Difference between a global, transnational, international & multinational company

We tend to read the following terms and think they refer to any company doing business in another country.

· Multinational

· International

· Transnational

· Global

Each term is distinct and has a specific meaning, which define 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.

....Thank You....

Foreign Direct Investment (FDI).......

Introduction

Foreign direct investment (FDI) is defined as "investment made to acquire lasting interest in enterprises operating outside of the economy of the investor". The FDI relationship, consists of a parent enterprise and a foreign affiliate which together form a transnational corporation (TNC). In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate. The UN defines control in this case as owning 10% or more of the ordinary shares or voting power of an incorporated firm or its equivalent for an unincorporated firm.

History

In the years after the Second World War global FDI was dominated by the United States, as much of the world recovered from the destruction brought by the conflict. The US accounted for around three-quarters of new FDI (including reinvested profits) between 1945 and 1960. Since that time FDI has spread to become a truly global phenomenon, no longer the exclusive preserve of OECD countries. FDI has grown in importance in the global economy with FDI stocks now constituting over 20 percent of global GDP.

Types of FDI

By Direction:

Ø Inward

Inward foreign direct investment is when foreign capital is invested in local resources.

Ø Outward

Outward foreign direct investment, sometimes called "direct investment abroad", is when local capital is invested in foreign resources.

By Target:

Ø Greenfield investment

Direct investment in new facilities or the expansion of existing facilities. Greenfield investments are the primary target of a host nation’s promotional efforts because they create new production capacity and jobs, transfer technology and know-how, and can lead to linkages to the global marketplace. The Organization for International Investment cites the benefits of greenfield investment (or insourcing) for regional and national economies to include increased employment (often at higher wages than domestic firms); investments in research and development; and additional capital investments. Criticism of the efficiencies obtained from greenfield investments include the loss of market share for competing domestic firms. Another criticism of greenfield investment is that profits are perceived to bypass local economies, and instead flow back entirely to the multinational's home economy. Critics contrast this to local industries whose profits are seen to flow back entirely into the domestic economy.

Ø Mergers and Acquisitions

Transfers of existing assets from local firms to foreign firms takes place; the primary type of FDI. Cross-border mergers occur when the assets and operation of firms from different countries are combined to establish a new legal entity. Cross-border acquisitions occur when the control of assets and operations is transferred from a local to a foreign company, with the local company becoming an affiliate of the foreign company. Unlike greenfield investment, acquisitions provide no long term benefits to the local economy-- even in most deals the owners of the local firm are paid in stock from the acquiring firm, meaning that the money from the sale could never reach the local economy. Nevertheless, mergers and acquisitions are a significant form of FDI and until around 1997, accounted for nearly 90% of the FDI flow into the United States. Mergers are the most common way for multinationals to do FDI.

Ø Horizontal FDI

Investment in the same industry abroad as a firm operates in at home.

Ø Vertical FDI

o Backward Vertical FDI

Where an industry abroad provides inputs for a firm's domestic production process.

o Forward Vertical FDI

Where an industry abroad sells the outputs of a firm's domestic production.

By Motive:

FDI can also be categorized based on the motive behind the investment from the perspective of the investing firm:

Ø Resource-Seeking

Investments which seek to acquire factors of production that are more efficient than those obtainable in the home economy of the firm. In some cases, these resources may not be available in the home economy at all (e.g. cheap labor and natural resources). This typifies FDI into developing countries, for example seeking natural resources in the Middle East and Africa, or cheap labor in Southeast Asia and Eastern Europe.

Ø Market-Seeking

Investments which aim at either penetrating new markets or maintaining existing ones. FDI of this kind may also be employed as defensive strategy; it is argued that businesses are more likely to be pushed towards this type of investment out of fear of losing a market rather than discovering a new one. This type of FDI can be characterized by the foreign Mergers and Acquisitions in the 1980’s y Accounting, Advertising and Law firms.

