Agents of Globalization

Amar KJR Nayak/IB/XIMB
MULTINATIONAL CORPORATION
What is a Multinational Corporation?
Which of these companies is not truly multinational?
Proctor & Gamble

Honda
Boeing
Cemex SA
Trading Firms - Facilitators to Multinational Companies
Control of Joint-stock companies registered in India and working in tea, coal &
jute industries, 1911
No. of joint-stock companies
Name of Managing Agents or controlled in
Secretary
Tea Coal Jute Total
Andrew Yule & Co. 10 11 6 27
Begg. Dunlop & Co. 10 - 2 12
Bird & Co. - 11 8 19
Shaw Wallace & Co. 2 11 - 13
Williamson, Magor & Co. 10 5 - 15
George, Henderson & Co. 2 - - 2
Planter’s Stores & Agency 1 - - 1
Kilburn & Co. 6 2 - 8
Octavius Steel & Co. 10 2 - 12
Contd…..
Name of Managing Agents or No. of joint-stock companies

Secretary controlled in
Tea Coal Jute Total
Gillanders, Arbuthnot & Co. 1 - 1 2
Kettlewell, Bullen & Co. 1 - 1 2
J. Mackillican & Co. 2 - - 2
C. A. Stewart 4 - - 4
Duncan Bros. 12 - - 12
Davenport & Co. 8 - - 8
Hoare, Miller & Co. 1 3 - 4
Jardine, Skinner & Co. 2 2 2 6
McLeod & Co. 3 5 2 10
Barry & Co. 3 - 1 4
Macneill & Co. - 5 - 5
H. V. Low & Co. - 4 - 4
Contd…..
Name of Managing Agents or No. of joint-stock companies

Secretary controlled in
Tea Coal Jute Total
F. W. Heilgers & Co. - 7 2 9
Stanley, Oaks & Co. - 1 - 1
Apcar & Co. - - 1 1
Anderson Wright & Co. - 2 1 3
Ernsthausen Ltd. - 1 2 3
Balmer Lawrie & Co. - 4 - 4
Martin & Co. - 3 - 3
Lyall, Marshall & Co. - 1 - 1
N. C. Sircar & Sons - 7 - 7
Total 88 87 29 204
Source: Private Investment in India, 1900-1939, A.K. Bagchi, Cambridge University
Press, 1972, Pg.177
Enterprise that own or control value-added activities

in two or more countries
French economist – Maurice Bye (1958)

Transnational Corporation
Internationalization of oil industry–integration of different
stages of oil production
Edith Penrose
In the light of Theory of Growth of Firms rather than a theory
of foreign investment. Case of General Motors manufacturing
subsidiary in Australia
Organizing Framework for Previous MNE Definitions

Source Attribute Global Transnational Multi- domestic
Perlmutter Management Ethnocentric Geocentric Geocentric Polycentric

(1969) Style
Kindleberger Various National International -- Multinational

(1973) functional and corporation
attitudinal with foreign
attributes operations
Porter (1986) Coordination Global Complex -- Multi-domestic

and Global
configuration
needs
Bartlett and Network / Global Transnational International Multinational
Ghoshal Inter-
(1989) organizational
Structure
Bartlett and Organizational Centralized Networks Networks Decentralized
Ghoshal Structure
(1990)
Hedlund Organizational Hierarchy (H Hierarchy Hierarchy Hierarchy
(1986) Structure form) (M Form)
Source: The International Business Environment, Sundaram & Black, 1998

Organizational Characteristics
Organizational
Characteristics Multinational Global International Transnational
Sources of core
Configuration Decentralized & Centralized & competencies Dispersed,
of assets & nationally self- globally scaled centralized, interdependent,
capabilities sufficient others & specialized
decentralized
Differentiated
Role of Sensing & Implementing Adapting & contributions by
overseas exploiting local parent company leveraging national units to
operations opportunities strategies parent company integrated
competencies worldwide
operations
Knowledge Knowledge
Development & Knowledge Knowledge developed at developed
diffusion of developed & developed & the center & jointly and
knowledge retained within retained at the transferred to shared
each unit center overseas units worldwide
Source: Barlett & Ghosal

Let’s look at a Case
LAFARGE: A concrete
multinational
http://www.lafarge.com/cgi-bin/lafcom/jsp/home.do?lang=en
http://www.lafarge-india.com/webapp/rainbow/map.jsp
Characteristics of MNEs
1880s: Multinational enterprises
Highly industrialized economies of Western Europe and North
America
Main characteristics of these enterprises

