Assi

gnmentNo.:1

TOPI
C:
Quest
ion1:Expl
aint
heconceptofMNCs.I
tst
ypeswi
tht
hei
radv
ant
ages.

Quest
ion2:Di
scusst
hei
mpor
tanceofI
nter
nat
ionalBusi
ness

Subj
ect
:Int
ernat
ional
Busi
nessManagement

Subj
ectCode:MB401

Dat
eofSubmi on:25thApr
ssi il2020

Submi
tt
edby
:Par
ikshaSai
ni Submi
tt
edt
o:Dr
.Sangeet
aGoy
al

Rol
lNo:MAU18PBA041 Desi
gnat
ion:Assi
stantPr
ofessor

Cl
ass:
MBA

Semest
er:
IVth

Mahar
ajaAgr
asenSchoolofManagement

Mahar
ajaAgr
asenUni
ver
sit
y,At
alShi
kshaKunj
,
Vil
lage-
Kal
ujhanda,
Baddi
Di
str
ict
-Sol
an,
(Hi
machalPr
adesh)Pi
n-174103

Sessi
on:2018-
2020
Quest
ion1:Expl
aint
heconceptofMNCs.I
tst
ypeswi
tht
hei
radv
ant
ages.

Answer
:

Multi
national Companies (MNCs): A mult
inat
ional company is one which is
i
ncorporatedinonecount r
y(cal
ledthehomecount r
y);butwhoseoperati
onsextend
beyondthehomecount r
yandwhi chcar
ri
esonbusinessinothercount
ri
es(cal
l
edt he
hostcountri
es)inaddi
ti
ontothehomecountr
y.

I
tmustbeemphasi
zedt
hatt
heheadquar
ter
sofamul
ti
nat
ionalcompanyar
elocat
edi
n
t
hehomecount
ry.

FEATURESOFMNCS:

1.HugeAssetsandTur nover :Becauseofoper ati

onsonaglobalbasis,MNCshav e
hugephysi
calandf i
nancialasset s.Thisalsoresult
sinhugeturnover(sal
es)of
MNCs.Inf act
,intermsofasset sandt urnover
,manyMNCsar ebiggerthan
nati
onal
economiesofsev
er alcount
r i
es.

2.Unit
yofControl:MNCsar echaracter
izedbyuni tyofcontrol
.MNCscontrol
busi
nessact
ivi
ti
esoftheirbranchesinf orei
gncount r
iest
hroughheadoff
ice
l
ocatedi
nthehomecountry.Management sofbranchesoper
atewit
hint
hepol
icy
fr
ameworkofthepar
entcorpor
ati
on.

3.Might
yEconomicPower:MNCsarepowerfuleconomi
centi
ti
es.Theykeepon
addi
ngtothei
reconomicpowert
hroughconst
antmerger
sandacquisi
ti
onsof
compani
es,i
nhostcount
ri
es.

4.AdvancedandSophist
icatedTechnol
ogy:Gener
all
y,aMNChasati tscommand
adv
ancedandsophisti
catedtechnol
ogy.I
temployscapi
tali
ntensi
vetechnol
ogy
i
nmanuf act
uri
ngandmar keti
ng.

5.Bett
erQual i
tyofProducts:A MNC hasto compet
eon the wor
ldl
evel
.It
,
ther
efor
e,hastopayspeci
alat
tent
iont
othequal
i
tyofi
tspr
oduct
s.
TYPESOFMNCS

1.Transnat
ionalCorp.
:‐ 
Incorpor
atedorUni
ncor
por
atedent
erpr
isescompr
isi
ngpar
ent
enter
pri
sesandt hei
rforei
gnaffi
li
ates.

2.Parententer
pri
se: 
‐cont
rol
sassetsofot
herent
iti
esincountri
esothert
hani
tshome
countr
y,usual
lyby owni
ngacertai
nequi
tycapi
talst
ate(usual
ly10%ormore)
.

3.Foreign Affi
li
ate:
 ‐Isan incorporated orunincorpor
ated ent
erpri
sei n which an
i
nv estor
,whoi sresident 
in anothereconomy ,ownsast akethatpermitsal asti
ng
i
nterest in  t
he  management   
oft hat enter
pri
se, A subsi
diar
y, associ
ate, and
branchesar eallr
eferr
edtoasf or
eignaffil
i
ates.

a)Subsi
diar
y: ‐ Is 
an  i
ncorporat
ed ent
erpri
se  i
n  t
he  host  countr
y  i
n
 
whichanotherent
it
y di
rectl
y owns more t
han  hal
f of the shareholdi
ng
 
voti
ngpowerandhast her i
ghttoappoi
nt or  
remov e a  majori
ty of t
he
 
member s of 
the 
administ
rati
ve, 
management, orsuper
v isor
ybody .

b)Associ
ate:‐
 I
senter
pri
seinthehostcount
ryinwhi
chaninvest
orownsat
l
east10%butnotmorethanhal
foftheshar
ehol
der
svot
ingpower.

