Segment 6 : Business ethics, CSR, Alliances and MNC'S

Topic 3 : Multinational Corporations (MNCs) and

Its strategies
Multinational Corporations (MNCs) and Its Strategies

Table of Contents:
3.1 Introduction
Learning Objectives
3.2 Multinational Corporations (MNCs)
3.3 Benefits of MNCs
3.4 Limitations of MNCs
3.5 Business Strategies of MNCs
3.6 Techniques Employed by MNCs to Manage Markets, MNC, TNC, and
Global Companies
3.7 Summary
3.8 Glossary
3.9 Case Study

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3.1 Introduction
A multinational corporation
(MNC) has been described as a STUDY NOTE
corporate unit that operates in A multinational company (MNC) is a
many locations around the corporate entity that operates in its home
world at the same time. In some country as well as has a branch in
another country. The headquarters,
cases, the manufacturing unit is which controls and coordinates all foreign
located in one nation, while branches, is normally located in one
marketing and investment units country.
are located in another. In other
instances, all corporate activities are conducted in various countries, with
strategic headquarters located anywhere across the globe.
For example, LTI, TCS, Tech Mahindra, Deloitte, and Capgemini are some of
the examples of MNCs in India. Procter and Gamble, headquartered in
Cincinnati, offers similar products in more than 150 countries.
There are MNCs with overall revenues that surpass the GDP of several small
or developing countries. The Minnesota Mining and Manufacturing Company,
or 3M, has over a thousand different product lines.
Few MNCs hire more people than a country's entire population. Some may
even have the ability to overthrow regimes! As a result, MNCs wield capital
and muscle. Many have the managerial, technological, and political power to
control economies around the world.
The company's headquarters serves as the strategic nerve centre where big
decisions and policies are made.
Learning Objectives
After studying this chapter, you will be able to:
• Understand the importance of multinational corporations
• Understand the need for MNCs
• Understand the benefits and limitations of MNCs.
• Learn the trends that can change the landscape of business.
• Understand the techniques employed by MNCs to manage markets,
MNCs, TNCs, and Global Markets.
• Understand the business strategies applied by MNCs.

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3.2 Multinational Corporations (MNCs)

A multinational corporation (MNC), also known as a multinational enterprise
(MNE), is a company or organisation that manages or provides services in
many countries.
MNCs continually seek new prospects. These companies conduct risk
assessments and closely study their market environments. They accumulate
experience in the culture, politics, economy, and legal aspects of the countries
in which they operate.
Today, an MNC distinguishes itself from its predecessors in terms of the
investments and involvement it makes in the countries it works. An MNC is
distinct from other companies with international branches or affiliates, despite
the fact that its concept is still debatable.
The following are the core responsibilities of a traditional multinational's
headquarters:
• Strategic Role: It is a policy-making body for global operations.
• Execution: Decisions on how procedures, strategies, and means of
action will be implemented in various countries.
• Control: Since the operations are so large, it's critical to keep a tight
grip on global policies, costs, processes, and operations.

Any multinational must function through subsidiary units or satellite units. As

a result, multinational corporations have headquarters as well as subsidiaries.
Features of MNCs:
MNCs have the following distinguishing characteristics:
A. Massive Assets and Turnover:
MNCs see huge turnovers in sales because they have massive physical
and financial assets due to their multinational operations.
B. International Network of Branches: MNCs have manufacturing and
distribution activities in several countries, and they do so through a
network of branches, subsidiaries, and affiliates in the countries where
they operate.
C. Single Control: MNCs are known for having a single point of control.
Typically, there is a head office in their home country that oversees the

