MULTINATIONAL CORPORATION (MNC)

A multinational company (MNC) is defined as a firm operating in two or more countries. The
country where the multinational company headquarters are located is called the home country.
Countries that allow a multinational company to set up its operations are called host countries.
TYPES OF MULTINATIONAL COMPANIES
There are four types of multinational companies: Decentralized multinational corporations,
Global centralized corporations, international companies, and transnational enterprises:

1. Decentralised multinational corporations

Decentralised multinational corporations have a strong presence in their home country. The term
'decentralisation' means there is no centralised office. Each office can operate separately from
headquarter. Decentralised multinational corporations allow for rapid expansion. Ex.
McDonald’s
2. Global centralised corporations
Global centralised corporations have a central administrative office in the home country. They
may outsource production to developing countries to save time and production costs while
making use of local resources. Ex: Apple iphones
3. International companies
International companies utilise the resources of the parent company to develop new products or
features that will help them gain a competitive edge in local markets. Ex: Coca – Cola
4. Transnational enterprises
Transnational enterprises have a decentralised organisational structure with branches in several
countries. The parent company has little control over the foreign branches. Ex: Nestle.

FEATURES OF MULTINATIONAL COMPANIES

1. Large volume of sales
With customers around the world, MNCs generate a large sum of revenue each year.
2. Unity of control
Multinational companies often have their headquarters in the home country to manage
overall business activities across the globe. Each international branch, while operating
separately, must follow the general framework of the parent company.
3. Economic power
Multinational companies have significant economic power due to their enormous size and
turnover. They grow their power by setting up subsidiaries or acquiring businesses in
foreign countries.
4. Aggressive marketing
 Multinational companies spend a lot of money on advertising in both the home and
foreign markets. This allows them access to a large variety of products and services while
raising global awareness.
5. High-quality product
Multinational companies enjoy a worldwide reputation. To keep the reputation intact,
MNCs need to maintain a superior quality of their products and services.

CHALLENGES OF MULTINATIONAL COMPANIES

1. Cultural differences
This refers to difficulties in localisation of not only products and marketing strategy but
also the corporate culture.
2. Different political and legislative environments
MNCs have to adapt to different regulations affecting their products
3. Long supply chains
Coordinating transportation from one country to another can be very complex and time-
consuming.
4. Managing geopolitical and economic risks
This refers to the political and economic stability of the host countries.
5. Competition in the global market
It can be more challenging to compete with other global companies.
6. Currency fluctuations
MNCs are affected by changes in exchange rates of multiple currencies.

MULTINATIONAL COMPANIES STRATEGIES

There are two primary strategies for firms to provide their products and services on a global
scale: standardization and adaptation:
1. Standardization
Standardization means offering the same products and services with little variation in
order to save costs and achieve economies of scale (with more output, the cost per unit
decreases).
2. Adaptation
Adaptation is the opposite strategy, in which firms adapt their product offerings to match
the tastes and preferences of the local customers. This way, the products and services
have a higher chance of acceptance.

RECENT TRENDS IN MULTINATIONAL CORPORATIONS

1. Shift in Bargaining Power
There has been a shift in bargaining power between multinational and the host countries. There is
some evidence that it has become the policy of multinational companies to shift from equity
investment ownership of capital to the sale of technology, management services and marketing.
2. Dealings with a Greater Number of Foreign Companies
Not only do the host countries deal with a greater variety of foreign companies, comparing them
and weighing them against one another, but the large MNCs are being replaced by smaller and
more flexible firms.
3. Competition among the MNCs
Many more nations are now competing with US multinationals in setting up foreign activities.
Japanese and European firms figure prominently among the new MNCs.
4. Establishment of MNCs by the Developing Countries
In addition to the companies from the organisation of Petroleum Exporting Countries (OPEC)
and firms established in tax haven countries, the leading countries where MNCs are being
established are Argentina, Brazil, Colombia, Hong-Kong, India, Korea, Paris, Philippines,
Singapore and Taiwan.
5. Other Trends
 Technological advances
 Geopolitical shifts
 Changing consumer behavior
 An evolving regulatory environment

Globalization
Globalization means the speedup of movements and exchanges (of human beings, goods, and
services, capital, technologies or cultural practices) all over the planet.

TYPES OF GLOBALIZATION
1. Economic globalization
Economic globalization is the development of trade systems within transnational actors
such as corporations or NGOs.
2. Financial globalization
Financial globalization can be linked with the rise of a global financial system with
international financial exchanges and monetary exchanges. Ex: Stock markets
3. Cultural globalization
Cultural globalization refers to the interpenetration of cultures by adopt principles,
beliefs, and costumes of other nations.
4. Political globalization
The development and growing influence of international organizations which means
governmental action takes place at an international level.
5. Sociological globalization
Sociological globalization information moves almost in real-time, together with the
interconnection and interdependence of events and their consequences.
6. Technological globalization:
The millions of people are interconnected through the digital world via platforms such as
facebook, instagram, skype or youtube.
7. Geographic globalization
Geographic globalization is the new organization and hierarchy of different regions of the
world that is constantly changing. Moreover, with transportation and flying made so easy
and affordable.
8. Ecological globalization
Accounts for the idea of considering planet earth as a single global entity – a common
good all societies should protect since the weather affects everyone and we are all
protected by the same atmosphere.