Ø Efficiency-Seeking

Investments which firms hope will increase their efficiency by exploiting the benefits of economies of scale and scope, and also those of common ownership. It is suggested that this type of FDI comes after either resource or market seeking investments have been realized, with the expectation that it further increases the profitability of the firm. Typically, this type of FDI is mostly widely practiced between developed economies; especially those within closely integrated markets (e.g. the EU).

Ø Strategic-Asset-Seeking

A tactical investment to prevent the loss of resource to a competitor. Easily compared to that of the oil producers, whom may not need the oil at present, but look to prevent their competitors from having it.

…Thank You…

THE BCG MATRIX

The BCG Matrix method is the most well-known portfolio management tool. It is based on product life cycle theory. It was developed in the early 70s by the Boston Consulting Group. The BCG Matrix can be used to determine what priorities should be given in the product portfolio of a business unit. To ensure long-term value creation, a company should have a portfolio of products that contains both high-growth products in need of cash inputs and low-growth products that generate a lot of cash. The Boston Consulting Group Matrix has 2 dimensions: market shareand market growth. The basic idea behind it is: if a product has a bigger market share, or if the product's market grows faster, it is better for the company.

THE FOUR SEGMENTS OF BCG MATRIX

Placing products in the BCG Matrix provides 4categories in a portfolio company.

· Stars (high growth, high market share)

o Stars are using large amounts of cash. Stars are leaders in the business. Therefore they should also generate large amounts of cash.

o Stars are frequently roughly in balance on net cash flow. However if needed any attempt should be made to hold your market share in Stars, because the rewards will be Cash Cows if market share is kept.

· Cash Cows (low growth, high market share)

o Profits and cash generation should be high. Because of the low growth, investments which are needed should be low.

o Cash Cows are often the stars of yesterday and they are the foundation of a company.

· Dogs (low growth, low market share)

o Avoid and minimize the number of Dogs in a company.

o Watch out for expensive ‘rescue plans’.

o Dogs must deliver cash, otherwise they must be liquidated.

· Question Marks (high growth, low market share)

o Question Marks have the worst cash characteristics of all, because they have high cash demands and generate low returns, because of their low market share.

o If the market share remains unchanged, Question Marks will simply absorb great amounts of cash.

o Either invest heavily, or sell off, or invest nothing and generate any cash that you can. Increase market share or deliver cash.

THE BCG MATRIX AND ONE SIZE FITS ALL STRATEGIES

The BCG Matrix method can help to understand a frequently made strategy mistake: having a one size fits all strategy approach, such as a generic growth target (9 percent per year) or a generic return on capital of say 9,5% for an entire corporation.

In such a scenario:

· Cash Cows Business Units will reach their profit target easily. Their management have an easy job. The executives are often praised anyhow. Even worse, they are often allowed to reinvest substantial cash amounts in their mature businesses.

· Dogs Business Units are fighting an impossible battle and, even worse, now and then investments are made. These are hopeless attempts to "turn the business around".

· As a result all Question Marks and Stars receive only mediocre investment funds. In this way they can never become Cash Cows. These inadequate invested sums of money are a waste of money. Either these SBUs should receive enough investment funds to enable them to achieve a real market dominance and become Cash Cows (or Stars), or otherwise companies are advised to disinvest. They can then try to get any possible cash from the Question Marks that were not selected.

OTHER USES AND BENEFITS OF THE BCG MATRIX

· If a company is able to use the experience curve to its advantage, it should be able to manufacture and sell new products at a price that is low enough to get early market share leadership. Once it becomes a star, it is destined to be profitable.

· BCG model is helpful for managers to evaluate balance in the firm’s current portfolio of Stars, Cash Cows, Question Marks and Dogs.

· BCG method is applicable to large companies that seek volume and experience effects.

· The model is simple and easy to understand.

· It provides a base for management to decide and prepare for future actions.

LIMITATIONS OF THE BCG MATRIX

Some limitations of the Boston Consulting Group Matrix include:

· It neglects the effects of synergy between business units.

