Domestic Culture & International?

Distinction between Domestic business and Multinational Corporations

Sl.No
Subject Multinational Corporations (MNCs)
Domestic Business & International
1. Cultures There is a cultural barrier for MNCs. Usually there is no cultural barrier.
2. Level oCompetitionCompetition is likely more dynamicand complex than in domestic
markets.The level of competition iscomparatively low.
3. MarketIntelligenceIt may be difficult to find reliableinformation and data for MNCs.It is
relatively easier than MNCs.
4. Politics Profit or Loss depends on politicalsituation of each and every country it
isoperating.
Only one country where its
operating.
5. Government/LegalSystemsEach government has its own policiesrelating to foreign
firms and products.So, MNCs must concern about legal
terms and conditions of country its
going to operate.
It shouldnt worry about legal terms
of other countries.
6. Technology The degree of technology can varysubstantially in foreign
markets.Usually single degree of technologyis used.
7. Logistics Business infrastructure in foreignmarkets will be at different levels
odevelopment.Business infrastructure in foreignmarkets
doesnt need different levels
of development.
8. Media It is important to be aware of the typesof media available and the kind omedia
your target market uses to gaininformation about products andservices they wish to
buy.Domestic media enough.
9. ReligionissueShould be concern about religiousviews of countries it may
operate.Mainly one country.
10. Currencies Heterogeneous currency should beenable.Single currency is enough.
11. GlobalStandardGlobal Standardization. No such advantage.
12. Resourceadvantage.MNCs take advantage of locationeconomies wherever cheaper
resourcesavailable. No such advantage once plant is built it cannot be easily shifted.
13. Scope It is extension of Domestic Businessand Marketing Principles remain
same.The Domestic Business Follow themarketing Principles.
14. Transactiontime.Long Distances and hence moretransaction time.Short Distances,
quick business is possible.
15. CostadvantagesHigh Volume cost advantage. Cost Advantage by automation,
newmethods etc.
16. Benefits Large companies enjoy benefits of experience curveIt is possible to get this
benefitthrough collaborators.

Differences Between Domestic and International Business

Exporting and international business can be interesting, exciting and in some cases
challenging. In all cases it should be profitable and help a business grow.
Doing business internationally is not the same as doing business at home. There are
new skills to learn and new knowledge to acquire about the country you will be going
into. You will need to learn about the different laws and regulations, the different
customer buying habits, and change your marketing strategies and materials to appeal
to the new country you are entering. It is important to remember that the way you
operate your business will be determined by culture of the market you are entering, not
yours.
It is important to understand the differences between domestic and international
business but they should not inhibit your interest or drive for success internationally.
Rather they should whet your appetite for success.
Cultures
No two cultures are the same and understanding both the social and business culture in
another country is the first key to success. Culture defines everything a society does,
from its business practices, to its response to advertising and marketing, to negotiating
sales. It is important to include research on the culture of the country(s) that you intend
to sell to prior to entering their market. Understanding these, often sensitive, areas will
mean that you are better prepared when first entering the market. Although the people
that you will deal with will not expect you to be completely in tune with the culture,
respect and politeness will go a long way.
Level of Competition
The level of competition you will experience in foreign markets is likely to be more
dynamic and complex than you experience in domestic markets.
A good strategic tool to use to determine if you are able to compete in a particular
international market is the Porters 5 Forces analysis. This tool will assess your supplier
power, buyer power, threat of competitor products and the threat of new entrants to the
market.
Market Intelligence

The key points to determine when gathering market intelligence on the market you
intend to enter are:

Understanding how the market works

Who your direct competition is, and
The best market entry strategy.

It may be difficult to find reliable information and data for some markets, particularly
less-developed economies as their statistical agencies may not be as sophisticated as
developed market economies. However it is important to gather as much information as
you can to successful enter the market.
Politics/Government/Legal Systems
No two countries have the same political and legal systems. Each government has its
own policies relating to foreign firms and products. The key is to understand that once
you are in a foreign market you must abide by the rules and laws of that country, not the
ones in your own market. These laws and regulations can severely impact the potential
long term success of your business and it is wise to consult with legal counsel, based in
that country, to ensure you reduce the risk of these laws and regulations effect on your
firm.
International Law
Countries determine their laws based on the needs of their citizens not the concerns of
foreign companies. By and large, international law is a gentlemen's agreement which is
honoured, but not always. For example in areas such as intellectual property, although
there are many agreements in place, protecting intellectual property can be time
consuming and costly.
Technology
The degree of technology can vary substantially in foreign markets. If your product or
service requires a high degree of technology sophistication to use or implement, then
markets with low levels of technology will not be suitable for your busines.
Logistics
Like technology, business infrastructure in foreign markets will be at different levels of
development. This may well have an impact on your ability to get your products to that
market. It is important to research your new target market and understand how goods
are moved within the country before you commit to that market.

