A multinational corporation may be defined company that operates in more than one country. According to the United Commission, Multinational Corporations or Global Corporation is a corporation, which operates in addition to the addition in which; it is incorporated, in one or more other, countries. Such a corporation owns and controls, business in two or more countries. In the words of W H Moreland, “Multinational Corporations or Companies are those enterprises whose management, ownership and controls are spread in more than one foreign country”. In common usage, multinational corporations are also called global corporations and international corporations. While in general these terms may be used interchangeably, there are actually subtle differences between them. Global corporation and multinational corporation represent two extremes whereas International corporation falls somewhere between these two. In a global corporation production facilities are generally centralized. These are located in oneor two countries to get the advantage of Continue reading
International Business Basics
Benefits and Costs of Foreign Direct Investment (FDI) to Host Country
Foreign Direct Investment plays an important part in global entrepreneurs and businesses. The FDI can easily provide a firm with new business environments and markets, cheaper production facilities, usage chances of newest technologies, cheaper financing and skills. There is an significant difference between FDI and foreign portfolio investment (FPI). Foreign portfolio investment means investing of individuals, companies, or policy makers of a nation in foreign fiscal tools (for example government bonds, foreign stocks) making an important wealth piece in a foreign entrepreneurship is not involved. There are two strategic kinds of FDI: Horizontal foreign direct investment : If FDI is made in way which in same sector as a company have activity in at home. Vertical foreign direct investment: If a company or multi national establishment (MNE) supplies production resources for a company’s local transactions, or this kind of foreign direct investment can take place with selling the final product Continue reading
Growth Strategies Followed by MNC’s
Growth is a way of life. Almost all organizations plan to expand. This strategy is followed when an organization aims at higher growth by broadening its one or more of its business in terms of their respective customer groups, customers functions, and alternative technologies singly or jointly — in order to improve its overall performance. There are four types of expansion (Growth) strategies Expansion through concentration Expansion through integration Expansion through diversification Expansion through cooperation 1. Expansion through concentration It involves converging resources in one or more of firms businesses in terms of their respective customer needs, customer functions, or alternative technologies either singly or jointly, in such a manner that it results in expansions. A firm that is familiar with an industry would naturally like to invest more in known business rather than unknown business. Concentration can be done through Market Penetration: It involves selling more products to the Continue reading
Global Division Structure of MNE’s
Global Division Structure or International Division Structure of an Multinational Enterprise involves vesting the responsibility for total management of global business activities with one designated division or department called Global Division. Globally specialized personnel are placed in charge of the division to handle the diverse matters as export/import negotiations, export/import documentation, foreign-exchange transactions, relations with foreign governments, foreign subsidiaries personnel management, foreign market promotion, etc. Most MNCs in their initial stages of globalization employed the ‘Global Division Structure’ covering certain regions of the world to supervise the functions in those regions. But conflicts could arise between the functional heads and the heads of the global division. Following figure gives a simple model of Global Division Structure. Randall S. Schuler, Peter J. Dowling, Helen De Cieri in their research paper in Journal of Management, Summer, 1993, observed that in the case of the Global division structure (design) the MNE basically adds Continue reading
Global Product Division Structure of MNE’s
Global Product division structure contains the functions necessary to the specific goods or services a product/service division produces. The parental organization has headquarters divisions for different major product categories with respective resources, human and others. Overseas subsidiaries producing a particular product or class of product have to report to headquarters division responsible for that product or class of products. Global Product Division Structure locates manufacturing and value creation activities in appropriate global locations to increase responsiveness to competitive opportunities, efficiency, quality, or innovation. Global product divisions are responsible for Global Product Design and operate in divisional, cluster, or holding company formats. Global Product divisions have little in common. They are highly independent of each other. Following figure gives a simple model of Global Product Division Structure. Ford adopts this structure, abandoning its Global Geographic Structure. Today most of the multinational enterprises with their diverse acquisitions world-wide have diverse product portfolios. Continue reading
International Asset Protection
Company’s investments and other assets in foreign countries may face the risk of expropriation. Governments are therefore concerned about the protection of the interests of their national companies in the foreign countries. The potential risk was more before the worldwide liberalization set in the 1980s. Important protective measures in this respect include the following: Coercion and Pressure Until the Second World War, home countries used military force and coercion to ensure that host governments would give foreign investors prompt, adequate, and effective compensation in cases of expropriation, under a concept known as the international standard of fair dealing. It may be noted that the home countries of the companies involved were developed ones and the host countries were developing nations and these host countries had little to say about this standard. In a two conference held at The Hague in 1930 and at Montevideo in 1933, participating developing countries got Continue reading