· High market share is not the only success factor.

· Market growth is not the only indicator for attractiveness of a market.

· Sometimes Dogs can earn even more cash as Cash Cows.

· The problems of getting data on the market share and market growth.

· There is no clear definition of what constitutes a "market".

· A high market share does not necessarily lead to profitability all the time.

· The model uses only two dimensions – market share and growth rate. This may tempt management to emphasize a particular product, or to divest prematurely.

· A business with a low market share can be profitable too.

· The model neglects small competitors that have fast growing market shares.

...Thank You...

THE HAWTHORNE STUDIES

Relay Assembly Test Room

Research on productivity at massive manufacturing complexes like the Hawthorne Works was made possible through partnerships among industries, universities, and government. In the 1920s, with support from the National Research Council, the Rockefeller Foundation, and eventually Harvard Business School, Western Electric undertook a series of behavioral expe

riments. The first, a sequence of illumination tests from 1924 to 1927, set out to determine the effects of lighting on worker efficiency in three separate manufacturing departments. Accounts of the study revealed no significant correlation between productivity and light levels. The results prompted researchers to investigate other factors affecting worker output.

The next experiments beginning in 1927 focused on the relay assembly department, where the electromagnetic switches that made telephone connections possible were produced. The manufacture of relays required the repetitive assembly of pins, springs, armatures, insulators, coils, and screws. Western Electric produced over 7 million relays annually. A

s the speed of individual workers determined overall production levels, the effects of factors like rest periods and work hours in this department were of particular interest to the company.

In a separate test room, an operator prepared parts for five women to assemble. The women dropped the completed relays into a chute where a recording device punched a hole in a continuously moving paper tape. The number of holes revealed the production rate for each worker. Researchers were unsure if productivity increased in this experiment because of the introduction of rest periods, shorter working hours, wage incentives, the dynamics of a smaller group, or the special attention the wo

men received. In 1928, George Pennock, a superintendent at Western Electric, turned to Elton Mayo at Harvard Business School for guidance. “We’re going to have a man come out from one of the colleges and see what he can tell us about what we’ve found out,” Pennock wrote.

The Women in the Relay Assembly Test Room

George Pennock welcomed Mayo’s arrival at the Hawthorne Works in 1928. “We have become…skeptical of being able to prove anything in connection with the behavior of human beings under various conditions,” he wrote.Other Hawthorne experiments taking place at the time included the effect of wage incentives in the mica splitting department. In the study of fourteen men in the bank wiring test room, where conditions were unaltered, no change in productivity occurred—attributed in part to an implicit understanding among the workers not to exceed what they considered a fair quota.

The studies monitoring the output of relay assembly workers, which began in 1927, continued until 1932, becoming the longest running Hawthorne experiments. Homer Hibarger and later Donald Chipman, Western Electric supervisors, reviewed production performance tapes and the results of routine physical exams and maintained a log sheet of work, daily events, and supervisor’s observations. The six operators studied in a separate test room were single women in their teens and early twenties. They came from Polish, Norwegian, and Bohemian families, whom they helped support.

The Interview Process

Assisting Mayo was his research assistant, Fritz Roethlisberger. Unassuming, bookish, and disciplined, Roethlisberger had studied philosophy at Harvard. He worked as a psychological counselor for Harvard students and became known as an expert listener. Roethlisberger, who found himself “spellbound by Mayo’s…creative imagination and clinical insights,” would himself become one of Harvard Business School’s beloved and highly sought after professors.

Under Mayo and Roethlisberger’s direction, the Hawthorne experiments began to incorporate extensive interviewing. The researchers hoped to glean details (such as home life or relationship with a spouse or parent) that might play a role in employees’ attitudes towards work and interactions with supervisors. From 1928 to 1930 Mayo and Roethlisberger oversaw the process of conducting more than 21,000 interviews and worked closely training researchers in interviewing practices.