Media

Advertising your product and service will of course be an important component of your
marketing strategy. It is important to be aware of the types of media available and the
kind of media your target market uses to gain information about products and services
they wish to buy. Not everyone is connected to the internet nor is every customer able
to read and write. This does not mean those markets should be ignored. It does mean
that how you advertise and market your products will require an examination of the most
appropriate media for your target market.

7 Ps ?
Once you've developed your marketing strategy, there is a "Seven P Formula" you
should use to continually evaluate and reevaluate your business activities. These seven
are: product, price, promotion, place, packaging, positioning and people. As products,
markets, customers and needs change rapidly, you must continually revisit these seven
Ps to make sure you're on track and achieving the maximum results possible for you in
today's marketplace.
Product
To begin with, develop the habit of looking at your product as though you were an
outside marketing consultant brought in to help your company decide whether or not it's
in the right business at this time. Ask critical questions such as, "Is your current product
or service, or mix of products and services, appropriate and suitable for the market and
the customers of today?"
Whenever you're having difficulty selling as much of your products or services as you'd
like, you need to develop the habit of assessing your business honestly and asking,
"Are these the right products or services for our customers today?"
Is there any product or service you're offering today that, knowing what you now know,
you would not bring out again today? Compared to your competitors, is your product or
service superior in some significant way to anything else available? If so, what is it? If
not, could you develop an area of superiority? Should you be offering this product or
service at all in the current marketplace?
Prices
The second P in the formula is price. Develop the habit of continually examining and
reexamining the prices of the products and services you sell to make sure they're still
appropriate to the realities of the current market. Sometimes you need to lower your
prices. At other times, it may be appropriate to raise your prices. Many companies have
found that the profitability of certain products or services doesn't justify the amount of
effort and resources that go into producing them. By raising their prices, they may lose a

percentage of their customers, but the remaining percentage generates a profit on every
sale. Could this be appropriate for you?
Sometimes you need to change your terms and conditions of sale. Sometimes, by
spreading your price over a series of months or years, you can sell far more than you
are today, and the interest you can charge will more than make up for the delay in cash
receipts. Sometimes you can combine products and services together with special
offers and special promotions. Sometimes you can include free additional items that
cost you very little to produce but make your prices appear far more attractive to your
customers.
In business, as in nature, whenever you experience resistance or frustration in any part
of your sales or marketing activities, be open to revisiting that area. Be open to the
possibility that your current pricing structure is not ideal for the current market. Be open
to the need to revise your prices, if necessary, to remain competitive, to survive and
thrive in a fast-changing marketplace.
Promotion
The third habit in marketing and sales is to think in terms of promotion all the time.
Promotion includes all the ways you tell your customers about your products or services
and how you then market and sell to them.
Small changes in the way you promote and sell your products can lead to dramatic
changes in your results. Even small changes in your advertising can lead immediately to
higher sales. Experienced copywriters can often increase the response rate from
advertising by 500 percent by simply changing the headline on an advertisement.
Large and small companies in every industry continually experiment with different ways
of advertising, promoting, and selling their products and services. And here is the rule:
Whatever method of marketing and sales you're using today will, sooner or later, stop
working. Sometimes it will stop working for reasons you know, and sometimes it will be
for reasons you don't know. In either case, your methods of marketing and sales will
eventually stop working, and you'll have to develop new sales, marketing and
advertising approaches, offerings, and strategies.
Place
The fourth P in the marketing mix is the place where your product or service is actually
sold. Develop the habit of reviewing and reflecting upon the exact location where the
customer meets the salesperson. Sometimes a change in place can lead to a rapid
increase in sales.
You can sell your product in many different places. Some companies use direct selling,
sending their salespeople out to personally meet and talk with the prospect. Some sell
by telemarketing. Some sell through catalogs or mail order. Some sell at trade shows or

