Multinational Corporations

Pankaj Jain
Lovely Professional University
Meaning

 Normally considered as giant firms engaged

in productive activities of a corporate nature
with headquarters located in one definite
country and having a variety of business
operations in different countries in a broad
based manner.
 Also called Transitional Corporations
5 Major Characteristics..
 It operates in many countries at different level
of economic development
 Its local subsidiaries are managed by
nationals
 It maintains complete industrial organization
including research & development facilities in
several countries
 It has multinational central management
 It has multinational stock ownership.
Country of Origin?????
 Coca Cola Company
 Dell
 Ford
 Google
 Hitachi
 HSBC
 LG
 Nestle
 Samsung
 Sony
 Virgin
 Vodafone
 Nokia
Country of Origin…
 Coca Cola – USA
 Dell – USA
 Ford – USA
 Google – USA
 Hitachi – Japan
 HSBC – UK
 LG – South Korea
 Nestle – Switzerland
 Samsung – South Korea
 Sony – Japan
 Virgin – UK
 Vodafone – UK
 Nokia - Finland
Objectives

 To expand the business beyond the

boundaries of home country
 Minimize cost of production, especially labour
cost
 Capture lucrative foreign market against
international competitors
 Establish an international corporate image
 Avail competitive advantage internationally
Multinational Corporations

 Have brought enormous benefits, including to

developing countries
 Movement of capital
 Transfer of technology
 Training of workers
 Access to markets
 Why then are Multinationals subject such
vilification?
Problems with multinationals
 Some problems are shared by domestic corporations
 Taking advantage of limited liability
 Mining companies take out resources, distribute profits,

leaving no money to clean up mess

 Use of economic power to get favorable legislation
 Campaign contributions

 Distorted information (cigarette companies, oil companies)

 Massive cheating in hard-to-detect ways

 Even in U.S.—Exxon in Alaska and Alabama cases
 Required extra-ordinarily sophisticated detection, beyond capability
of most developing countries
 If this happens in U.S., what must be happening elsewhere?
Special Problems with multinationals
 Power—to get special legislation and treatment that
benefits themselves, regulations, short circuiting
environmental, health, worker regulations
 Sometimes they seek, and get, special tax and tariff
treatment; sometimes simply persuading governments
not to enforce existing regulations
 Sometimes special treatment is above board—necessary
to induce corporation to come; but sometimes based on
corruption
 Leverage economic power with political power
 Lack of “moral sensibilities” (or weaknesses in public
pressure)
What multinational companies want
 Strong protection
 Favorable treatment
 Low taxes
 Low regulation
 Right to establish, without burdensome red
tape
 Right to move employees in and out, to move
capital in and out
 Uniform standards across countries—makes it
easier to conduct business
What others want of multinationals
 Make a contribution to national development
efforts
 In ways consistent with domestic laws and
regulations
 No special treatment
 Level playing field in taxes or regulations
 To be good citizens
Basic Questions
 Is there a need for international economic
agreements concerning the regulation of
multinational corporations?
 If there is, what should be the scope for such
multinational corporations, and what global
institutional arrangements might be most
effective?
 If these global institutional arrangements can not
be created (at least in the short run), what can
individual countries do?
 Let’s evaluate….

 Defining Success for MNCs in India

 Performance of MNCs – Financial

 Key Success Factors for MNCs operating in India

 Key Advantages of existence of MNCs in India

 Issues which have hindered MNCs growth in India

 Key challenges that Indian MNCs would face

Defining success for MNCs in India
Success for MNCs in India can be defined along
2 dimensions :

 Capturing the Domestic Market Opportunity

 Leveraging India’s resource base to derive

additional value for the corporation
 R&D / Manufacturing / Sourcing / BPO
Performance of MNCs – An Analysis
 Over the last few decades, most MNCs have shown
typical characteristics in their growth plans in India

 Prefers operations to be less assets intensive

 Lean operations as far as employees are concerned

 Preference of profitability over growth

 Most businesses generate high ROCEs

 Extremely cagey to enter “non-Parent” growth areas

 Performance of MNCs – Growth Vs
Growth - 5 year sales CAGR

Unichem
FDC
Profitability
Pharmaceuticals
17%
20%
Wy eth
Merck
2%
6%
Glenmark 30%
Paints
Asian Paints 12% Goodlass Nerolac 11%
Berger 13%
FMCG
Marico 8% GSK Consumer 7%
Nestle 9%
Agrochemicals
United Phosphorus 25% Monsanto 29%
Sy ngenta 10%

Profitability - 3 year Average EBITDA margins

Pharmaceuticals
Unichem 17% Wy eth 21%
FDC 23% Merck 24%
Glenmark 20%
Paints
Asian Paints 14% Goodlass Nerolac 12%
Berger 10%
FMCG
Marico 10% GSK 18%
Nestle 19%
Agrochemicals
United Phosphorus 25% Monsanto 24%
Sy ngenta 18%
3 key success factors for MNCs
operating in India
 Commitment at global level
 Raise the profile of India
 Formulation of bold long term targets

 Empowered local Management

 More cost effective, enhances continuity, leverages
understanding of local environment
 Localized product / market business models ; create
customized products and services in response to unique
environment in India
 Deliver the right product at the right price with right positioning
for India
 What has India really gained?

 Work culture for employees

 Systems

 Training and Learning

 Technology – especially concept of working with

better technologies
 Safety Health and Environmental Learning

 Culture and Ethos

 Excellent training grounds for many

entrepreneurs
Key gains NOW……
 Outsourcing Centers for key processes
setup by various MNCs
 R&D Outsourcing – Pharmaceuticals,

Engineering, IT, Telecom

 Product development centres (Telecom, IT)
What are the key issues in the Indian context
which have hindered MNCs growth?

 “Global parent strategy” dictates India plans

 Limitations of growth due to regulatory / legislation /

IPR issues
 Limited Autonomy for top MNC Managers

 Sometimes bureaucratic setups have delayed

decision making – sharp contrast to most Indian

entrepreneur companies
 Rigidity and insistence on evaluating India like any

other market
 Not being able to recognize early enough that India is

a price and quality conscious market

M&A strategies – MNCs Vs Indian
Companies
 Except for India entry M&A plays, MNCs in India
have been quite dormant on this front
 “Not to go beyond parent portfolio”

 Protocols – difficult to meet deal / transaction

timelines
 M&A is an important tool for growth in

today’s context – a tool which could be too

crucial to miss out on
Some thoughts on Indian MNCs
The Indian MNCs ………………the
list is subjective and endless….

 Paints – Asian Paints

 Auto & Components – Tata Motors, Bharat Forge

 Chemicals – Tata Chemicals, United Phosphorus

 Metals – Sterlite Industries, TISCO

 Packaging – Essel

 Pharmaceuticals – Ranbaxy, Wockhardt, Sun, DRL

 Oil & Gas – ONGC

Example : Asian Paints
 Asian Paints rise from a mid sized domestic focused
coatings company to a $ 500 million multinational
with a global presence across 23 markets.
 Among the top 10 decorative coatings companies

globally.
 Key strengths are continuous innovations in all

spheres of operations, economies of scale, strong

management team, IT capabilities, stronghold over
the distribution network, width of product portfolio
and strong brand equity
Example : Asian Paints
 Consistently generated EBITDAs of 16%+ and
ROEs of 25%+ - higher than most Indian and global
peers

 Operates in 23 countries across the world -

manufacturing facilities in each of these countries
and is the largest paint company in nine overseas
markets. It is also India's largest exporter of paints,
exporting to over 15 markets in the Asia-Pacific
region, the Middle East and Africa.
Thank
You