Multinational Corporations

M U LT I N AT I O N A L C O R P O R AT I O N ( M N C ) O R E N T E R P R I S E ( M N E ) , I S A C O R P O R AT I O N O R AN ENTERPRISE T H AT MANAGES P R O D U C T I O N O R D E L I V E R S S E RV I C E S I N M O R E T H A N O N E C O U N T RY. I T C A N A L S O B E REFERRED TO AS AN I N T E R N AT I O N A L C O R P O R AT I O N .

Multinational Corporations
Multinational corporations do substantial business in

several countries. Multinational corporations can be controversial at home and abroad. Multinational corporations face a variety of ethical challenges. Planning and Controlling are complicated in multinational corporations. Organizing is complicated in multinational corporations. Leading is complicated in multinational corporations.

 Multinational Corporation (MNC) A business with extensive foreign operations in more than one county. Transnational Corporation A MNC that operates worldwide on a borderless basis.

Fortunes Top 10 Multinational Corporations

1. Wal-Mart Stores 2. BP 3. Exxon Mobil 4. Royal Dutch Shell Group 5. General Motors 6. DaimlerChrysler 7. Toyota Motor 8. General Electric 9. Total 10. Chevron

Features
They enjoy tax liability if their host country provide

They enjoy economics of scale

They are provided with fresh and cheap labor in the

host country Transfer of technology helped both the country provider and the receiver country as provider's country objective will be fulfilled and receiver's country technology development will take place.

Factors Multinationals Must Consider Prior to Deciding Entry Mode

Determine the key success factors for the business, i.e. the conditions that must be present in the foreign market in order to succeed in achieving the objectives of the market entry 2) Study whether these conditions exist in the target market 3) Determine changes in implementation strategies that would be required in order to succeed in the target market
1)

Classification
Horizontally integrated multinational

corporations manage production establishments located in different countries to produce the same or similar products. (example: McDonalds) - Vertically integrated multinational corporations manage production establishment in certain country/countries to produce products that serve as input to its production establishments in other country/countries. (example: Adidas) - Diversified multinational corporations manage production establishments located in different countries that are neither horizontally or vertically integrated. (example: Microsoft)

 One of the most important motivations for

companies to expand their operation internationally is the low-cost factors of production in developing countries like China and India. Their intention is to "take a package of capital, technology, managerial know-how, and/or marketing skills to carry out production or business services abroad they have provided developing countries with much needed capital, jobs, and environmentally friendly technologies

Drawbacks
Firstly, multinational companies can severely impact the local

industries because it increases the competition in the economy. Secondly, multinational companies can negatively impact the culture of the economy. Thirdly, because of the trade restrictions the multinational companies can face various problems. The availability of resources are limited in an economy and when multinational companies are opened then resources can get scarce. Moreover, though a company can grow because of investments brought by multinational companies but still the economies can grow more if the local investors make these investments.

MNC Issues
Protectionism A call for tariffs and special treatment to protect domestic firms from foreign competition. Corruption Illegal practices to further ones business interests.

Transparency International gives these countries its poorest corruption scores: Indonesia Nigeria Tajikistan Bangladesh Haiti Paraguay Myanmar

MNC Issues
Sweatshops Employ workers at very low wages, for long hours, and in poor working conditions. Child labor The full-time employment of children for work otherwise done by adults. Sustainable Development Development that meets the needs of the present without hurting future generations.

FDI
Foreign direct investment (FDI) or foreign

investment refers to long term participation by country A into country B. It usually involves participation in management, joint-venture, transfer of technology and expertise.

 Foreign investment that establishes a lasting interest in or

effective management control over an enterprise. Foreign direct investment can include buying shares of an enterprise in another country, reinvesting earnings of a foreign- owned enterprise in the country where it is located, and parent firms extending loans to their foreign affiliates.
International Monetary Fund (IMF) guidelines consider an

investment to be a foreign direct investment if it accounts for at least 10 percent of the foreign firm's voting stock of shares. However, many countries set a higher threshold because 10 percent is often not enough to establish effective management control of a company or demonstrate an investor's lasting interest.

Trends in FDI
Flow and stock increased in the last 20 years

In spite of decline of trade barriers, FDI has grown

more rapidly than world trade because

Businesses

fear protectionist pressures FDI is seen a a way of circumventing trade barriers Dramatic political and economic changes in many parts of the world Globalization of the world economy has raised the vision of firms who now see the entire world as their market

The Direction of FDI

Historically, most FDI has been directed at the developed

nations of the world as firms based in advanced countries invested in other markets
The

US has been the favorite target for FDI inflows

While developed nations still account for the largest share of

FDI inflows, FDI into developing nations has increased

Most

recent inflows into developing nations have been targeted at the emerging economies of South, East, and Southeast Asia

Portfolio Investment
Portfolio-A collection of investments all owned by the same

individual or organization. These investments often include stocks, which are investments in individual businesses; bonds, which are investments in debt that are designed to earn interest; and mutual funds, which are essentially pools of money from many investors that are invested by professionals or according to indices.
bonds and cash equivalents, mutual funds, exchange-traded funds, and closed-end funds that are selected on the basis of an investor's short-term or long-term investment goals. Portfolios are held directly by investors and/or managed by financial professionals.

Portfolio Investment-A group of investments such as stocks,

Portfolio Investment

Portfolio investment is investment made by investors

who are not particularly interested in involvement in the management of a company. The purchase of stocks, bonds, and money market instruments by foreigners for the purpose of realizing a financial return, which does not result in foreign management, ownership, or legal control.

Portfolio investment
Portfolio investment is investment made by investors

who are not particularly interested in involvement in the management of a company. The term is often used in the context of foreign investment in a country, which can often be fairly neatly divided between: portfolio investors (who buy debt and listed shares) direct investors (who set up operations in a country). Of course the division is not always that neat: a foreign investor who launches a takeover of a domestic company may be buying listed securities to do so, but is not a portfolio investor.

Portfolio Manager
The ultimate aim of the portfolio manager is to reduce

the risk and increase the return to the investor in order to reach the investment objectives of an investor. The manager must be aware of the investment process. The process of portfolio management involves many logical steps like portfolio planning, portfolio implementation and monitoring. The portfolio investment process applies to different situation. Portfolio is owned by different individuals and organizations with different requirements. Investors should buy when prices are very low and sell when prices rise to levels higher that their normal fluctuation.

Portfolio investment process

Portfolio investment process is an important step to

meet the needs and convenience of investors. The portfolio investment process involves the following steps: Planning of portfolio Implementation of portfolio plan. Monitoring the performance of portfolio.