in retail establishments. Some sell in joint ventures with other similar products or
services. Some companies use manufacturers' representatives or distributors. Many
companies use a combination of one or more of these methods.
In each case, the entrepreneur must make the right choice about the very best location
or place for the customer to receive essential buying information on the product or
service needed to make a buying decision. What is yours? In what way should you
change it? Where else could you offer your products or services?
Packaging
The fifth element in the marketing mix is the packaging. Develop the habit of standing
back and looking at every visual element in the packaging of your product or service
through the eyes of a critical prospect. Remember, people form their first impression
about you within the first 30 seconds of seeing you or some element of your company.
Small improvements in the packaging or external appearance of your product or service
can often lead to completely different reactions from your customers.
With regard to the packaging of your company, your product or service, you should think
in terms of everything that the customer sees from the first moment of contact with your
company all the way through the purchasing process.
Packaging refers to the way your product or service appears from the outside.
Packaging also refers to your people and how they dress and groom. It refers to your
offices, your waiting rooms, your brochures, your correspondence and every single
visual element about your company. Everything counts. Everything helps or hurts.
Everything affects your customer's confidence about dealing with you.
When IBM started under the guidance of Thomas J. Watson, Sr., he very early
concluded that fully 99 percent of the visual contact a customer would have with his
company, at least initially, would be represented by IBM salespeople. Because IBM was
selling relatively sophisticated high-tech equipment, Watson knew customers would
have to have a high level of confidence in the credibility of the salesperson. He
therefore instituted a dress and grooming code that became an inflexible set of rules
and regulations within IBM.
As a result, every salesperson was required to look like a professional in every respect.
Every element of their clothing-including dark suits, dark ties, white shirts, conservative
hairstyles, shined shoes, clean fingernails-and every other feature gave off the message
of professionalism and competence. One of the highest compliments a person could
receive was, "You look like someone from IBM."
Positioning
The next P is positioning. You should develop the habit of thinking continually about
how you are positioned in the hearts and minds of your customers. How do people think

and talk about you when you're not present? How do people think and talk about your
company? What positioning do you have in your market, in terms of the specific words
people use when they describe you and your offerings to others?
In the famous book by Al Reis and Jack Trout, Positioning, the authors point out that
how you are seen and thought about by your customers is the critical determinant of
your success in a competitive marketplace. Attribution theory says that most customers
think of you in terms of a single attribute, either positive or negative. Sometimes it's
"service." Sometimes it's "excellence." Sometimes it's "quality engineering," as with
Mercedes Benz. Sometimes it's "the ultimate driving machine," as with BMW. In every
case, how deeply entrenched that attribute is in the minds of your customers and
prospective customers determines how readily they'll buy your product or service and
how much they'll pay.
Develop the habit of thinking about how you could improve your positioning. Begin by
determining the position you'd like to have. If you could create the ideal impression in
the hearts and minds of your customers, what would it be? What would you have to do
in every customer interaction to get your customers to think and talk about in that
specific way? What changes do you need to make in the way interact with customers
today in order to be seen as the very best choice for your customers of tomorrow?
People
The final P of the marketing mix is people. Develop the habit of thinking in terms of the
people inside and outside of your business who are responsible for every element of
your sales and marketing strategy and activities.
It's amazing how many entrepreneurs and businesspeople will work extremely hard to
think through every element of the marketing strategy and the marketing mix, and then
pay little attention to the fact that every single decision and policy has to be carried out
by a specific person, in a specific way. Your ability to select, recruit, hire and retain the
proper people, with the skills and abilities to do the job you need to have done, is more
important than everything else put together.
In his best-selling book, Good to Great, Jim Collins discovered the most important factor
applied by the best companies was that they first of all "got the right people on the bus,
and the wrong people off the bus." Once these companies had hired the right people,
the second step was to "get the right people in the right seats on the bus."
To be successful in business, you must develop the habit of thinking in terms of exactly
who is going to carry out each task and responsibility. In many cases, it's not possible to
move forward until you can attract and put the right person into the right position. Many
of the best business plans ever developed sit on shelves today because the [people
who created them] could not find the key people who could execute those plans.

