MANAGING MNCs

Presented by:Mahendra Singh ChauhanShashank Shekher SinghShudhanshu Sharma

CONTENT• What is an MNC• Difference between multinational and non-multi-national• Types of multi-national on the basis of investment on the basis of operation• Impact of MNC –INDIA• Positive/negative effect• What INDIA offers• Indian companies in fortune 500 list• Trend of MNC in INDIA• Advantage of MNC in INDIA• Key issues in Indian context• Example: Asian paints

WHAT IS AN MNC?

Manages production

In more than one country

Delivers services

It is a corporation that:

And/or

According to Franklin Root (1994), an MNC is a parent company that:

• engages in foreign production through its affiliates located in several countries,

• exercises direct control over the policies of its affiliates,

• implements business strategies in production, marketing, finance and staffing that transcend national boundaries.

WHAT IS AN MNC?....continued

• A firm to be an MNC following criteria has to be fulfilled:

The firm should own or control operations in multiple countries, typically across the world

It should generate a substantial portion of its revenue by its operations from foreign countries

Should employ workforce from multiple countries, including employees at the senior levels

It should have a strategic management perspective and a vision of multinational operations

What differs a multinational firm from a non multi-national firm

• For this one must know what constitutes a non- multinational firm. The key attributes of a non-multinational firm are:

1. It produces and market goods and services in one country

2. It is headquartered in one country3. It faces low international risk exposure

ASSOCIATES: an enterprise in which a non resident investors own between 10 and 50%

SUBSIDIARIES: an enterprises in which a non-resident investor owns more than 50%

BRANCHES: unincorporated enterprises wholly or jointly owned by a non-resident investor

ON THE BASIS OF INVESTMENT

TYPES OF MULTINATIONALS

P100%

A60%

B

C

D65%

E 25%

F

12%

G

60%

30%

H

I

K I

55%

20%

30% 15%

80%

COUNTRY Z

COUNTRY X

COUNTRY Y

80%

70%

MNC: ownership & control

ON THE BASIS OF OPERATIONS

HORIZAONTALLY INTEGRATED MULTINATIONALS ... have manufacturing operations located in different countries to produce same or similar products. They have multi-plant firms replacing roughly the same activities in many locations

VERTICALLY INTEGRATED MULTINATIONALS ... have manufacturing operations in certain country/countries to manufacture products that serve as inputs to their production establishments in other country/countries. Such firms fragment production geographically into stages in multiple countries on the basis of factor intensities.

DIVERSIFIED INTEGRATED MULTINATIONALS ... have manufacturing operations located in different countries that are either horizontally or vertically integrated

ON THE BASIS OF MANAGEMENT ORIENTATION

ETHNOCENTRIC FIRMS... The HQ of the parent company, located in the home country, dominate the strategic decisions and exert high level of control over the subsidiaries through centralized decision making. eg…MAKSAT, SUKHOI

POLYCENTRIC FIRMS... Such firms have level of market orientation wherein subsidiaries have autonomy in decision making.eg….ELBIT SYSTEM INDIA

GEOCENTRIC FIRMS... Such follow a collaborative approach to decision- making between HQ and subsidiaries. Eg…Phillips

REGIOCENTRIC FIRMS... Foreign affiliates consolidates their decision making and organization on regional basis. Eg…Mc Donald

ON THE BASIS OF MANAGEMENT ORIENTATION continued……

ORIENTATION ETHNOCENTRIC POLYCENTRIC REGIOCENTRIC GEOCENTRIC

Mission Profitability(viability)

Public acceptance (legitimacy)

Both profitability and public acceptance

Governance•Direction of goal setting

Top down Bottom up Mutually negotiated between region & subsidiaries

Mutually negotiated at all level

communication Hierarchical with HQ giving high volumes of orders, commands and advice

Little communication to & from HQ & between subsidiaries

Both vertical & lateral communication within region

Both vertical and lateral communication within company

ORIENTATION ETHNOCENTRIC POLYCENTRIC REGIOCENTRIC GEOCENTRIC

•Allocation of resources

Investment opportunities decided at HQ

Self-supporting subsidiaries, no cross-subsidiaries

Regions allocate

resources under

guidelines from HQ

Worldwide projects

allocation influenced by

local and HQ’s manager

STRATEGY Global integrative

National responsiveness

Regional integrative and national responsiveness

Global integrative and national responsiveness

STRUCTURE Hierarchical product division

Hierarchical area division, with autonomous national units

Product & regional organizations tied through a matrix

A network of organizations

CULTURE Home country Host country Regional Global

IMPACT OF MNC

POSITIVE EFFECT OF MNCs

• Bring in FDI• Transfer of technology• Promote competition • Promote research and development • Benefit customer• Promote export in the host economies

NEGATIVE EFFECT

• Influencing host-country government decisions

• Transfer of inappropriate technology• Dumping of obsolete technology • Cultural imperialism • Exploitation of host country resources• Perceived as agents of neo-colonialism

• Promotes unhealthy market competition • Promotes hostile mergers and acquisitions• Crowding out domestic entrepreneurship• Limited benefits to host countries• Circumventing host countries’ regulatory

framework

Mnc in india

MNC IN INDIA

What India offers…. to the worldOne billion plus population.