Mayo and Roethlisberger’s methodology shifted when they discovered that, rather than answering directed questions, employees expressed themselves more candidly if encouraged to speak openly in what was known as nondirected interviewing. “It became clear that if a channel for free expression were to be provided, the interview must be a listening rather than a questioning process,” a research study report noted. “The interview is now defined as a conversation in which the employee is encouraged to express himself freely upon any topic of his own choosing.”

Interviews, which averaged around 30 minutes, grew to 90 minutes or even two hours in length in a process meant to provide an emotional release. The resulting records, hundreds and hundreds of pages in which employees disclose personal details of their day to day lives, offer an astonishingly intimate portrait of the American industrial worker in the years leading to and following the Depression. In a pre-computer age, thousands of comments were sorted into employees’ attitudes about general working conditions, specific jobs, or supervisors and among these categories into favorable and unfavorable comments used to support interpretations of the data. Both workers’ and supervisors’ comments would aid in the development of personnel policies and supervisory training, including the subsequent implementation of a routine counseling program for employees.

In his autobiography The Elusive Phenomena, Roethlisberger wrote of grappling with objective, hard data versus subjective, soft data. “I felt very strongly,” he noted, "that in the gooey soft data there existed uniformities about human behavior that had to be coaxed out by…the method of clinical observation and interviewing which I was advocating for the administrator to use. Roethlisberger discovered that what employees found most deeply rewarding were close associations with one another, “informal relationships of interconnectedness,” as he called them. “Whenever and where it was possible,” he wrote, “[employees] generated them like crazy. In many cases they found them so satisfying that they often did all sorts of nonlogical things…in order to belong. In Mayo’s broad view, the industrial revolution had shattered strong ties to the workplace and community experienced by workers in the skilled trades of the 19th century. The social cohesion holding democracy together, he wrote, was predicated on these collective relationships, and employees’ belief in a sense of common purpose and value of their work.

Participants In International Business

Focal Firm:

It is one of the three participants in International Business. It is the initiator of International Business transaction , including MNEs and SMEs.

Before enter to the Globalization Market, you have to adopt some strategy.

These marketing strategies of focal firm are :

Ø MNEs and MNCs

Ø SME

Ø Contractual:

ü Franchising

ü Licensing

Ø Turn-Key

ü BOT (Build Own Transfer)

Ø International Collaboration

ü Joint Venture

ü Non-Equity Venture

Ø MNEs or MNCs as Focal Firm: A Multinational Enterprise (MNE) or A Multinational Corporation (MNC) is a large organization with a network of production plants, regional headquarters, and country subsidiaries in many countries.

Examples: Sony, Tata, Nokia, Coke, PEPSI, HSBC, Mc Donald, etc

Ø SME as a Focal Firm:

ü In the United States, when small business is defined by the number of employees, it often refers to those with fewer than 100 employees, while medium-sized business often refers to those with fewer than 500 employees.

ü In the EU, SMEs comprise approximately 99% of all firms and employ between them about 65 million people.

ü In India, the Micro and Small Enterprises (MSEs) sector plays a major role in the overall industrial economy of the country. It is estimated that in terms of value, the sector accounts for about 39% of the manufacturing output and around 33% of the total export of the countryAs per available statistics, this sector employs an estimated 31 million persons spread over 12.8 million enterprises and the labour intensity in the MSE sector is estimated to be almost 4 times higher than the large enterprises.

ü SMEs can be more flexible and quicker to respond to international opportunities.

ü As limited resources often prevent them from engaging in FDI, SMEs internationalize via exporting, joint ventures, and contractual arrangements.

Ø Contractual:

v Franchising:

ü Focal firm grants the right to the foreign partner to use an entire business system in exchange for fees and royalties.

ü Examples of international franchises that have been successful in India include food and beverages giants such as Subway, Mc Donald’s and Kentucky Fried Chicken among others. Indian companies that have benefited from franchising include names such as Barista, MRF, NIIT and Apollo hospitals among others

ü In China, Subway is the third-largest U.S. fast-food chain.

v Licensor:

ü Focal firm grants the right to the foreign partner to use certain intellectual property in exchange for royalties.

