MNC’s and International Business - INTERNATIONAL BUSINESS

Notes 5 Pages

Bengaluru City University

Bachelor of Business Administration

Contributed by

Prajwal Hallale

FACULTY NAME: Mrs NALINI.N
COLLEGENAME: MES INSTITUTE OF MANAGEMENT
SUB:INTERNATIONAL BUSINESS

MNC’s and International Business:
MNC’s and International Business: Definitions – Distinction between Indian
Companies – MNC – Global Companies and TNC – Organizational Transformations –
Merits and Demerits of MNC‟s in India
Definitions – Distinction between Indian Companies – MNC – Global Companies and
TNC – Organizational Transformations – Merits and Demerits of MNC‟s in India

MULTINATIONAL CORPORATIONS.
Meaning of Multinational Companies (MNCs):
A multinational company is one which is incorporated in one country (called the home
country); but whose operations extend beyond the home country and which carries on
business in other countries (called the host countries) in addition to the home country.
It must be emphasized that the headquarters of a multinational company are located in the
home country.
Key Differences Between Domestic and International Business:
The most important differences Between domestic and international business are classified as
under:
1. Domestic Business is defined as the business whose economic transaction is conducted
within the geographical limits of the country. International Business refers to a business
which is not restricted to a single country, i.e. a business which is engaged in the economic
transaction with several countries in the world. 2. The area of operation of the domestic
business is limited, which is the home country. On the other hand, the area of operation of an
international business is vast, i.e. it serves many countries at the same time. 3. The quality
standards of products and services provided by a domestic business is relatively low.
Conversely, the quality standards of international business are very high which are set
according to global standards. 4. Domestic business deals in the currency of the country in
which it operates. On the contrary, the international business deals in the multiple currencies.
5. Domestic Business requires comparatively less capital investment as compared to
international business.
6. Domestic Business has few restrictions, as it is subject to rules, law taxation of a single
country. As against this, international business is subject to rules, law taxation, tariff and
quotas of many countries and therefore, it has to face many restrictions which are barriers in
the international business. 7. The nature of customers of a domestic business is more or less
same. Unlike, international business wherein the nature of customers of every country it
serves is different. 8. Business Research can be conducted easily, in domestic business. As
against this, in the case of international research, it is difficult to conduct business research as
it is expensive and research reliability varies from country to country. 9. In domestic
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business, factors of production are mobile whereas, in international business, the mobility of
factors of production is restricted.
MNCs vs TNCs
1) Multinational (MNC) and Transnational (TNC) companies are types of international
corporations. Both maintain management headquarters in one country, known as the home
country, and operate in several other countries, known as host countries.

2) Most TNC’s and MNC’s are massive in terms of budget and are highly influential to
globalization. They are also considered as main drivers of the local economy, government
policies, environmental and political lobbying

3) An MNC have investment in other countries, but do not have coordinated product
offerings in each country. It is more focused on adapting their products and service to each
individual local market. A TNC, on the other hand, have invested in foreign operations, have
a central corporate facility but give decision-making, R&D and marketing powers to each
individual foreign market.

Difference between a global, transnational, international and multinational company
The following terms and think they refer to any company doing business in another country.
• Multinational
• International
• Transnational
• Global Andrew Hines over at BNET has brief and clear definitions of each of these terms,
Get your international business terms right. 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.
• 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.
organizational change and organizational transformation • Organization change:
Organizational change is about changing the way of doing business in some way.
Organizational change does not go into the depth of what a person feels, or at least not
intended to do so. • Organizational transformation: Organizational transformation is about
organizational change which the change goes to the depths of what an individual feels and
will affect what people feel about the organization, what they do in the organization and
maybe what they hold dear to life. Organizational transformation is more than just changing
the way business is done. It is about changing the organizational culture in one or more ways.
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Transforming the organization refers to any significant change made to an organization such
as, restructuring an organization or reengineering an organization and/or there is a significant
change in the way business is done. The question is, of course, what is significant relative to a
given organization.

