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The Role of MNC in International Strategy
Who are the MNCs?
Financial Companies:• Pension Funds• Banks• Insurance firms
High Net Worth & Powerful People
Financial & Trading Organisational Entities in
different Countries/Regions
Funds & owns
Funds & owns
Top MNCs:• USA• Japan• Britain• France• Germany• China• Canada
Global Companies
1. Strong technical capacity in market places across countries
2. Masters of branding in consumer markets across countries
3. Products that appeal ACROSS cultures & countries
MNC’s Foreign Direct Investment
Is about directly Investing in international business operations to achieve managerial control over assets abroad
1. Purchasing M&As equity in foreign companies2. Offering capital or green field investments to foreign
companies via new equity holdings3. Financial restructuring
Why consider
FDI?
Marketing Factors:• Size of market• Market growth• Desire to maintain share of market• Desire to advance exports of parent company• Need to maintain close customer contact• Dissatisfaction with existing market • arrangements• Export base• Desire to follow customers• Desire to follow competition
Barriers to Trade:• Government erected barriers to trade• Preference of local customers for local products
Financial Factors• Higher profit expectations• Cost Factors:
Desire to be near source of supply Availability of labour Availability of raw materials Availability of capital/technology Lower labour costs Lower other production costs Lower transport costs Financial (and other) inducements by gov. More favourable cost levels
Investment Supporting Factors• General attitude toward foreign investment • Political stability • Limitation on ownership • Currency exchange regulations • Stability of foreign exchange • Tax structure • Familiarity with country
Impact on Host Country
Positive Impact:• Capital Formation• Technology Transfer• Regional & Sectoral Development• Internal Competition &
Entrepreneurship• Favourable Effect on Balance of
Payments• Increased Employment
Negative Impact• Industrial dominance• Exploitation of raw materials and cheap labour• Bribery and corruption• Interference in political matters• Technological dependence• Disturbance of economic plans• Cultural change• Interference by home government through MNC• Degree of government control may be less than intended
Host Country Benefits:• Improves Gross Domestic
Product via repatriation of profits, royalties & fees.
• Increases export opportunities.• Political advantages.• Job losses.• Net effect on imports & exports.• Creating competitors.
Allegations:• In transferring technology to less developed countries, prices are set too
stringently.• If a country attempts regulation, MNC’s merely divest and move where
regulations are less stringent.• The centralisation and control of key functions of MNC’s in their home countries
perpetuate a neocolonial dependence of less-developed countries.• Sensitive country information is disseminated internationally by MNC’s global
intelligence networks.• MNC’s introduce superfluous products that do not contribute to social needs
and perpetuate class distinctions.• National labour interests are undermined because of global activities of MNCs.• MNC’s avoid paying taxes. Through artificial transfer pricing, MNC’s undermine
attempts by Governments to manage their economic affairs.• The best jobs are given to citizens of the nation in which the MNC’s have their
headquarters.• Inappropriate technology is introduced by MNC’s to less developed countries.• National labour interests are underminded because of the global activity of
MNEs.
Social Responsibility Mitigation
1990’s - United Nations set up a Code of Conduct on Transnational Corporations
1999 - United Nations set up “Global Compact” which has no teeth as
no penalties.
Because USA MNC complained about scrutiny
What is the UN Global Compact? “ The Global Compact asks companies to embrace universal principles and to partner with
the United Nations. It has grown to become a critical platform for the UN to engage effectively with enlightened global business.”