c) Branch:
 ‐I
sawhol
l
yorj
oint
lyowneduni
ncor
por
atedent
erpr
isei
nthehost
countr
y.
ADVANTAGESOFMULTI
NATI
ONALCORPORATI
ONS

1.CheaperLabor:Oneoft headvantagesofmul t
inationalcorporat
ionsist he
opport
unit
ytooperateincountr
ieswherelabori
snotasexpensi ve.Thisi
soneof
theperksthatsmallercompaniesdonotenj oy.Mul t
inational
scansetupt hei
r
offi
cesinseveralcountr
ieswheredemandf ortheirser v
icesandpr oduct
sar e
highwhil
echeaperlaborisavai
l
able.

2.BroaderMar ketBase:Byopeni ngestabl

ishmentsoroffi
cesinseveralcountr
ies,
mul t
inati
onal
sincreasethei
rchancesofr eachi
ngouttocustomer sonagl obal
scale,a benef i
t which ot her companies li
mited t
or egionalof f
ices and
establi
shmentsdonothav e.Theaccesst omor ecustomersgivesthem mor e
oppor t
unit
iestodev el
opandcat erthei
rproductsandservi
cest hatwi l
lfi
tthe
needsofpot ent
ialcust
omer s.

3.TaxCut s:Multi
national
scanenj oyl
owert axesinothercountr
iesf
orexport
sand
i
mpor ts,anadv antagethatownersofinternat
ionalcorpor
ati
onscantakeatany
givenday .Andalthoughnotallcountr
iescanhav elowertar
if
fs,t
her
ear ethose
thatgivet axcutst oinvestor
st oatt
ractmor ei nt
ernati
onalcompani
est odo
businessinthesecountries.

4.JobCreat
ion:Wheninter
nat
ionalcompaniessetupbr anchesinot
hercountr
ies,
employ
eesandmember soft heteam arelocals.Thatsaid,morepeopleare
gi
venemploymentopport
uni
tiesespeci
all
yindevelopi
ngcountri
es.

DI
SADVANTAGESOFMULTI
NATI
ONALCORPORATI
ONS

1.Potent
ialAbuseofWor ker
s:Mult
inati
onalcompaniesofteninv
esti
ndev el
oping
countr
ieswheretheycantakeadv ant
ageofcheaperl abor
.Somemul t
inati
onal
corpor
ati
onspr ef
ert
oputupbr anchesint hesepart
soft heworl
dwher ethere
arenost r
ingentpol
ici
esinlaborandwher epeopleneedjobsbecauset hese
 mul
ti
nat
ional
scandemandf
orcheaperl
aborandl
esserheal
thcar
ebenef
it
s.

2.Threatt oLocalBusi nesses:Anotherdisadv ant

ageofmul ti
national
si nother
countriesi sthei
rabil
itytodomi nat
et hemar ker.Thesegiantcorporati
onscan
domi nat etheindust
ri
est heyareinbecauset heyhav ebet
terproductsandt hey
canaf f ordtoev enof ferthem atlowerpr icessincetheyhav et hefinancial
resourcest obuyi nbulk.Thiscaneatupal ltheothersmallbusinessesoffer
ing
thesamegoodsandser v
ices.Chancesar e,localbusi
nesseswi llsuff
erand
worse, closedown.

3.Loss of Jobs:Wi th more compani es t

ransferr
ing of f
ices and center
ing
operat
ionsinothercount
ri
es,jobsforthepeopl
el i
vi
ngi ndev el
opedcountri
esare
thr
eatened.Taket hecaseofmul ti
nati
onal
st hatcr eateof f
icesindevel
oping
countr
iesfort
heirtechni
caloperat
ionsandmanuf acturing.Thej obsgi
ventothe
l
ocalsoft hehostcountryshouldbet hejobsenjoyedbyt hepeopl ewherethe
headoffi
ceislocated.

Mul
ti
nati
onalcor por
ati
onshavebot hadvantagesanddi sadv
ant
agessi nceitcr
eates
j
obsbutcanalsoendupi ntheexploit
ati
onofwor kers,amongothert
hings.Andsince
t
heyaremostlikelyt
ostay,
it’
sbesttocreatepoli
ciestomakeglobali
zati
onequit
y.

Quest
ion2:Di
scusst
hei
mpor
tanceofI
nter
nat
ionalBusi
ness.

Answer
:

Inter
nationalBusi
ness:Thenat
ionalborderar
ecrossedbytheent
erpr
isest
oex pand
theirbusinessactiv
iti
esli
kemanuf act
uri
ng,mini
ng,agr
icul
tur
e,i
nsur
ance,banking,
health,
transpor
tat
ion,communi
cati
onandsoon.
Inter
nati
onalbusiness i
s equated with onl
yt hose l
arge organizations which have
operati
ngunit
sout si
dethei
rowncount ri
es.Inthemiddleareinstit
utionalarrangements
thatprovi
deforsomemanager ialdi
recti
onofeconomi cacti
vit
yt akingpl aceabroadbut
stopshortofcontr
olli
ngownershipofthebusinesscarr
yingont heact i
v i
ty,f
orexample:
Jointvent
ureswit
hl ocal
l
yownedbusi nessorwi t
hforei
gnGov ernment .