India is ranked as the 10th largest economy, 3rd largest in terms of Purchasing Power Parity.

200-250 million middle class.

Gross Domestic Product 6.48 %, (avg. of last 5 years) making it one of the fastest growing economies in the world.

Opportunities for world exporters with the right products or services.

Easier access to capital.

INDIAN MNCs

1. TATA STEEL 2. TATA MOTORS3. Wipro4. HCL5. Tally Solutions6. Infosys7. NIIT 8. I-Flex Solutions9. Zenith Computers10. Microtek

Trends Of MNCs In INDIAFirst MNC in India was the EAST INDIA Company. in

1600

American companies account for around 37% (approx.)of the turnover of the top 20 firms operating in India

Oil companies and Infrastructure builders from the Middle East are also flocking in India to catch the boom

Hewlett-Packard (HP) is the largest multinational corporation operating in INDIA

Increasing flocking of European Union companies to India.JCB owned by INDIOPHILE is one of the most successful multinational corporation in India.Italian automobile giants like Fiat, Ford Motors, Piaggio etc expanded their operations in India with R&D wing attached.

South Korean Electronics giants Samsung and LG Electronics and small and mid-segment car giant Hyundai Motors are doing excellent business and using India as a hub for global delivery.

India currently has some 750 captive centres of foreign multinationals; of these around 350 are engaged in engineering R&D

Key Advantages of existence of MNCs in India

Work culture of employees.

Training and Learning. Technology – especially concept of working

with better technologies. Safety, Health and Environmental Learning. Excellent training grounds for many

entrepreneurs.

What are the key issues in the Indian context which have hindered MNCs growth?

• “Global parent strategy” dictates India plans

• Limitations of growth due to regulatory / legislation / IPR issues

• Limited Autonomy for top MNC Managers

• Sometimes bureaucratic setups have delayed decision making – sharp contrast to most Indian entrepreneur companies

• Insistence of some companies on having expats

• Rigidity and insistence on evaluating India like any other market

• Not being able to recognize early enough that India is a price and quality conscious market

• Limitations of following aggressive M&A options

• Many MNCs have got consistently caught in rounds of “parent consolidation”

• 100% subsidiary conundrum

Case study : Asian Paints

• Asian Paints rise from a mid sized domestic focused coatings company to a $ 1.6 billion multinational with a global presence across 17 markets. Among the top 10 decorative coatings companies globally. – Key strengths are continuous innovations in all spheres of

operations, economies of scale, strong management team, IT capabilities, stronghold over the distribution network, width of product portfolio and strong brand equity

– Consistently generated EBITDAs of 14.2% and ROEs of 20%+ - higher than most Indian and global peers

– Operates in 17 countries across the world - manufacturing facilities in each of these countries and is the largest paint company in 11 of these market

DELMEGE FORSYTH

Sri Lanka October 1999 76% 3.6 crore

PACIFIC PAINTS Australia November 2001 100% $375,000

HAWCOPLAST India November 2001 100% 16 crore

SCIB Egypt August 2002 60% 25 crore

BERGER INTERNATIONAL

Global August 2013 75.82%(+25.72%) SD 0.25 per share

TAUBMANS Fiji September 2003

100% $ 1.4 m

COMPANY COUNTRY YEAR STAKE ACQUIRED COST

Caribbean Region (Barbados, Jamaica, Trinidad and Tobago)• the revenue from paint sales has increased by 15% to 197.2

crores from 171.8 crores• PBIT (profit before interest and tax) for the region is 11.2 crores

as compared to ` 7.6 crores during the previous year(2012)• Continuing economic slowdown in all the Caribbean economies,

impacted demand conditions

Middle East Region(Egypt, Oman, Bahrain and UAE)• the revenue from paint sales has increased by 26% to 726.7

crores from 578.4 crores during the previous year(2012) • PBIT for the region is 73.9 crores as compared to 61.5 crores

during the previous year(2012)

Asia Region (Bangladesh, Nepal, Sri Lanka and Singapore)• Revenue from paint sales has increased by 21% to ` 380

crores from ` 314.7 crores during• the previous year• The PBIT for the region is ` 35.6 crores as compared to ` 24.6

crores during the previous year(2012)

any questions?