Advantages and Limitations of MNCs(Merits & Demerits)
Advantages of MNCs from the Viewpoint of Host Country:
We propose to examine the advantages and limitations of MNCs from the viewpoint of the
host country. In fact, advantages of MNCs make for the case in favour of MNCs; while
limitations of MNCs become the case against MNCs.
(i) Employment Generation: MNCs create large scale employment opportunities in host
countries. This is a big advantage of MNCs for countries; where there is a lot of
unemployment.
(ii) Automatic Inflow of Foreign Capital: MNCs bring in much needed capital for the rapid
development of developing countries. In fact, with the entry of MNCs, inflow of foreign
capital is automatic. As a result of the entry of MNCs, India e.g. has attracted foreign
investment with several million dollars.
(iii) Proper Use of Idle Resources: Because of their advanced technical knowledge, MNCs
are in a position to properly utilise idle physical and human resources of the host country.
This results in an increase in the National Income of the host country.
(iv) Improvement in Balance of Payment Position: MNCs help the host countries to
increase their exports. As such, they help the host country to improve upon its Balance of
Payment position.
(vi) Technical Development: MNCs carry the advantages of technical development 10 host
countries. In fact, MNCs are a vehicle for transference of technical development from one
country to another. Because of MNCs poor host countries also begin to develop technically.
(vii) Managerial Development: MNCs employ latest management techniques. People
employed by MNCs do a lot of research in management. In a way, they help to
professionalize management along latest lines of management theory and practice. This leads
to managerial development in host countries.
(viii) End of Local Monopolies: The entry of MNCs leads to competition in the host
countries. Local monopolies of host countries either start improving their products or reduce
their prices. Thus MNCs put an end to exploitative practices of local monopolists. As a
matter of fact, MNCs compel domestic companies to improve their efficiency and quality.
In India, many Indian companies acquired ISO-9000 quality certificates, due to fear of
competition posed by MNCs.
(ix) Improvement in Standard of Living: By providing super quality products and services,
MNCs help to improve the standard of living of people of host countries.
(x) Promotion of international brotherhood and culture: MNCs integrate economies of
various nations with the world economy. Through their international dealings, MNCs
promote international brotherhood and culture; and pave way for world peace and prosperity.

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Limitations of MNCs from the Viewpoint of Host Country:

(i) Danger for Domestic Industries: MNCs, because of their vast economic power, pose a
danger to domestic industries; which are still in the process of development. Domestic
industries cannot face challenges posed by MNCs. Many domestic industries have to wind
up, as a result of threat from MNCs. Thus MNCs give a setback to the economic growth of
host countries.
(ii) Repatriation of Profits: (Repatriation of profits means sending profits to their country).
MNCs earn huge profits. Repatriation of profits by MNCs adversely affects the foreign
exchange reserves of the host country; which means that a large amount of foreign exchange
goes out of the host country.
(iii) No Benefit to Poor People: MNCs produce only those things, which are used by the
rich. Therefore, poor people of host countries do not get, generally, any benefit, out of
MNCs.
(iv) Danger to Independence: Initially MNCs help the Government of the host country, in a
number of ways; and then gradually start interfering in the political affairs of the host
country. There is, then, an implicit danger to the independence of the host country, in the
long-run.
(v) Disregard of the National Interests of the Host Country: MNCs invest in most
profitable sectors; and disregard the national goals and priorities of the host country. They do
not care for the development of backward regions; and never care to solve chronic problems
of the host country like unemployment and poverty.
(vi) Misuse of Mighty Status: MNCs are powerful economic entities. They can afford to
bear losses for a long while, in the hope of earning huge profits-once they have ended local
competition and achieved monopoly. This may be the negative strategy of MNCs to wipe off
local competitors from the host country.
(vii) Careless Exploitation of Natural Resources: MNCs tend to use the natural resources
of the host country carelessly. They cause rapid depletion of some of the non-renewable
natural resources of the host country. In this way, MNCs cause a permanent damage to the
economic development of the host country.
(viii) Selfish Promotion of Alien Culture: MNCs tend to promote alien culture in host
country to sell their products. They make people forget about their own cultural heritage. In
India, e.g. MNCs have created a taste for synthetic food, soft drinks etc. This promotion of
foreign culture by MNCs is injurious to the health of people also.
(ix) Exploitation of People, in a Systematic Manner: MNCs join hands with big business
houses of host country and emerge as powerful monopolies. This leads to concentration of
economic power only in a few hands. Gradually these monopolies make it their birth right to
exploit poor people and enrich themselves at the cost of the poor working class.

ESSAY TYPE QUESTIONS
1. What is Multinational Corporation? Explain the benefits of MNCS over domestic
companies.
INT
2. What do you understand by International Business Environment? What factors affects
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International Business?
3. What is cultural environment? Explain the influence of cultural environment on the
international business?
4. How international business is influenced by political environment? Explain
5. What do you mean by International Business Environment? Explain the factors
influencing international business?
6. Explain the various challenges of International Business?

1. What is a Multinational Corporation? How is it different from a global company,
international company and transnational company?
hy do developing countries allow MNCS to operate in their countries?
3. Why do some countries impose controls over MNCS?
4. Explain the organisational structure of MNCS.
5. Discuss the headquarters subsidiary relationship.
6. Explain the role of MNCS in Indian economy. Why would TNCS like to Indianise
their operations?

7. What is the distinction between Domestic Business Operation and International
Business Operations?

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