Multinational

Corporations
Khurram Zafar

Organizing Proverb
How can you pour tea into a
cup that is already full?
(Sufi proverb)

How can you teach someone

who already knows?

January 15,16 - 2016

1 - Lecture - Managing
Multinational Corporations by
Khurram Zafar

January 15,16 - 2016

1 - Lecture - Managing
Multinational Corporations by
Khurram Zafar

Definition

Multinational corporations (MNCs) are

companies based in one state but
operate globally, with fixed facilities
and employees in several countries.
Multinational corporation (MNC) also be
referred to as an International Corporation

January 15,16 - 2016

1 - Lecture - Managing
Multinational Corporations by
Khurram Zafar

How Is A Company Classified

As An MNC?

Subsidiari
es in
foreign
countries
Operation
s in a
number of
countries
January 15,16 - 2016

Stakeholders
are from
different
countries.
High proportion of
assets in or/ and
revenues from global
operations;

1 - Lecture - Managing
Multinational Corporations by
Khurram Zafar

Types
Industrial Corporations:
Corporations that manufacture goods and sell
them in various countries (cars, electronics)

Financial Corporations:
Banks that operate in several countries

Service Corporations:
Entities that provide services in several
countries (telephone services, airlines)

January 15,16 - 2016

1 - Lecture - Managing
Multinational Corporations by
Khurram Zafar

Multinational Corporation
Structure
Horizontally Integrated
Multinational
Corporations.
Vertically Integrated
Multinational
Corporations.

January 15,16 - 2016

Diversified
Multinational
Corporations.

1 - Lecture - Managing
Multinational Corporations by
Khurram Zafar

Organization of MNCs
Parent Corporation in home country
(country in which the MNC is registered
and based), which is subject to the laws
and regulations of the home country.
Parent Corporation may be engaged in
manufacturing, finance or services.

January 15,16 - 2016

1 - Lecture - Managing
Multinational Corporations by
Khurram Zafar

Organization of MNCs
Subsidiaries (companies owned by
another country) of the MNC operate in
host countries and are subject to the laws
and regulations of the host country.
Physically separate from the parent
corporation.
They are managerially and otherwise
connected, as they are staffed by the
parent company and the strategy,
operations and profits of the subsidiaries
are also controlled by the parent company.
January 15,16 - 2016

1 - Lecture - Managing
Multinational Corporations by
Khurram Zafar

Organization of Multinational
Corporations

Subsidiaries
Joint Ventures Companies
Franchise Holders
Turn Key Project.

January 15,16 - 2016

1 - Lecture - Managing
Multinational Corporations by
Khurram Zafar

10

SWOT Analysis of MNCs

Strengths

Low Cost
Well Developed
Infrastructure

Opportunities

Location is often very distant

Lack of Transportation facilities
Relative Inflexibility

Threats

Leverage Government
Attract new industries

January 15,16 - 2016

Weakness

Government Restrictions
Quotas

1 - Lecture - Managing
Multinational Corporations by
Khurram Zafar

11

Reasons for The Establishment of

MNCs
1. To increase market share.
2. To secure cheaper premises and
labour.
3. Employment and Health & Safety
Legislations in other countries may be
more relaxed.
4. To avoid or minimise the amount of tax
to be paid.
5. To take advantage of government
grants available.
6. To save on costs of transporting goods
to the market place.
January 15,16 - 2016

1 - Lecture - Managing
Multinational Corporations by
Khurram Zafar

12

What is Good about MNCs

1. Bring investment to different parts of the
world (also innovation, technology,
management skills)
2. Provide better consumption choices
(more goods, cheaper)
3. Facilitate specialization, and promote
economic growth (China)
4. Provide competition to complacent
domestic firms

January 15,16 - 2016

1 - Lecture - Managing
Multinational Corporations by
Khurram Zafar

13

1.
2.
3.
4.
5.
6.

What is Bad about MNCs?

Exploitation of labour, violation of labour
laws
Environmental degradation
Destruction of local economies
Using financial power to change pricing
cycles
Avoiding local taxes
Influencing Governments

January 15,16 - 2016

1 - Lecture - Managing
Multinational Corporations by
Khurram Zafar

14

Possible Relations of MNCs to States

Mercantilist View:
MNCs take on the identity of a state, pursue a states
interests and generally act as an agent of a state in the
global economy.

Revolutionary or Revisionist View:

MNCs control a state, whose government acts as
the MNCs agents and uses public policy to push
forward the interests of the MNC.

Liberal View:
MNCs are independent of any state, pursuing their
own interests in the form of profits, owing no loyalty
to any state, acting as its own agent and neither
controlling nor under the control of any state.
January 15,16 - 2016

1 - Lecture - Managing
Multinational Corporations by
Khurram Zafar

15

MNCs and Home Government

Relations between and MNC and its home
country can be complicated by the fact
that the MNC has subsidiaries in
particular countries that may or may not
be friendly to the home country.
Thus a MNC may invest in a country that
the home country wishes to isolate
economically and politically; thus, it
might be punished by the home country
through fines, or its directors subject to
criminal prosecution.
January 15,16 - 2016

1 - Lecture - Managing
Multinational Corporations by
Khurram Zafar

16

MNCs and Host Countries

Decisions to base a subsidiary in a host
country usually follows negotiations with the
host country government.
Favorable tax treatment
Creation of infrastructure
Investment in relevant education of
workforce
Relief from environmental, safety and
other regulations
Favorable treatment for goods imported as
part of manufacturing process.
January 15,16 - 2016

1 - Lecture - Managing
Multinational Corporations by
Khurram Zafar

17

Conflict b/w MNCs & Host Countries

1. Governments break agreement on taxes,
infrastructure, etc.
2. Host country nationalizes the subsidiary.
3. Changes in host countrys trade policies.
4. Changes in monetary policy.
5. Civil wars or domestic violence may hurt
business

January 15,16 - 2016

1 - Lecture - Managing
Multinational Corporations by
Khurram Zafar

18

Ways MNCs influence Host Countries

1. Lobbying,
advertising,
location
of
facilities in particular regions that benefit
political figures
2. In
some
countries,
campaign
contributions.
3. Corruption, in the form of bribes, gifts,
kickbacks

January 15,16 - 2016

1 - Lecture - Managing
Multinational Corporations by
Khurram Zafar

19

Criticism of MNCs:
1. Creation of false needs in consumers.
2. Interference and dominance in the internal
affairs of sovereign nations.
3. Invasive advertising and corporate lobbying.
4. Creation of monopolies in the market and
elimination of local competitors.
5. Depletion of resources due to their continuous
use by these corporations.
6. Centralization of R&D operations in their home
country.
7. Low consideration for human rights and welfare.
8. The problem of Dumping.
January 15,16 - 2016

1 - Lecture - Managing
Multinational Corporations by
Khurram Zafar

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January 15,16 - 2016

1 - Lecture - Managing
Multinational Corporations by
Khurram Zafar

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