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business operations of their international branches. The parent

corporation's governance structure is followed by branch management.
D. Robust Economic Power:
MNCs are colossal economic forces. Via constant mergers and
acquisitions of companies in host countries, they continue to expand
their economic strength.
E. Advanced Technology:
An MNC, in general, has advanced and sophisticated technologies at
its disposal. In manufacturing and marketing, it makes use of capital-
intensive technology.
F. Professional Management:
It hires highly qualified managers to manage large sums of money,
cutting-edge technologies, and foreign business operations.
G. Aggressive Advertising and Marketing: To secure foreign business,
MNCs spend vast amounts of money on advertising and marketing. This
is probably one of the most important factors in an MNC's success.
These companies are able to sell their products and services with
overwhelming success as a result of this strategy.
H. Better Quality Products:
An MNC operates on a global scale and values the quality of its goods,
making high investments in research and development and quality
control.
Example-
Apple
HQ: US
Age of company: 41 years
Number of employees: 66,000
The first Apple computer was built in Steve Jobs' parents' garage. Apple has
an estimated net worth of $605 billion and is often called the world's most
valuable company. In 2016, however, it had to contend with falling sales of
the iPhone.

3.3 Benefits of MNCs

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MNCs bring several advantages to both the country of origin where these are
headquartered and the host countries where they operate.
A. Benefits for Host Countries:
• Generation of Jobs:
MNCs generate significant employment in countries where they are
hosted. This benefits those host countries where unemployment
rates are high.
• Foreign Capital Inflows:
MNCs provide a much-needed boost to the economic development
of countries where they operate. MNCs provide an inflow of foreign
capital. For example, India has seen billions of dollars in foreign
investments, with several MNCs entering the country since it
opened up for foreign investments.
• Use of Resources:
MNCs are able to better use the host country's abundant physical
and human capital with their advanced technological or other
expertise. The host country's employment increases, and so does
its national revenue.
• Improved Balance of Payments: MNCs assist host countries in
expanding their exports as well. As a result, they indirectly
contribute to improving the host nation's balance of payments.
• Technical Development:
MNCs boost technical growth in most of the host countries. These
companies become the means of transferring technological
knowledge to the host countries. The host countries also evolve
technologically.
• Managerial Development:
With MNCs bringing in modern management methods and
practices, these companies help in the growth of management
skills in the host country.
• Phasing Out Monopolies:
The entry of MNCs creates competition in the host countries –
where, often, monopolies have been using exploitative activities
due to lack of competition. MNCs often force domestic businesses
to boost their productivity and quality standards.

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With the threat of competition posed by MNCs, several Indian

companies have obtained ISO-9000 quality certificates.
• Improvement in Living Standards:
MNCs contribute to the improvement of people's living standards in
host countries by offering high-quality goods and services.
• Promotion of International Culture:
MNCs connect the economies of various countries to the global
economy. These companies foster universal brotherhood and
community, promoting world peace and development.
B. Benefits for the Home Country:
From the home country's perspective, the following are some of the
advantages provided by MNCs:
• Multinational companies create employment opportunities. They
also tend to pay more than local firms in host countries. Training
programmes will also improve the quality and efficiency of the local
workforce. Therefore, more of the local workforce will be employed
to work in multinational companies.
• Boost to the local economy. Multinational companies help to
increase the value of a country's annual output by producing and
selling a high volume of products. They will also boost export
earnings for the host country by selling products abroad. This will
create consumption expenditure since more people are in paid
employment and boost the host country's Gross Domestic Product
(GDP). Therefore, the overall standard of living will be improved.
• MNCs build international credibility by operating in several
countries. They can also leverage these in the long run by
delivering high-quality services.

3.4 Limitations of MNCs

MNCs also face many disadvantages for both -- the country of origin where
these are headquartered and the host countries where they operate.
A. Limitations for the host country:
• Threat to Domestic Industries:
With their enormous economic strength, MNCs pose a threat to
domestic industries that are still developing and evolving. Domestic