• 2 Human Rights Principles• 4 labour principles• 3 environmental principles• 1 anti corruption principle
Impact on Host Country
The Rise of Bangladesh’s Textile Trade Case Study
The Impact of International Theories on the internationalising organisation
Traditional to Modern Trade Theories
Trade Theories
1. 16th Century Mercantilism theory
2. Absolute Advantage (Adam Smith)3. Comparative Advantage (David Richardo)4. Factor Proportions Theory (Heckscher & Ohlin
19th Century onwards5. Country Similarity Theory (Steffan Linder)6. Global Horizons Theory7. Product Life Cycle (Vernon)8. New Trade Theory9. Ownership Advantage Theory (S.Hymer)10. Internationalisation Approach (Buckley and
Casson)11. Global Strategic Rivalry theory12. Porter’s National Competitive Advantage
(diamond) theory113. Internalisation Theory14. Eclectic Theory (John Dunning)
16th Century Mercantilism: Governments ensuring trade surplusby controlling imports
21st Century Free Trade:Countries specialised for strategic advantage & trade freely
Group Formation
3 to 5 people in Groups
Group Formation & Assignment Project PlanningBetween now and Week 4: Research & select either:• A local or international organisation that has just
internationalised;• An organisation interested in internationalisation to a
new country
By Week 4:• Plan your case story development approach / story
outline plot eg write about their history and current international operating issues; a country attractiveness or recommended entry strategy studyo Refer to MGX 5181 case studies to understand the
different genres & storyboards of writing a case story where its contexts logically leads to the appropriate questions asked
Week 4 onwards to before presentation date & report submission date:
• Work out the rest of the project timelines of who, when your group members:o Complete formulating the case questionso Answer the case questionso Prepares & deliver the presentationo Submits the final report
Hence by this week, form your group of 3 to 5 people; and work out your project
plan:
1. Work timelines2. People allocation of
activities3. Process of how you deal
with internal conflicts and non contributors
4. Name of team leader & members, including student IDs
Email me your team’s project plan before Monday next
week (ie week 5).
Assignment 3 – Individual/Paired PresentationStudent 1 Student 2 Topic
Week 2
Week 3 Yue Zhao Yanjun Wang Starbuck
Week 4
Week 5 Guiyi Ying JunJie Yu GM Holden
Week 6 Gemma Matainaho Angella Liu Reading 5.1 by Porter. M on Competitive Strategy.
Week 7 Yinan Shen Gengduo tian Reading 8.3 Moore, G. Living on the fault line
Week 8
Week 9
Week 10
Week 11
Week 12
Case Study
The Rise of Bangladesh’s Textile Trade
The Rise of Bangladesh’s Textile Trade Case Study
Source: The Hindu, Dec 20, 2012
1. Why was the shift to a free trade regime in the textile industry good for Bangladesh?
2. Who benefits when retailers in the US source textiles from low-wage countries suh as Bangladesh?
3. What international trade theory or theories best explain the rise of Bangladesh as a textile exporting powerhouse?
4. How secure is Bangladesh ‘s textile industry from foreign competition? What factors could ultimately lead to a decline?
Bangladesh's textile industry – 1.51 mhttps://www.youtube.com/watch?v=CxKlnkp9SvQ
Ethnical Textiles – 3.31mhttps://www.youtube.com/watch?v=A3xrXC9wcZghttps://www.youtube.com/watch?v=hcYYLmcxavA
Martin Jacques - When China Rules the World – 10.04 mhttps://www.youtube.com/watch?v=Og8zBhDDkEQ
The BenefitsThe POSITIVES:
1. Capital Formation2. Technology Transfer3. Regional & Sectoral Development4. Internal Competition &
Entrepreneurship5. Favourable Effect on Balance of
Payments6. Increased Employment
Bangladesh's textile industry – 1.51 mhttps://www.youtube.com/watch?v=CxKlnkp9SvQ
At What Costs?
At Whose Costs?
Bangladesh has the advantage of not being China
The argument focus is Cost Advantage
China
Martin Jacques - When China Rules the World – 10.04 mhttps://www.youtube.com/watch?v=Og8zBhDDkEQ
The long version – 1.34 hrshttps://www.youtube.com/watch?v=3G1EyvRZmOs
Bangladesh China
Low cost factors Is the largest world’s exporter sunk FDI
But still MNC have concerns of increasing cost factors
The Costs
The NEGATIVES:
1. Industrial dominance
2. Exploitation of raw materials + cheap
labour
3. Bribery and corruption
4. Interference in political matters
5. Technological dependence
6. Disturbance of economic plans
7. Cultural change
8. Interference by home government
through MNC
9. Degree of government control may
be less than intended
10. Technology transfer may be too expensive or inappropriate (eg old)
11. Can move out when country regulates
12. Products are for overseas markets and may not benefit local social needs or value
13. MNC’s home country’s labour /employment interests are undermined
14. Avoid taxes
15. Best jobs given to MNC’s privileged people
Ethnical Textiles – 3.31mhttps://www.youtube.com/watch?v=A3xrXC9wcZg
https://www.youtube.com/watch?v=hcYYLmcxavA