The Role of MNC in International Strategy

Who are the MNCs? Financial Companies: Pension Funds Banks Insurance firms Financial Companies: Pension Funds Banks Insurance firms High Net Worth & Powerful People Financial & Trading Organisational Entities in different Countries/Regions Funds & owns Top MNCs: USA Japan Britain France Germany China Canada

Global Companies 1.Strong technical capacity in market places across countries 2.Masters of branding in consumer markets across countries 3.Products that appeal ACROSS cultures & countries

MNC’s Foreign Direct Investment Is about directly Investing in international business operations to achieve managerial control over assets abroad 1.Purchasing M&As equity in foreign companies 2.Offering capital or green field investments to foreign companies via new equity holdings 3.Financial restructuring

Why consider FDI? Marketing Factors: Size of market Market growth Desire to maintain share of market Desire to advance exports of parent company Need to maintain close customer contact Dissatisfaction with existing market arrangements Export base Desire to follow customers Desire to follow competition Barriers to Trade: Government erected barriers to trade Preference of local customers for local products Financial Factors Higher profit expectations Cost Factors:  Desire to be near source of supply  Availability of labour  Availability of raw materials  Availability of capital/technology  Lower labour costs  Lower other production costs  Lower transport costs  Financial (and other) inducements by gov.  More favourable cost levels Investment Supporting Factors General attitude toward foreign investment Political stability Limitation on ownership Currency exchange regulations Stability of foreign exchange Tax structure Familiarity with country

Impact on Host Country Positive Impact: Capital Formation Technology Transfer Regional & Sectoral Development Internal Competition & Entrepreneurship Favourable Effect on Balance of Payments Increased Employment Negative Impact Industrial dominance Exploitation of raw materials and cheap labour Bribery and corruption Interference in political matters Technological dependence Disturbance of economic plans Cultural change Interference by home government through MNC Degree of government control may be less than intended Host Country Benefits: Improves Gross Domestic Product via repatriation of profits, royalties & fees. Increases export opportunities. Political advantages. Job losses. Net effect on imports & exports. Creating competitors. Allegations: In transferring technology to less developed countries, prices are set too stringently. If a country attempts regulation, MNC’s merely divest and move where regulations are less stringent. The centralisation and control of key functions of MNC’s in their home countries perpetuate a neocolonial dependence of less-developed countries. Sensitive country information is disseminated internationally by MNC’s global intelligence networks. MNC’s introduce superfluous products that do not contribute to social needs and perpetuate class distinctions. National labour interests are undermined because of global activities of MNCs. MNC’s avoid paying taxes. Through artificial transfer pricing, MNC’s undermine attempts by Governments to manage their economic affairs. The best jobs are given to citizens of the nation in which the MNC’s have their headquarters. Inappropriate technology is introduced by MNC’s to less developed countries. National labour interests are underminded because of the global activity of MNEs.

Social Responsibility Mitigation 1990’s - United Nations set up a Code of Conduct on Transnational Corporations United Nations set up “Global Compact” which has no teeth as no penalties.Global Compact Because USA MNC complained about scrutiny What is the UN Global Compact? “ The Global Compact asks companies to embrace universal principles and to partner with the United Nations. It has grown to become a critical platform for the UN to engage effectively with enlightened global business.” 2 Human Rights Principles 4 labour principles 3 environmental principles 1 anti corruption principle

Impact on Host Country The Rise of Bangladesh’s Textile Trade Case Study

The Impact of International Theories on the internationalising organisation Traditional to Modern Trade Theories

Trade Theories 1.16th Century Mercantilism theory 2.Absolute Advantage (Adam Smith) 3.Comparative Advantage (David Richardo) 4.Factor Proportions Theory (Heckscher & Ohlin 19 th Century onwards 5.Country Similarity Theory (Steffan Linder) 6.Global Horizons Theory 7.Product Life Cycle (Vernon) 8.New Trade Theory 9.Ownership Advantage Theory (S.Hymer) 10. Internationalisation Approach (Buckley and Casson) 11.Global Strategic Rivalry theory 12.Porter’s National Competitive Advantage (diamond) theory1 13.Internalisation Theory 14.Eclectic Theory (John Dunning) 16 th Century Mercantilism: Governments ensuring trade surplus by controlling imports 21 st Century Free Trade: Countries specialised for strategic advantage & trade freely

Group Formation 3 to 5 people in Groups

Group Formation & Assignment Project Planning Between now and Week 4: Research & select either: A local or international organisation that has just internationalised; An organisation interested in internationalisation to a new country By Week 4: Plan your case story development approach / story outline plot eg write about their history and current international operating issues; a country attractiveness or recommended entry strategy study o Refer to MGX 5181 case studies to understand the different genres & storyboards of writing a case story where its contexts logically leads to the appropriate questions asked Week 4 onwards to before presentation date & report submission date: Work out the rest of the project timelines of who, when your group members: o Complete formulating the case questions o Answer the case questions o Prepares & deliver the presentation o Submits the final report Hence by this week, form your group of 3 to 5 people; and work out your project plan: 1.Work timelines 2.People allocation of activities 3.Process of how you deal with internal conflicts and non contributors 4.Name of team leader & members, including student IDs me your team’s project plan before Monday next week (ie week 5). Hence by this week, form your group of 3 to 5 people; and work out your project plan: 1.Work timelines 2.People allocation of activities 3.Process of how you deal with internal conflicts and non contributors 4.Name of team leader & members, including student IDs me your team’s project plan before Monday next week (ie week 5).

Assignment 3 – Individual/Paired Presentation

Case Study The Rise of Bangladesh’s Textile Trade

The Rise of Bangladesh’s Textile Trade Case Study Source: The Hindu, Dec 20, 2012The Hindu, Dec 20, Why was the shift to a free trade regime in the textile industry good for Bangladesh? 2.Who benefits when retailers in the US source textiles from low-wage countries suh as Bangladesh? 3.What international trade theory or theories best explain the rise of Bangladesh as a textile exporting powerhouse? 4.How secure is Bangladesh ‘s textile industry from foreign competition? What factors could ultimately lead to a decline? Bangladesh's textile industry – 1.51 m Ethnical Textiles – 3.31m Martin Jacques - When China Rules the World – m

The Benefits The POSITIVES: 1.Capital Formation 2.Technology Transfer 3.Regional & Sectoral Development 4.Internal Competition & Entrepreneurship 5.Favourable Effect on Balance of Payments 6.Increased Employment Bangladesh's textile industry – 1.51 m At What Costs? At Whose Costs?

Bangladesh has the advantage of not being China The argument focus is Cost Advantage China Martin Jacques - When China Rules the World – m The long version – 1.34 hrs BangladeshChina Low cost factorsIs the largest world’s exporter  sunk FDI But still MNC have concerns of increasing cost factors

The Costs The NEGATIVES: 1.Industrial dominance 2.Exploitation of raw materials + cheap labour 3.Bribery and corruption 4.Interference in political matters 5.Technological dependence 6.Disturbance of economic plans 7.Cultural change 8.Interference by home government through MNC 9.Degree of government control may be less than intended 10.Technology transfer may be too expensive or inappropriate (eg old) 11.Can move out when country regulates 12.Products are for overseas markets and may not benefit local social needs or value 13.MNC’s home country’s labour /employment interests are undermined 14.Avoid taxes 15.Best jobs given to MNC’s privileged people Ethnical Textiles – 3.31m