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companies are often unable to meet the demands triggered by the

arrival of these corporations. Often, many domestic industries are
forced to close down. This way, MNCs may stifle host countries'
economic development.
• Profit Repatriation:
. MNCs generate much revenue. But repatriation of profits – that is,
sending profits made by the MNC to the home country -- has a
negative impact on the host country's foreign exchange reserves. That
is, a significant amount of foreign exchange eludes the host country.
• No Benefit to the Poor:
MNCs usually produce goods and provide services on a global level,
consumed by a wealthy class. As a result, MNCs provide little benefit
to the disadvantaged people in the host countries in general.
• Threat to Independence:
MNCs initially assist the host country's government in a variety of ways
-- before eventually intervening in the host country's political affairs. In
the long term, this may pose an implicit threat to the host country's
political power.
• Ignoring Host Country's National Interests:
MNCs invest in the most lucrative industries while ignoring the host
country's national goals and priorities. They are unconcerned about
the growth of underdeveloped areas and are not concerned about
resolving chronic issues in the host country, such as unemployment
and poverty.
• Misuse of Power:
MNCs are important economic institutions. They can continue to lose
money for long periods in the hope of making big profits until the local
competition is eliminated and hegemony is achieved. This could be
MNCs' dirtiest tactic for wiping out local rivals in the host nation.
• Exploiting Natural Resources:
MNCs tend to squander the host country's natural resources. They
can cause rapid depletion of some of the host country's non-
renewable natural resources. MNCs are known to wreak havoc on the
host country's economic growth this way.
• Promotion of Alien Culture:

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MNCs often encourage alien cultures in host countries in order to sell

their goods. They cause people to lose sight of their own cultural roots.
MNCs, for example, have developed a taste for synthetic food, soft
drinks, and other products in India. MNCs' promotion of international
culture is especially harmful to people's health.
• Exploiting Human Resources:
MNCs join forces with big business houses in the host country to form
monopolies. As a result, economic influence gets concentrated in just
a few hands. These monopolies tend to acquire the might to exploit
the poor working class gradually.
B. Limitations to the Home Country:
From the perspective of the home country, MNCs can face the following
constraints:
• Due to the expansion of manufacturing and marketing activities in
other nations, there may be job losses in the home country.
• MNCs have a difficult time managing cultural diversity. This might
divert a management's focus away from more pressing business
concerns, resulting in a loss for the home country.
• In international markets, MNCs can face stiff competition from larger
MNCs. Their time and money are often spent more on ineffective
counter strategies, resulting in higher marketing costs and lesser
income for their home countries.

3.5 Business Strategies of MNCs

Multidomestic, global, and transnational are the three key international
strategies. Each strategy takes a unique approach to productivity across
countries while staying flexible enough to respond to changing consumer
tastes and market conditions. Let's take a closer look at these strategies.

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Multidomestic
Strategy

Business
Strategies
for MNCs

Transnational Global
Strategy Strategy

Fig 1: Business Strategies of MNCs

A. Multidomestic Strategy
A company that pursues a multidomestic strategy foregoes productivity in
favour of local responsiveness in its markets. For example, MTV customises
the programming that is broadcast on its channels in hundreds of countries,
including New Zealand, Portugal, Pakistan, and India, rather than attempting
to impose all of its American-made shows on audiences around the world.
H. J. Heinz, a food manufacturer, adapts its products to local tastes in a
similar way. For example, Heinz provides a variation of its signature ketchup
without garlic and onion since some Indians do not consume these two
ingredients for cultural reasons.
B. Global Strategy
A company that pursues a global strategy foregoes responsiveness to local
needs in its markets in favour of productivity. A multidomestic approach, you
learnt about, is the polar opposite of this strategy. While minor changes in its
products and services can be made in different markets, a global strategy
emphasises the importance of gaining economies of scale by providing
basically the same goods or services in each market.

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For example, Microsoft provides the same software programs all over the
world. However, it adapts them to local languages. Procter & Gamble, a
consumer goods company, tries to achieve efficiency by building global
brands wherever possible. Global strategies can be very successful for
companies like Intel, whose product or service is largely shielded from a
customer's view. Variation in local tastes is relatively easy for such
businesses.
C. Transnational Strategy

A transnational strategy attempts to strike a balance between a multidomestic

and a global strategy. Companies following this strategy aim to strike a
balance between the need for productivity and the need to adapt to local
needs in different countries. For example, global fast-food chains like
McDonald's and KFC use the same brand names and menu items all over the
world. Though these businesses also cater to local preferences. For example,
wine can be bought at McDonald's in France. This strategy makes sense for
McDonald's since wine is such an important part of the French diet.