ü Anheuser-Busch signed a licensing agreement with Japanese beer brewer Kirin in which Kirin produces and distributes Budweiser in Japan.

ü Mega Bloks (Canadian toymaker) signed an agreement with Disney that gives the SME the right to manufacture toys that feature Disney characters like Winnie the Pooh, Power Rangers.

Ø Turnkey: Provide engineering, design, and architectural services in the construction of airports, hospitals, oil refineries, and other types of infrastructure.

E.g., Delhi Metro Rail Ltd, Three Gorges Dam in China.

v Build-Own-Transfer: venture- an increasingly popular type of turnkey contract in the developing economies where contractors acquire an ownership in the facility for a period of time until it is turned over to the client.

E.g., In the case of BOTs, the contracter will build the road, operate it for a period of time (usually for 5 to 10 years) during which the contracter hopes to get some return on his investment, b4 handing it to the public. Like linking Bandra-Worli bridge of Mumbai.

Ø International Collaboration:

ü Arrangement in which partners pool their resources and share the cost and risks of the new venture.

ü Through an International Collaboration, a focal firm can exploit partner’s complementary technologies and expertise, avoid trade barriers, connect with customers abroad, and configure value chains more effectively.

ü A middle ground strategy between exporting and FDI.

ü There are two type of International Collaboration

· Joint Venture

· Non-Equity Venture

v Joint Venture: One firm creates and jointly owns a new legal entity together with another firm

ü Advantages: share costs and risks; gain access to needed resources; gain economies of scale; pursue long-term strategic goals

ü E.g Fuji-Xerox, LG-Philips, Sony-Ericsson

v Non-Equity Venture: Firm collaborates with foreign partners on a project with a relatively narrow scope and a well-defined timetable, without creating a new legal entity. Often used to share the cost and risks of knowledge-intensive R&D projects

e.g Student exchange program

Distribution Channel Intermediary:

o Specialize in physical distribution and marketing service; connect the focal firm with the end user in the foreign market.

o Assist the focal firm by providing logistics services such as warehousing and customer support

o Based either in the home country or the foreign market

v Intermediaries based in foreign market:

ü Distributor:

o Takes title to the exporter’s goods and performs marketing functions such as sales, promotion, and after sales service

o Serves as an extension of the firm in the foreign market, performing many downstream marketing functions

ü Agent/Broker:

o Does not take title to the goods. Works on a commission basis

ü Manufacturers Representative

o Works under contract to the exporter to represent and sell its goods. Acts as a contracted salesperson in a designated territory

v Intermediaries based in home market:

ü Trading Company:

o Based in the home country, a trading company is an intermediary that engages in imports and exports of a variety of products

o Large trading companies in Japan are known as the sogo shosha

o E.g : Mitsubishi

o The sogo shosha historically handled about half of Japanese external trade

ü Export Management Company (EMC)

o Acts as an export agent on behalf of the focal firm. Based in home country

o An EMC finds export customers, negotiates terms of sale, and arranges for international shipping, typically for smaller exporters

o Most specialize in specific industries and geographic areas

v Online Intermediaries

o Examples include Amazon, Dell, eBay, and Alibaba – English-language portal based in China that specializes in business-to-business exchanges

o Traditional retailers such as Wal-Mart and Tesco have also set up online presence

o One negative aspect is the ease with which unscrupulous marketers prey on unsuspecting customers with fake products (e.g., fake pharmaceuticals)

Facilitators in IB

q Facilitators assist the focal firm with specialized services required in cross-border transactions

q Facilitators include: Banks, international trade lawyers, freight forwarders, customs brokers, consultants, ad agencies, and market researchers

E.g

o Logistics service provider

o Custom Brokers

o Commercial Banks

o International Trade Lawyers

o Insurance Companies

o International Business Consultants

…..THANK YOU…..