MULTI NATIONAL ENTERPRISE Meaning: The term Multinational is widely used all over the world to denote large

companies having vast financial, managerial and marketing resources. MNCs are like holding companies having its head office in one country and business activities spread within the country of origin and other countries. Multinational corporations, or MNCs for short, are companies that directly own and operate assets in more than one country outside their home country in which they are incorporated and usually also maintain their headquarters. Companies show responsiveness to environmental forces such as competitors, customers, suppliers, financial institutions, and government; They believe in drawing on a common pool of resources, including assets, patents, trademarks, information, and human resources; and affiliates that are linked by a common strategic vision. Toyota (Japan), BP (England), De Beers (Luxembourg), Fiat (Italy), Phillips (Holland), Exxon (USA) and Coca Cola (USA) IBM computer and Pepsi-Cola from U.S.A., Siemens from Germany, Sony and Honda from Japan Philips from Holland etc., are some of the MNCs operating at international levels. Definition:-According to ILO report (i.e. International Labour Organisation) The essential nature of the multinational enterprises lies in the fact that its managerial headquarters are located in one country, while the enterprise carries out operations in number of other countries.

Important features/characteristics of MNEs:

1. Area of operation: - The MNCs operate in many countries with multiple products on large scale. A MNC may operate both manufacturing and marketing activities in a number of countries. Some MNCs operate in several countries, whereas, others may operate in a few countries. Mostly MNCs from developed countries dominate in the world markets. 2. Origin:-The development of MNCs dates back to several centuries, but their real growth started after the Second World War Majority of the MNCs are from developed countries like U.S.A, Japan, UK, Germany and European countries. In recent years MNCs from countries like Korea, Taiwan, India, China, etc. are operating in the world markets. 3. Comprehensive Term: - In general, the term MNC is a Comprehensive term and includes international and transnational corporations. The term global corporation is also included in the list of MNC. 4. Profit Motive: - MNCs are profit oriented rather than social oriented. Such corporations do not take much interest in the social welfare activities of the host country. 5. Management: - The Parent company works like a holding company. The subsidiary companies are to operate under control and guidance of parent company. The subsidiaries functions as per the policies and directions of parent organisation. 6. Manufacture and Marketing Activities: - MNCs undertake both Manufacturing and Marketing Activities and they are predominantly engaged in hi-tech and consumer good industries. Majority of the MNCs are engaged in pharmaceutical, petrochemicals, engineering, consumer goods, etc. 7. Quality Consciousness: - MNCs are quality and cost conscious and managed by professionals and experts. They have their own organisation culture and systems. MNCs believe in the concept of total quality management. 8. Size: - Multinationals are mostly large in size, publicly listed and organizationally complex enterprises managed by professional executives experienced in managing across borders. Annual sales and profits frequently total billions of dollars. Employees can number in the hundreds of thousands. Annual capital expenditures often exceed those budgeted by many African, Asian and Middle East countries.

WHY FIRMS EXPAND OR BECOME MULTINATIONAL

Companies expand into overseas operations for many reasons. Perhaps the biggest driver is the search for continued expansion once they have outgrown their domestic or home market. The imperative for continued value creation forces companies to expand overseas in search of profitable investment opportunities. Anti-monopoly laws in the home country often accentuate this motive. Another motive for overseas expansion is often the strategy to avoid tariff barriers in the host country. This was a particularly strong driver in the immediate post-war years, when tariffs were imposed by many countries across a wide range of goods and at high levels.

(a) a desire to protect themselves from the risks and uncertainties of the domestic business cycle; (b) a growing world market for their goods or services; (c) a response to increased foreign competition; (d) a desire to reduce costs; (e) a desire to overcome tariff barriers; and (f) a desire to take advantage of technological expertise by manufacturing goods directly rather than allowing others to do it under a license agreement.

STEPS TAKEN BY THE FIRMS TO EXPAND

Under the premise that foreign markets are risky, companies expand their operations abroad incrementally and cautiously. Setting up a wholly-owned subsidiary is usually the last stage of doing business abroad. A typical internationalization process for a firm producing a standardized product might begin with a licensing agreement: a contractual arrangement in which one firm provides access to some of its patents, trademarks, or technology to another firm in exchange for a fee or royalty. Apart from a licensing agreement, a firm might export via an agent or distributor. This might be followed by the direct hiring of a domestic representative or the establishment of a foreign sales subsidiary. The next step might be the establishment of local packaging and/or assembly operations. This is typically followed by foreign direct investment.

Advantages of MNE:
1. Advance Technology: It has better access to advance technological levels which makes them extremely competitive when entering new foreign markets. 2. Learning Curve: Productivity of the MNE in manufacturing industries increases through the experience production. 3. Product Development: It can capitalize in development of products in one market, and; if successful, uses that success to exploit other foreign markets. 4. Financial Strength: Because of its sheer size, MNEs can be larger than governments of countries in which they operate. (g. GM is larger than fifty countries. They are able to capitalize easier, at a lower cost, than local foreign companies. The issue of control is important. 5. Management: Being large organizations, MNEs have depth in management ranks. MNCs can afford to employ individuals with specialized business skills to enhance companys profits and/or effectiveness. 6. Reduction of Political Risk: Because there are different political and economic systems in existence there is more risk involve for the MNCs, but MNEs do business in many different sovereignties and therefore, they are able to spread the risk over many other locations. 7. Rationalized Production and Global Sourcing: MNEs are able to produce different components in different markets and sell their products in different markets. 8. Less Interdependence: Because of regionalization and because of realignments at the macro and micro levels. Four main criteria to identifying a MNE: Structure refers to the number of countries in which the MNE operates. Also refers to the nature of corporate ownership. Examples: Suzuki owned by GM, Gillette is U.S. owned, an Mitsubishi is owned by Japan, even though GM owns a large percentage. For the majority of MNEs, the ownership of the corporation is maintained in the parent country, even though they might list shares of stock and have ownership in different countries. Performance is the percentage of total revenues, profits, assets and employees coming from abroad. The greater the reliance of the corporation on foreign materials, production, personnel and product plants, the more global the corporation is. Behavior is the attitude of top management toward the role of international operations within the total corporate strategy. In most of the European corporations, the majority of CEOs are from foreign countries. The U.S. is an exception. Coordination is how the firm looks at its worldwide operations, multi-domestic or global. Multi-domestic is where each country is considered a different market (Japan uses the term multi-cultural corporation). The corporation is really a collection of subsidiaries. Global is where the firm views the entire world as one market and standardizes its products.

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