3.6 Techniques Employed by MNCs to Manage the Market, MNC,

TNC, And Global Companies
MNCs have offices or facilities in many nations, but each one operates
independently. Multinational corporations have investments in other nations,
but their product offerings in each country need to be organised. These
companies are more concerned with tailoring their goods and services to each
specific local market. As the name implies, MNCs have direct operations in
more than one country. However, the number of countries is typically less.
Conversely, MNCs have a centralised system, with headquarters in the home
country making most decisions. In this case, products are decided and
developed by the head office. Subsidiary offices do have options to adapt to
local markets if needed.
Transnational Companies (TNC): TNC refers to companies operating in
foreign countries, not through the home country. Companies that operate on
a global scale are much more complex. They run international operations and
have a single headquarters. However, these companies delegate decision-
making, research and development, and marketing authorities to each foreign

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market. These companies have large facilities and do business in many

countries, but no one country is considered their home. One of the major
benefits of a TNC is that it can achieve a higher level of responsiveness to
the local markets where it operates. To summarise:

• These businesses operate in many countries and have foreign direct

investment in most of them.
• Such businesses take a versatile approach, knowing and adapting to
each country's culture and demands.
• Each country's offices operate in a decentralised manner, having
decision-making authority.
• If there is a demand, subsidiary offices can launch and produce goods
that are not produced in the original home country.
• In the Indian case, Vodafone Group is one of the examples. It is a USA
based group, but in India, this company operates separately as
Vodafone India and makes decisions independently.
Global Companies: Global organisations have different locations, too.
However, these companies have identified how to build a common company
culture and a single set of processes that allow them to be more competitive
and profitable as a single global organisation. Global corporations make
investments and have a presence in a variety of countries. They use the same
coordinated image or brand in all markets to sell their goods. In most cases,
one corporate office is in charge of the global strategy, with a focus on
volume, cost control, and performance.
• These businesses strive to have a presence in a wide number of
countries and are typically larger than an MNC.
• These companies do not adhere to the system of creating an official
headquarter.
• Various subsidiaries are created, but standard goods are sold, with no
room for adaptation to local consumers.
• Even though the country of operations changes, there is no shift in
branding or details about a global business.
• McDonald's, a fast-food franchise, is an excellent example of this type
of company.

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Marketing strategies or companies' approaches can differ significantly

depending on a company's priorities, goods, and target markets. Examining
gaps in legal standards, changing terminology on goods and advertisements,
and deciding how to approach culture, purchasing habits, and consumer
tastes are all part of foreign marketing.
Following are the different strategies of global companies:
A. Standardisation:
Items, marketing, and distribution networks are closely linked in this
approach. The business strategy remains unchanged, although
language and legal variations are adjusted as required. Standardisation
works best when there is a strong brand with a high global demand.
Multinational marketing standardisation reduces costs, management
criteria, and the need for on-site staff.
B. Localisation:
Local customs, rules, and procedures drive a global marketing strategy
based on specialisation. This course heavily relies on local employees
to interpret the product requirements and marketing mix required for
success in their particular market. Products are tailored to individual
countries' shopping habits and cultural differences.
C. Regionalisation:
Localisation and standardisation policies are balanced by
regionalisation. Standard goods and marketing strategies are created
on a regional level. As required, regions can be identified by continents
or smaller blocks. Some local employees are required, particularly to
manage logistics.
D. Centralisation:
Both marketing and delivery needs are handled by a single headquarter
in a centralised approach. Companies send workers all over the world
to support their marketing campaigns when needed. This form of
marketing approach helps unify the business while also lowering costs.
The disadvantage of centralisation is the lack of local ties and the
potential for cultural and shopping patterns to be misunderstood.
E. Subsidiary Approach:
Global companies can create subsidiaries in each region or country
that act as partially independent entities for producing, distributing,
and marketing products in that region. A subsidiary strategy allows for
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more local control and responsiveness to changing customer

demands. In countries where joint ventures are needed for foreign
entry of goods and services, this form of agreement may be required.