 Diverse business operation
 Mixture of large and small firms
 Both Managerial and Family firms (but later type

predominated)
 The MNEs employ a variety of equity and non-equity

modes of investments
 Natural resources were the primary sector of exploitation
like mining, oil exploration and trade in natural products like
sugar, banana and rubber
 Multinational trading companies, banks and utilities grew
with time as the main service providers to the pioneers of
international business during this time.
• Affiliated firms are linked by ties of common ownership

• A common pool of resources and
And,
• A strategic vision that guides all the affiliates

Location Advantages:
Resource allocation based upon the spatial distribution of
factor endowments.
Ownership Advantages:
 Access to new products and processes
 Superior management and organization technology
 Access to large finance
 Economics of large scale

Distinguishing Aspects of MNEs: Sundaram & Black
Multiple sources of external authority

 Number of geographic locations
 Variance in country environments
 Lack of superstructure to mediate threats or opportunities
that arise at the intersection of the variance in country
environment
Multiple denomination of value
Translation exposure (valuation and setting up of past

transaction)
 Transaction exposure (problem of hedging)
 Economic exposure (impact of unanticipated changes in
real exchange rate)
Why Firms Become Multinational?
 To protect themselves from the risks and uncertainties of

the domestic business cycle
 To tap the growing world market for goods and services
 Increase foreign production
 To reduce costs (transport and middlemen) and improve

overall efficiency by restructuring existing value-added
activities
• To overcome tariff walls

 To take advantage of technological expertise by
manufacturing goods directly
 To restructure existing foreign value added activities, so
as to improve overall efficiency and change the range of
products produced
 To acquire assets that might be complementary to existing
assets, or competitive to them, so as to reduce risk,
capture the economies of scale or synergy, or generally
strengthen the acquiring firms competitive position in
national or world markets.
Strategic Philosophy of MNEs
MNEs make decisions that are best for the organization,

even if it means transferring funds or jobs to other countries
MNEs are considered as stateless corporations

Examples:
 IBM has transferred 120 executives and the

headquarters of its $ 10 billion a year communications
business to Europe in order to capitalize on the
expected growth in Europe.
 Layoffs in Japanese companies: Nissan, Sony
 In Japan, Xerox has over 12,000 employees, Texas

Instrument has over 5000 employees, Hewlett-Packard
has 3,000 employees
 In US (1990), about 640 U.S plants that were either

wholly or partially owned by the Japanese, employing
about 160,000 workers
 By 2000 A.D., 800,000 American were employed by
the Japanese firms
 Project involve people from a host of nations
Mazda’s Sports car MX-5 Miata:
Design - California
Prototype - England
Assembly - Michigan & Mexico
Advanced electronic
components invented - New Jersey
Fabricated - Japan
Finance - Tokyo & New York

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Amar KJR Nayak/IB/XIMB

What is a Multinational Corporation?

Which of these companies is not truly multinational?

Proctor & Gamble

Name of Managing Agents or No. of joint-stock companies

Name of Managing Agents or No. of joint-stock companies

Enterprise that own or control value-added activities

French economist – Maurice Bye (1958)

Organizing Framework for Previous MNE Definitions

Perlmutter Management Ethnocentric Geocentric Geocentric Polycentric

Kindleberger Various National International -- Multinational

Porter (1986) Coordination Global Complex -- Multi-domestic

Source: The International Business Environment, Sundaram & Black, 1998

Source: Barlett & Ghosal

Let’s look at a Case

Main characteristics of these enterprises

 Mixture of large and small firms

 Both Managerial and Family firms (but later type

 The MNEs employ a variety of equity and non-equity

• Affiliated firms are linked by ties of common ownership

• A strategic vision that guides all the affiliates

 Superior management and organization technology

 Access to large finance

 Economics of large scale

Distinguishing Aspects of MNEs: Sundaram & Black

Multiple sources of external authority

Multiple denomination of value

Translation exposure (valuation and setting up of past

Why Firms Become Multinational?

 To protect themselves from the risks and uncertainties of

 To tap the growing world market for goods and services

 Increase foreign production

 To reduce costs (transport and middlemen) and improve

• To overcome tariff walls

Strategic Philosophy of MNEs

MNEs make decisions that are best for the organization,

MNEs are considered as stateless corporations

 IBM has transferred 120 executives and the

 Layoffs in Japanese companies: Nissan, Sony

 In Japan, Xerox has over 12,000 employees, Texas

 In US (1990), about 640 U.S plants that were either

Mazda’s Sports car MX-5 Miata:

Assembly - Michigan & Mexico

Finance - Tokyo & New York

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