Product Life Cycle?

Product Life Cycle Stages

As consumers, we buy millions of

products every year. And just like us, these products have a life cycle. Older, longestablished products eventually become less popular, while in contrast, the demand for
new, more modern goods usually increases quite rapidly after they are launched.
Because most companies understand the different product life cycle stages, and that
the products they sell all have a limited lifespan, the majority of them will invest heavily
in new product development in order to make sure that their businesses continue to
grow.
Product Life Cycle Stages Explained
The product life cycle has 4 very clearly defined stages, each with its own
characteristics that mean different things for business that are trying to manage the life
cycle of their particular products.
Introduction Stage This stage of the cycle could be the most expensive for a
company launching a new product. The size of the market for the product is small,
which means sales are low, although they will be increasing. On the other hand, the
cost of things like research and development, consumer testing, and the marketing
needed to launch the product can be very high, especially if its a competitive sector.
Growth Stage The growth stage is typically characterized by a strong growth in sales
and profits, and because the company can start to benefit from economies of scale in
production, the profit margins, as well as the overall amount of profit, will increase. This
makes it possible for businesses to invest more money in the promotional activity to
maximize the potential of this growth stage.
Maturity Stage During the maturity stage, the product is established and the aim for
the manufacturer is now to maintain the market share they have built up. This is

probably the most competitive time for most products and businesses need to invest
wisely in any marketing they undertake. They also need to consider any product
modifications or improvements to the production process which might give them a
competitive advantage.
Decline Stage Eventually, the market for a product will start to shrink, and this is
whats known as the decline stage. This shrinkage could be due to the market becoming
saturated (i.e. all the customers who will buy the product have already purchased it), or
because the consumers are switching to a different type of product. While this decline
may be inevitable, it may still be possible for companies to make some profit by
switching to less-expensive production methods and cheaper markets.
Product Life Cycle Examples
Its possible to provide examples of various products to illustrate the different stages of
the product life cycle more clearly. Here is the example of watching recorded television
and the various stages of each method:
1.
2.
3.
4.

Introduction - 3D TVs
Growth - Blueray discs/DVR
Maturity - DVD
Decline - Video cassette

The idea of the product life cycle has been around for some time, and it is an
important principle manufacturers need to understand in order to make a profit and stay
in business.
However, the key to successful manufacturing is not just understanding this life cycle,
but also proactively managing products throughout their lifetime, applying the
appropriate resources and sales and marketing strategies, depending on what stage
products are at in the cycle.

Political, Eco, Socio Technology ?

The basic PEST analysis includes four factors:

Political factors are basically to what degree the government intervenes in the
economy. Specifically, political factors include areas such as tax policy, labor
law, environmental law, trade restrictions, tariffs, and political stability. Political
factors may also include goods and services which the government wants to
provide or be provided (merit goods) and those that the government does not
want to be provided (demerit goods or merit bads). Furthermore, governments
have great influence on the health, education, and infrastructure of a nation.

Economic factors include economic growth, interest rates, exchange rates and
the inflation rate. These factors have major impacts on how businesses operate
and make decisions. For example, interest rates affect a firm's cost of capital and
therefore to what extent a business grows and expands. Exchange rates affect
the costs of exporting goods and the supply and price of imported goods in an
economy.

Social factors include the cultural aspects and include health consciousness,
population growth rate, age distribution, career attitudes and emphasis on safety.
Trends in social factors affect the demand for a company's products and how that
company operates. For example, an aging population may imply a smaller and
less-willing workforce (thus increasing the cost of labor). Furthermore, companies
may change various management strategies to adapt to these social trends
(such as recruiting older workers).

Technological factors include technological aspects such as R&D activity,

automation, technology incentives and the rate of technological change. They
can determine barriers to entry, minimum efficient production level and influence
outsourcing decisions. Furthermore, technological shifts can affect costs, quality,
and lead to innovation.

Applicability of the factors

The model's factors will vary in importance to a given company based on its industry
and the goods it produces. For example, consumer and B2B companies tend to be
more affected by the social factors, while a global defense contractor would tend to be
more affected by political factors. Additionally, factors that are more likely to change in
the future or more relevant to a given company will carry greater importance. For
example, a company which has borrowed heavily will need to focus more on the
economic factors (especially interest rates).
Furthermore, conglomerate companies who produce a wide range of products (such as
Sony, Disney, or BP) may find it more useful to analyze one department of its company
at a time with the PESTEL model, thus focusing on the specific factors relevant to that
one department. A company may also wish to divide factors into geographical
relevance, such as local, national, and global.