3.7 Summary
Let us recapitulate the important concepts discussed in this topic:
• A multinational corporation (MNC) is a corporate unit that operates in many
locations around the world at the same time.
• Multidomestic, global, and transnational are the three key international
strategies followed. Each strategy takes a unique approach to productivity
across countries while staying flexible enough to respond to changing
consumer tastes and market conditions.
• Marketing strategies can differ significantly depending on a company's
priorities, goods, and target markets.
• Transnational companies operate in a number of countries and have
foreign direct investment in most countries. Such businesses take a
versatile approach, knowing and adapting to each country's culture and
demand.
• Global organisations have different locations, but they have identified how
to build a common company culture and a single set of processes that
allow such companies to be more competitive and profitable as a single
global organisation.

3.8 Glossary
Let us have an overview of the important terms mentioned in the topic:
• MNC: Multinational Corporation
• TNC: Transnational Corporation
• Strategy: Strategy is when an organisation seeks to achieve its vision
and mission.
• Multidomestic Strategy: A company that pursues a multidomestic
strategy foregoes productivity in favour of stressing local responsiveness
in each of its markets.
• Global Marketing: This type of marketing is followed on a global scale. It
reconciles or takes commercial advantage of global operational

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differences, similarities, and opportunities in order to meet global

objectives.
• Standardisation: In this strategy, similar goods or services are marketed
in either product, distribution, or advertising form, unchanged in any
country.
• Localisation: A global marketing strategy based on specialisation, which
is driven by local customs, rules, and procedures.

3.9 Case Study

McDonald's: A Unique Model
McDonald's is a world leader in Quick Service Restaurants. Its presence in
118 countries, with 33,000 outlets, exemplifies its status as a global leader
and fast-food behemoth.
Unique Management: This vast network is not easy to manage. Especially
when visitors in several nations expect clean, hygienic, pleasant, and quick
service at all times, the company's unique supply chain management and
control over its vast network have contributed to the success of this company.
McDonald's supply chain is managed with the fewest number of employees
on its payroll. The organisation takes several measures to train employees
through intense programmes. Quality is managed in all elements of
management operations.
Speed, Quality and Growth: McDonald's, a limited menu restaurant, prides
itself on the speed of service, serving more than 67 million people every day
throughout the world. The chain's first Indian locations opened their doors to
the public in Delhi and Mumbai. McDonald's serves 650,000 people in India
every day. McDonald's has 250 restaurants in over 40 locations in India, with
more being added on a regular basis. The corporation outsources the
massive supply chain. This multi-layered supply chain is well-coordinated.
McDonald's has efficiently put down its systems and procedures. Keeping up
with today's ever-growing fast-food market, the company is rapidly expanding.
Discussion Questions:
1. Can the business model of McDonald's be replicated in other sectors as
well?

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2. Is outsourcing of the supply chain is beneficial for all MNCs?

Match the following

Column I Column II A
A Multination Corporation in India (i) 1947
B MNC (ii) enforce international trade
C GATT (iii) Minimise cost of Production
D 8th Uruguay Round (iv) Infosys
E WTO (v) 1986Read more on Sarthaks.com -
Ans- A. (iv) B. (iii) C. (i) D. (v) E.

References
• Warren J. Keegan, Global Marketing Management, (1995): Prentice-Hall
of India, New Delhi.
• Mason A. Carpenter, Wm. Gerard Sanders, Prashant Salwan, Strategic
Management, A Dynamic Perspective - Concepts and Cases: - Published
by Dorling Kindersley (India) Pvt Ltd, Licensees of Pearson Education in
South Asia.
• Jay B. Barney, William S. Hesterly, Strategic Management and
Competitive Advantage - Concepts: - Published by PHI Learning Private
Limited, New Delhi.

E-References
• https://www.yourarticlelibrary.com/india-2/multinational-
corporations/multinational-corporations-mncs-meaning-features-and-
advantages-business/69418

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