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M ULTINATIONAL
E NTERPRISES
Karan Mathur
242007 WMG24
242007 WMG24
An Introduction to Multinational
Enterprises
An MNE is a business entity which conducts its operations in various
countries with its various subsidies or/and affiliates. It possesses
considerable human resources, expertise, financials and technology and also
enjoys sustainable competitive advantage.
A multinational company extends its strategy to all the parts of the world.
This global strategy is the actual
backbone of the MNE. This keeps
all branches working smoothly
A Multinational Enterprise is an
with the others and maintains the
cohesive nature of the company.
organization which owns a
Functions of MNEs can differ significant part of and operates
between companies, but we can facilities in the nations other
draw a few conclusions. than one in which it is originally
MNEs can take advantage of the based
environment that each region
offers. For example, if one
environment has cheap labor costs, it becomes easier and cost effective to
operate in that country or region. MNEs also function as a way to capture
newer markets. The company can understand more about what products or
services the area might be lacking when they are located in that area.
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The number of competitors for the MNEs includes not only those that are
domestic, but also those producing in the foreign market. This can bring
challenges of the market share, in addition, taxes, duties, and trade
restrictions also come into play. This may raise prices and it can cause
competing in the market to become very costly.
Global Trans-national
Cost Reduction
International Multi-national
Local Responsiveness
Advantages:
The main advantage of using a host country local is that they are very
much familiar with the local environment, culture, language. This is
good as they require less training.
MNEs can enjoy lower tax rates in other countries for exports/imports.
MNEs may help the economy of the host country. They employ locals
in the firm or production plants if they also manufacture in the same
country.
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Disadvantages:
When hiring a host country local, their loyalty might be with their
country, rather than the company.
Local businesses can suffer as MNEs dominate the market due to high
financial resources.
With large organizations transferring operations in other countries,
jobs for people in developed countries is threatened.
Horizonal integration involves merger of two firms which are in the same
industry and the same stage of production, for example, the merger of Ford
and Jaguar in 1989. When two car manufacturers merge, it is likely to
experience economies of scale to a great extent.
To understand the huge impact of MNEs on the world, one must understand
their enormous size. MNEs account for nearly one-half of the worlds
industrial output and two-thirds of the worlds trade in industrial products.
The most successful MNEs uses technology to help them gain competitive
advantage in the industry. The internet is a major technological advancement
that allows organizations to communicate much quickly and more effectively.
Many MNEs even use the Internet to host/attend virtual meetings using
advanced softwares. E-Commerce can expand the reach of an organization to
every corner of the globe, both in B2B and B2C sales. As multinationals grow
more dependent on Internet, more time will be spent on policy-making. Some
governments around the world are already in a heated debate over the taxation
of e-commerce platform.
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When an organization decides to go global, it must take help from its home
country for support and much needed advice. However, it is also deciding to
take away jobs of home country citizens. This can create a negative image
about the company which is not easy to reverse. Also, MNEs will also be taking
away the capital inflow that they are creating along with taxes that were once
collected from companys sales. All these benefits get transferred to the host
country and for a less developed country, this translates to both capital and
technological inflow.
The most vital points of discussion between the MNE and host country are
the following:
Employment
Technology or products on the MNE
Increased exports
Political or Economic Alliances
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The governments are now trying to protect the companies of their own native
country by creating policies and laws which will make the operations difficult
for the MNEs from abroad. The MNEs are also trying to have regional
diversity among the top management to tackle differences among different
cultures. For example, the board members can consist of executives from the
US, Germany, India, Japan, etc.
Following are four trends that will affect Multinational Corporations over the
next 10 years:
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REFERENCES