Section B Caselet 1 Q1 Which company is Transnational?

? Ans Any corporation that is registered and operates in more than one country at a time; also called a multinational corporation. A transnational, or multinational, corporation has its headquarters in one country and operates wholly or partially owned subsidiaries in one or more other countries. The subsidiaries report to the central headquarters. The growth in the number and size of transnational corporations since the 1950s has generated controversy because of their economic and political power and the mobility and complexity of their operations. Some critics argue that transnational corporations exhibit no loyalty to the countries in which they are incorporated but act solely in their own best interests. U.S. corporations have various motives for establishing a corporate presence in other countries. One possible motive is a desire for growth. A corporation may have reached a plateau meeting domestic demands and anticipate little additional growth. A new foreign market might provide opportunities for new growth. Other corporations desire to escape the protectionist policies of an importing country. Through direct foreign investment, a corporation can bypass high tariffs that prevent its goods from being competitively priced. For example, when the European Common Market (the predecessor of the European Union) placed tariffs on goods produced by outsiders, U.S. corporations responded by setting up European subsidiaries. Two other motives are more controversial. One is preventing competition. The most certain method of preventing actual or potential competition from foreign businesses is to acquire those businesses. Another motive for establishing subsidiaries in other nations is to reduce costs, mainly through the use of cheap foreign labor in developing countries. A transnational corporation can hold down costs by shifting some or all of its production facilities abroad. Transnational corporations with headquarters in the United States have played an increasingly dominant role in the world economy. This dominance is most pronounced in the developing countries that rely primarily on a narrow range of exports, usually primary goods. A transnational corporation has the ability to disrupt traditional economies, impose monopolistic practices, and assert a political and economic agenda on a country. Another concern with transnational corporations is their ability to use foreign subsidiaries to minimize their tax liability. The Internal Revenue Service (IRS) must analyze the movement of goods and services between a transnational company's domestic and foreign operations and then assess whether the transfer price that was assigned on paper to each transaction was fair. IRS studies indicate that U.S. transnational corporations have an incentive to set their transfer prices so as to shift income away from the United States and its higher corporate tax rates and to shift deductible expenses into the United States. Foreign-owned corporations doing business in the United States have a similar incentive. Critics argue that these tax incentives also motivate U.S. transnational corporations to move plants and jobs overseas.

Q3 What is the difference between domestic, international, multinational and transnational company? Ans Each term is distinct and has a specific meaning which defines the scope and degree of interaction with their operations outside of their home country.
y y

International companies are importers and exporters, they have no investment outside of their home country. Multinational companies have investment in other countries, but do not have coordinated product offerings in each country. More focused on adapting their products and service to each individual local market. Global companies have invested and are present in many countries. They market their products through the use of the same coordinated image/brand in all markets. Generally one corporate office that is responsible for global strategy. Emphasis on volume, cost management and efficiency. Transnational companies are much more complex organizations. They have invested in foreign operations, have a central corporate facility but give decision-making, R&D and marketing powers to each individual foreign market.

Q2 What are the attributes of a transnational company? AnsA transnational corporation has a truly global presence spread across countries. Yet, it would be too much of a simplification to call a company transnational if it has a presence in several countries or has transactions in several currencies. The real quality of a transnational corporation is obviously the ability to pursue a judicious blend of local responsiveness through customization, cost reduction through standardization and optimum value chain configuration. For example, a company with a well thought out manufacturing network in different countries, to make it currency neutral1 would be more transnational that one which exports from its home country and uses hedging tools such as forward contracts to eliminate foreign exchange risk. Similarly, a company which develops a network of operations that make it less vulnerable to political risks in individual overseas markets, would be more transnational than one which does not have such a network. Transnational corporations combine various attributes that are well beyond the reach of companies which predominantly compete in their domestic markets. We now examine these attributes. A truly global firm not only has unique resources that can be leveraged in markets across the world, but also continues to develop new capabilities in response to changes in the environment. Global companies strike a balance between capability leverage and capacity building. Capability leverage involves making full use of existing capabilities in the market place. These capabilities may exist anywhere in the system, not necessarily at headquarters or in the

home country. But a global firm cannot live only on its existing capabilities. It must also build new capabilities. Carlos Cordon, Thomas E Vollmann and Jussi Heikkila2, categorize a companys competencies as follows:      Distinctive competencies: These are the most important capabilities of the company. Essential competencies: These are the capabilities needed for the company to operate effectively Spillover competencies: These are capabilities that allow a company to make profits in a related activity thanks to the companys distinctive competency. Protective competencies: These are capabilities related to activities that pose a considerable risk for the success of the whole company, if they are not properly managed. Parasitic competencies: These are activities currently being done in-house, that waste organizational resources. They are a legacy of previous decisions/industry situations. Activities become parasitic when strong third party vendors emerge.

Distinctive and parasitic competencies lie at opposing ends of the spectrum. While distinctive competencies must be carefully developed in-house, parasitic competencies must be outsourced. Essential competencies and protective competencies can be outsourced if mechanisms/ relationships are established to ensure the continuous availability of the service and minimization of risks. A high degree of trust and mutual understanding between the company and its partners are important. Spillover competencies can be outsourced, provided the company finds a way of capturing the value created.

Section B Caselet 2 Q1 . What would you do if you were in James Peterson 's shoes in January 1982 Ans If I were James Peterson , I would have conducted first an assessment of the company 's organizational structure and to identify what has been working effectively and what was doing poorly. Then after , I would take a closer look at what interventions have been done to correct the problems of the company and why did it failed . I would also evaluate the market position of Parker pens and identify in which country it has a strong following and identify what they are doing there that have made them successful . After gathering this data, I would present it to top management and together discuss what the future lies for the company and to plan a course of action with input from department managers Moreover, I would have adopted an open mind as to the present structure of the company and keep my biases to myself, knowing that being autocratic in a decentralized and flexible organization would be a mismatch Q2. What changes, if any would you make in Parkers marketing strategy?

Ans Parker pens have enjoyed a high-end social status for a number of decades and despite the setbacks in the course of its operations it is still recognized as a premier name in pens . Taking this into consideration , I would continue the diversified marketing ads and promotions for each country but incorporate in it the history and legacy of the pen and what it has accomplished as a global pen . Then , since each subsidiary had a specific product that is the top seller in each country , I would identify each one and then make a roster of all the international Parker pens and market this to each country . And finally I would lower prices for bulk purchases , like when a customer buys more than one pen , the second pen would be cheaper than the first , in this way it would be able to compete with the lower priced pens but would appear to be a bargain to the consumers 3. What aspects of Parker`s structure would you discard ? Which would you keep? Ans I would discard the high flexibility and autonomy of the subsidiaries and the present manufacturing set-up . The degree of autonomy of the subsidiaries are too much , they could make their own decisions and the main office did not have a clear idea of what was going on in the international sites but unlike Peterson who envisioned a centralized Parker pen , I would just increase the accountability of each subsidiary the communication would still be from the subsidiaries to the main office but they have to submit reports and proposals before making any major decisions , day to day operations can be handled by the local manager . The manufacturing plants should be handled by a competent plant manager and since a complete overhaul of the plant is costly , the equipments most needed will be given priority . I would keep the present diversified...