1.Nati
onal 
Economy :
a)Iti
simportantt
omeeti
mpor
tsofi
ndust
ri
alneeds.

b)DebtSer
vici
ng:
Thi
smeanst
ogr
antl
oanf
orandf
ort
hei
rindust
ri
aldev
elopment
.

c)Forr
api
deconomi
cgr
owt
h.

d)Forpr
ofi
tabl
euseofnat
ural
resour
ces.
 e)Tofacecompeti
ti
onsuccessful
l
y-bet
terquali
tygoodsproduct
ionhavi
ngloweror
moderat
epri
ces.Toimprovetheimageoft heproduceraswellasofthecount
ry
i
nthemindsofforei
gncustomers.

f
)Incr
easei
nempl
oymentoppor
tuni
ti
es.

g)Toi
ncr
easenat
ional
income.

h)I
ncr
easei
nst
andar
dofl
i
vingoft
hepeopl
e.

2.Impor t
ancetoExpor
ti
ng Fi
rm:
Businessandindust
ri
alfi
rms/expor
ti
ngf
ir
msar
eal
sobenef
it
tedf
rom t
hei
nter
nat
ional
business,

a)Incr
easedPr oduct
ivi
ty:
Duet ocertai
nsocialandtechnol
ogi
caldevel
opmentstheindust
ri
alproducti
on
hasincreasedtoagr eatext
ent.Theproduct
ionwi
llbehigheratcheaperrate.
Thesurplusproduct
ioncanbeexport
ed.

b)ToUti
li
seInstal
ledCapaci
ty:
I
fthei
nstal
ledcapacit
yofthefir
mi smuchmor ethanthelevelofdemandoft he
pr
oductinthedomesticmarket,i
tcanenterthei
nternat
ionalmarketandutil
ise
i
tsun-
uti
li
sedinstal
l
edcapacit
y.Inthi
swayitcanexportt
hesur pl
usproduct
ion.

c)Rel
ati
veProfi
tabil
it
y:
Theexportbusinessismoreatt
ract
ivefori
tshi
gherrat
eofpr
ofi
tabi
l
ity
.The
hi
gherpr
ofit
abil
it
yrateal
sogi
vesextr
astr
engt
htothef
ir
m.

d)LessBusinessRisk:
Adiver
sifi
edexpor tbusi
nesshelpstheexport
ingfi
rmi
nmi
ti
gat
ingt
her
iskof
shar
pfluctuat
ionsinthebusi
nessact
ivi
tyoft
hef i
rm.

e)SocialResponsi
bil
it
y:
I
nor dertomeetthesocialr
esponsi
bil
it
ysomebusinessfi
rmstakethedeci
sion
tocontri
butetot
heNational
Exchequerbyexpor
ti
ngthei
rpr
oducts.

3.I
mport
ancefrom Ot
herPoi
ntsof
 Vi
ew:
a)Int
ernat
ionalColl
abor
ati
on:Devel
oped count
ri
es f
ixt
hei
rimpor
tquot
as f
or
 di
ff
erentcount
ri
esandf ordif
fer
entcommodi
ti
es.Acountycanexpor
tvar
ious
commoditi
estothesedevel
opedcount
ri
est
otheext
entofi
tsquot
a.

b)Int
ernati
onalBusi nessBr i
ngsVari
ousCount r
iesClose:Bet
terbusinessrel
ati
ons
areestabl
ishedamongt hecount
ri
es.Gov er
nmentandnon- governmentbusiness
commi ssi
onsorbusi nessrepr
esentat
ivesvisi
tothercountr
iesfrom ti
met oti
me.
Thel ocalrepresentativesandot herrel
atedper sonscamei ntocontactwi t
h
for
eignrepresentati
vesandcomet oknowt heirhabi
tsandcustoms.

c)HelpsinMai ntaini
ngGoodPol it
icalRelat
ions:Theeconomi crel
ati
onsbet ween
two countri
es help each othert oimpr ovetheirpoliti
calrelat
ions.Var i
ous
countri
eshav i
ngdiffer
entpoli
ti
calideol
ogiesimpor torexportthei
rproducts.To
concludeiti
snowundi sput
ablethatexportbusinesscontribut
estot henational
economy , nati
onal exchequer,i ndi
vi
dual expor ti
ng firms and mai ntai
ns
i
nternati
onal,economiccult
uralandpol i
ti
calrel
ationsamongv ari
ouscount ri
es.
Count
ri
eshav
ecomecl
oseronaccountofi
nter
nat
ional ness.
busi