direct investment into

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 another country by operating part of your business there. Here are some characteristics
of typical MNCs:

 Centralized Control: Usually, a company sends along trained officials

to conduct business in the foreign land. The MNCs are mostly run,
managed and coordinated from their headquarters. Certain companies
also shift their headquarters abroad either due to a merger or to avail
lower tax rates using corporate inversion. In 2014, it was reported that
American Company Burger King would shift its tax domicile to Canada
after buying the Canadian brand Tim Hortons Inc.
 Customized Expansion and Operations: MNCs operate in a foreign
country either through a branch or a subsidiary. Most brands use local
resources like land, labor and current stock to create goods and
services. Some brands also import peculiar raw materials to maintain
their signature style.
 Glocalization: Oversea expansion comes after striking a balance
between local and global needs. For example, Disney theme parks
across different nations are suited to the local and global taste.
 Focused on Enhanced Quality and Tech Upgradation: The focus
remains on specialized teams to improve offerings and process
constantly, thus ensuring premium quality products or services. Well-
performing brands keep up with technological changes.
 Huge Assets and Turnover: Since these companies have assets in
various nations, it compounds a considerable net worth. Also, they sell
the products or services worldwide, generating massive turnover.
Through mergers or acquisitions, or expansion, MNCs keep growing
their business operations, sales and profitability.
 Global Marketing and Advertising Strategies: MNCs spend
aggressively on the worldwide marketing campaigns and
advertisements to stay ahead in the competition.
 Hybrid Skill Deployment: Such companies hire the best and talented
resources for the managerial positions. Many also train the local talent.

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A combination of indigenous and global skills creates world-class
products and services.

Here are some of the most common types of multinational corporations:

1. Decentralized corporation

Decentralized corporations may have multiple offices, facilities and assets in foreign
countries, but they still maintain a powerful presence in their home country. Typically,
decentralized corporations don't have a central headquarters. Each country they operate
in may have its own management structure. This helps the corporation scale quickly
while ensuring it adheres to the regulations in each

2. Global centralized corporation

A centralized global corporation may have a head office in its home country, where the
chief executive officer and other senior leaders reside. These corporations often look for
opportunities to increase revenue by purchasing cheap resources and materials from
foreign countries. The same management team typically handles both domestic and
international decisions. They also oversee all global operations.

3. International division

Corporations may keep their domestic operations separate from their international
operations by creating an international division. This new division oversees all the
corporation's operations in foreign countries. While this structure can help companies
reach a wider audience and make decisions that appeal to different cultures, it can also
be challenging to maintain a cohesive brand image.

4. Transnational enterprise

A transnational enterprise may exist within a parent-subsidiary relationship. This allows

them to access many of the parent corporation's resources, such as their research and
development (R&D) team, even though they may operate in separate countries.
Typically, the parent company oversees the transnational enterprise and makes
decisions on its behalf. While they typically follow a centralized leadership structure, this
can vary from one corporation to the next.

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 1. Decentralized 2. Global Centralized
•Every branch office •A centralized firm
has a decentralized manages and controls
management structure the international units
with no central chain from the headquarter in
the home country.
of command for
decision making.

3. International 4. Translational
• In this, the global branches • It is a blend of all the
adhere to the parent above three forms of
company’s technology or
R&D. All the research work
MNCs. The parent
for new product company guides but not
development and controls the functioning
improvisations occurs in the of its global branches.
headquarter.

In another way, MNCs can be classified as Horizontal, Vertical and Conglomerate:

9.3.1 Horizontal MNEs:
Horizontal MNEs replicate their production processes or services in multiple countries. They
seek to take advantage of cost differentials, market access, or specific resources available in
different locations. For example, McDonald's is a horizontal MNE that operates in numerous
countries, maintaining a similar menu and branding strategy across its global locations.
9.3.2 Vertical MNEs:
Vertical MNEs engage in different stages of the production process across multiple countries.
They may have upstream operations (such as raw material extraction or manufacturing
components) and downstream operations (such as assembly or distribution) in different
countries. For instance, Apple Inc. is a vertical MNE that sources components from various
countries and assembles its products in countries like China.
9.3.3 Conglomerate MNEs:
Conglomerate MNEs operate in diverse industries and may not have a clear focus on a single
product or industry. They expand their operations across multiple industries, often through

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 acquisitions or mergers. General Electric (GE) is an example of a conglomerate MNE with
businesses spanning multiple sectors, including aviation, healthcare, and energy.