GLOBALISATION IN INDIA
Globalisation started in India in the early 1990s, when the government of India opened all of
India’s markets to foreign investments. Globalisation was initiated in various sectors such as
pharmaceutical, petroleum, steel, textiles, chemicals, retail, cement and BPO.
EFFECTS OF GLOBALISATION IN INDIA
1. Foreign investment growth is enormous in all sectors of development.
2. Globalisation has had a significant impact on India’s monetary, social, political and
cultural areas.
3. Globalisation has hugely improved information technology and transportation in the
country.
4. Job opportunities have increased with the advent of special economic zones (sezs).
5. Foreign companies offer increasing compensation for the skills and talents of Indian
workers.
6. With the increasing levels of business development, many cities get an opportunity to
offer a better standard of living.
7. Due to globalisation, the Indian economy is improving.

FOREIGN DIRECT INVESTMENT (FDI)

Foreign direct investment (FDI) is when a company or individual of one country invests in the
business interests of another country. Foreign direct investments may involve mergers,
acquisitions, or partnerships. They indicate a multinational strategy for company growth.

TYPES OF FOREIGN DIRECT INVESTMENT

 Horizontal FDI
A company establishes the same type of business operation in a foreign country as it
operates in its home country. A U.S.-based cell phone provider buying a chain of phone
stores in china is an example.
 Vertical FDI
A business acquires a complementary business in another country. For example, a U.S.
manufacturer might acquire an interest in a foreign company that supplies it with the raw
materials it needs.
 Conglomerate FDI
A company invests in a foreign business that is unrelated to its core business. Because the
investing company has no prior experience in the foreign company’s area of expertise,
this often takes the form of a joint venture.

ADVANTAGES OF FDI
1. Economic development
Foreign direct investment helps stimulate a country's economic development by helping
benefit the local industries as well.
2. Employment boost
FDI creates new job prospects. Just as investors build new companies, it creates new
opportunities, increases income, and increases the buying power of individuals.
3. International trade with ease
Every country has its own import tariffs, which make trading complex. FDI help to solve
this problem by bring invest to their home country.
4. Development of human capital resources
Human capital is the knowledge and competence of those who make the workforce. A
country with FDI can increase education and the overall human capital of a nation.
 5. Tax incentives
Foreign investor can get tax incentives that will be highly useful in the selected business
area.
6. Enhancing technology
When foreign direct investment occurs, businesses are provided with access to the latest
tools in technology, finance, and operational practices.
DISADVANTAGES OF FDI
1. Negatively affecting the exchange rate
Foreign direct investment can affect the exchange rates in a way that can be cost to one
country and beneficial to another.
2. High cost
Investing in a foreign country can be more expensive than exporting goods to that
country.
3. Political changes
It is often seen that political changes in any country can happen instantly. Therefore,
foreign direct investment becomes extremely risky.
4. Obstacles in domestic investment
FDI can hinder domestic investment as it focuses on the resources of other countries
rather than the home country.
5. Economically nonviable
Foreign direct investment can be precarious and economically unviable as it is capital-
intensive from an investor's point of view.

EXPORT MANAGEMENT
Export management means managing export marketing activity efficiently, smoothly and in an
Orderly manner. Export management is basically planning, organizing, coordinating and
controlling all activities relating to export of goods and services to other counties.