9.4 Advantages of becoming a multinational corporation

1. Goods and Services: MNCs bring goods and services to the foreign
country, thus giving the local customers variety. Besides, they also
bring in innovative products suited to local needs that serve their
requirements better.
2. Job creation: multinational companies create jobs whenever they
enter new borders as they employ the local workforce. Top
multinational companies in the US, such as Apple, Amazon, Microsoft,
etc., gave jobs to over 1 million people between 2000-2018.
3. Growth and Development: Especially due to CSR requirements,
MNCs also uplift the societal makeup by contributing to the country’s
income, development and growth. Developing countries and MNCs

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 often team up with foreign direct investments (FDIs). It has financed
many development projects to eliminate poverty and job shortage.
4. Cost Efficiency: Companies eye foreign countries where the labor and
raw materials are cheap. Some countries have lower tax rates;
together, it brings down the cost.
5. Business Expansion: The obvious benefit for the company is the
massive business extension by allowing access to a willing new market.
Coupled with cost-efficiency, it makes their empire grow immensely.
6. Global Brand Recognition: The presence across several countries
improves brand image and identity among the worldwide consumers.
With higher product demand, consumer satisfaction and wide
acceptability, the price of the product rises.
7. Diversified Work Culture: An MNC has a cosmopolitan work culture
since the employees belong to different parts of the world but work
together for attaining the company’s goals and vision.

9.5 Disadvantages of becoming a multinational corporation

While organizations may benefit from becoming multinational corporations in a variety

of ways, there are also some common challenges it's important to be aware of so you
can mitigate risks. Here are some potential challenges of operating as a multinational
corporation:

 Decreased innovation: Often, the most innovative developments come

from small, nimble companies rather than large multinational
corporations that have secured a significant share of the market. To
prevent your organization from becoming too comfortable with the
status quo, invest in R&D.
 Depleted environmental resources: Expanding operations to foreign
countries often requires land development, which can deplete natural
resources. Be mindful of your organization's impact on the environment
and look for more sustainable alternatives, such as repurposing
preexisting buildings.
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  Complicated regulations: Operating in multiple countries can make it
more complicated to comply with the regulations in each area. Make
sure you invest in a skilled legal team and experienced accountants who
are familiar with the requirements of each country you operate in to
mitigate legal risks.

9.6 IMPACT OF MNES ON HOST ECONOMIES:

MNEs have a significant impact on host economies in various ways:
9.4.1 Employment and Human Capital Development:
MNEs create job opportunities in host countries, contributing to employment growth and
income generation. They often provide training and skill development programs, enhancing the
human capital of the local workforce. For example, automotive MNEs like Toyota and
Volkswagen establish manufacturing facilities in host countries, generating employment and
developing a skilled labor force.
9.4.2 Technology Transfer and Innovation:
MNEs bring advanced technologies, managerial expertise, and best practices to host countries,
facilitating knowledge transfer and innovation diffusion. This can lead to productivity
improvements and the development of local technological capabilities. For instance,
semiconductor MNEs like Intel and Samsung transfer advanced chip manufacturing technologies
to their subsidiaries in different countries, promoting technological progress.
9.4.3 Foreign Direct Investment (FDI) and Economic Growth:
MNEs contribute to foreign direct investment inflows in host countries, promoting economic
growth and development. They invest in infrastructure, research and development, and other
productive assets, which can have positive spillover effects on the local economy. For example,
Chinese telecommunications company Huawei's investments in 5G infrastructure in various
countries drive technological progress and economic growth.
9.4.4 International Trade and Integration:
MNEs are instrumental in promoting international trade and economic integration. They
facilitate the exchange of goods, services, and investments across borders, connecting different
economies. MNEs often establish global value chains, where different stages of production
occur in multiple countries. This integration enhances trade flows and fosters economic
interdependence. An example is Nike, which coordinates design, marketing, and distribution
activities across countries while outsourcing manufacturing.

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9.7 EMERGING MNES FROM RAPIDLY DEVELOPING ECONOMIES:
In recent years, MNEs from rapidly developing economies, such as China, India, and Brazil, have
gained prominence. These emerging MNEs are expanding their global presence and challenging
the dominance of established MNEs from developed economies. For example:
9.5.1 Chinese MNEs:
Companies like Huawei, Alibaba, and Tencent have emerged as global players in
telecommunications, e-commerce, and digital technologies. They have expanded their
operations worldwide, competing with established MNEs and transforming global market
dynamics.
9.5.2 Indian MNEs:
Indian MNEs, including Tata Group, Infosys, and Reliance Industries, have become influential
players in industries such as software services, energy, and telecommunications. They have
made significant investments abroad and acquired foreign firms to expand their global reach.

Assignment:

What is an MNC? List down and discuss about the top 10 MNCs operating in
Bangladesh. (Include logo, which type of MNC it is, history, country of origin and
major products)

Word limit: 500,

Include Cover Page,
Include Reference

Handwritten.