EXPORT DOCUMENTATION / LIST OF DOCUMENTS REQUIRED FOR EXPORT /

ALL THE DOCUMENTS REQUIRED FOR EXPORT FROM INDIA
1. Bill of lading
The bill of lading is responsible for export-bound cargo and denotes a contract between the
shipper and the carrier. This document specifies that the carrier has acknowledged that the goods
are received, and in proper condition to be shipped. It’s issued by the carrier of the goods
(Captain of ship) after the submission of the mate’s receipt.
2. Commercial invoice
The commercial invoice needs to be handed over to customs and is made after all products are
ready for export. Without a signature from customs, shipment cannot go forward. This invoice
mention all the items distinctly that will be exported
3. Shipping bill/ bill of export
The shipping bill is issued by icegate which is the Indian customs electronic gateway. Icegate
procures an electronic filing of bills. This bill falls under the umbrella of documents required for
export from India and for customs and is needed to be given the green go for export. The
shipping bill gives clearance to exporters from customs.
4. Proforma invoice
The proforma invoice contains all the required details and information about export. Buyer will
be able to view the products, delivery, cost, payment terms, and other indispensable information
at a glance. This document is also needed if you require advance payment. The paperwork acts as
an agreement between the exporter and the buyer.
5. Export order or purchase order
This necessary document required for export comes in after the proforma invoice is issued. The
order is confirmed via the purchase order or export order. Details are filled by the buyer and
include cost, shipping details, type of currency, and any other specific goods information and
requirements.
6. Certificate of origin
The certificate of origin acts much like the birth certificates for goods and products and is one of
the necessary documents required for export from India. This document contains which country
the goods originate from, and the specific place they have been manufactured in.
7. Bill of exchange
The bill of exchange is an internal document prepared by the exporting party. Its purpose is to
notify the buyer to pay the requisite amount to the exporter or bank.
8. Letter of credit
An Letter of Credit is a contract by which a bank guarantees the seller that the buyer will make
the payment for the goods and services.
9. Inspection or quality check
Before the shipment of the goods, an importer can demand to investigate the quality of goods
and packing parameters. It’s the exporter’s job to keep the documents and certificates required if
this comes up.
10. Phyto-sanitary & fumigation certificates
These certificates are asked by the importer to check the quality of the goods under international
parameters. In fact, it is necessary for several countries, despite the tests being different based on
the country or products. To ship agricultural goods from India, the phyto-sanitary certificate is
indispensable.
11. Marine insurance policy
It ensures the safety coverage of the products shipped overseas.
12. Mate’s receipt
The mate’s receipt confirms the loading of your goods on the shipment, and is issued after the
same.
13. Fema declaration for exporters
This declaration states that the exporter agrees to comply with the principles of the fema (foreign
exchange management act, 1999)

LETTER OF CREDIT (LC)

A Letter of Credit is a contract by which a bank guarantees the seller that the buyer will make the
payment for the goods and services. The use of LCs to effect payment is widespread in
international trade.
PARTIES INVOLVED IN LETTER OF CREDIT
 Applicant: The person who asks his bank to issue a letter of credit is referred to as the
applicant.
 Beneficiary (exporter): A beneficiary is a seller paid according to the process.
 Issuing bank: The buyer requests a letter of credit issued by the issuing bank (also known
as an opening bank).
 Advising bank: The advising bank, which is often situated in the exporter’s nation, is in
charge of transferring papers to the issuing bank on the exporter’s behalf.
  Confirming bank: The issuing bank’s undertaking is further guaranteed by the
confirming bank. This issue arises when the exporter is dissatisfied with the issuing
bank’s guarantee.
 Negotiating bank: The LC documents submitted by the exporter are negotiated by the
negotiating bank. In exchange for repayment under the credit, it pays payments to the
exporter, subject to the correctness of the papers.
 Reimbursing bank: The payment account is created by the issuing bank at the
reimbursing bank. The reimbursing bank accepts the claim, which resolves the
negotiations, acceptance, and payment received through the negotiating bank.
 Second Beneficiary: A person who can act in the original beneficiary’s place in their
absence is the second beneficiary. Under these circumstances, the second beneficiary
receives the exporter’s credit, subject to the transfer agreement’s restrictions.
TYPES OF LETTERS OF CREDIT
1. Documentary Letter of Credit
A documentary letter of credit is an obligation by the issuing bank to pay the agreed
amount to the beneficiary (usually the seller) on behalf of the applicant (buyer) upon
receipt of specified documents.
2. Sight Letter of Credit or usance Letter of Credit
A sight letter of credit guarantees the payment once the beneficiary (the party which is
about to receive the payment) presents the sight letter of credit to the bank along with any
other required documents.
3. Standby Letter of Credit
A standby letter of credit is a type of guarantee issued by the buyer’s bank in favor of the
seller. If the buyer fails to pay for the goods and services provided by the seller, the seller
will demand the buyer’s bank to step in and make the payment. A standby letter of credit
essentially acts as a backup.
4. Revocable and irrevocable Letter of Credit
In a revocable letter of credit, the terms and conditions can be changed or cancelled by
the bank that has issued the letter of credit. Banks do not need to give any prior notice to
beneficiaries. On the other hand, an irrevocable letter of credit is one wherein the terms
and conditions cannot be changed or cancelled; the issuing bank is bound by the
commitments.
5. Back-to-back Letter of Credit
With this letter of credit, the beneficiary (i.e., the seller) can request their bank to issue a
letter of credit on behalf of their supplier on the basis of the export letter of credit
received.
6. Transferable Letter of Credit
This is a letter of credit with an added provision permitting the bank to transfer the sum
specified by the letter of credit to another party at the request of the original beneficiary.
7. Revolving Letter of Credit
A revolving letter of credit is a single letter of credit that can cover multiple shipments,
so the credit can be renewed either as to the amount or as to the time it is available.
8. Confirmed Letter of Credit
confirmation is usually requested if the seller is concerned about the creditworthiness of
the issuing bank and/or the buyer’s country risk. The advising bank adds its confirmation
to the letter of credit at the issuing bank’s request the advising bank then becomes the
confirming bank and undertakes to pay the seller