What is International Political Economy

International Political Economy (IPE) is the rapidly developing social science field of
study that attempts to understand international and global problems using an eclectic
interdisciplinary array of analytical tools and theoretical perspectives. Although IPE

originally developed as a sub-field of International Relations, it has in recent years taken

on a life if its own. At the University of Puget Sound it has developed into a prominent
and challenging field of study. Each year 40 to 50 students graduate from Puget Sound
with a bachelor of arts degree in IPE.
IPE is a field that thrives on the process that Joseph Schumpeter called "creative
destruction." The growing prominence of IPE is one result of the continuing breakdown
of disciplinary boundaries between economics and politics in particular and among the
social science disciplines generally. Increasingly, the most pressing and interesting
problems that scholars and policy-makers confront are those that can best be
understood from a multidisciplinary, interdisciplinary, or transdisciplinary point of view. If
there is an "IPE Project" its objective is to pull down the fences that restrict intellectual
inquiry in the social sciences so that important questions and problems can be
examined without reference to disciplinary borders.
IPE is the study of a problmatique, or set of related problems. The traditional IPE
problmatique includes analysis of the political economy of international trade,
international finance, North-South relations, transnational enterprises, and hegemony.
This problmatique has been broadened in recent years as many scholars have sought
to establish a New IPE that is less centered on international politics and the problems of
the nation-state and less focused on purely economic policy issues. The issues raised
by globalization, which now falls clearly within the IPE problmatique, seem to present
the perfect foundation for a New IPE program.
International Economics and International Politics
It is hard to imagine a world without International Political Economy because the mutual
interaction of International Politics (or International Relations) and International
Economics is today widely appreciated and the subject of much theoretical research
and applied policy analysis. A Google search for the term "professor of international
political economy," for example. yields over 7600 hits, an indication that of this field's
widespread academic influence. (A search for the term "international political economy
generates more than 200,000 hits.) There is nothing surprising about this. The political
actions of nation-states clearly affect international trade and monetary flows, which in
turn affect the environment in which nation-states make political choices and
entrepreneurs make economic choices. It seems impossible to consider important
questions of International Politics or International Economics without taking these
mutual influences and effects into account.
And yet scholars and policy-makers often do seem to think about International
Economics without much attention to International Politics and vice versa. Economists
often assume away state interests while political scientists sometimes fail to look
beyond the nation-state; both miss the dynamic interaction of state and market that
characterizes political economy. Two noteworthy Cold War era exceptions to this rule
stand out: economist Charles P. Kindleberger's work on hegemony and political scientist

Kenneth N. Waltz's attempt to integrate economics into politics in his path-breaking

book Man, the State, and War.
International Trade
Politics and Economics approach international trade from completely different points of
view using completely different analytical frameworks. The problem is that states think
in terms of geography and population, which are the relatively stable factors that define
its domain, while markets are defined by exchange and the extent of the forward and
backward linkages that derive therefrom. The borders of markets are dynamic,
transparent, and porous; they rarely coincide exactly with the more rigid borders of
states. A few markets today are even global in their reach. Whentrade within a market
involves buyers and sellers in different nation-states, it becomes international trade and
the object of political scrutiny.
International trade has always been at the center of IPE analysis and is likely to remain
so in the future. This is not so much because of the economic and political importance
of international trade itself as due to of the fact that trade is a mirror that reflects each
era's most important state-market tensions. In the Cold War, for example, international
trade was simultaneously a structure of US hegemony and a tool of East-West strategy.
In the 1980s and 1990s trade, through regional economic integration, was a tool to
consolidate regional interests. With the advent of globalization and the creative
economy powered by advanced information technologies, trade in intellectual property
rights has become a controversial IPE issue. International trade will remain a central
focus of IPE even as the specific trade problems continue to evolve.
International Finance
International Finance presents the second set of problems that have traditionally
defined International Political Economy. The IPE of International Finance includes
analysis of exchange rate policies, foreign exchange systems, international capital
movements, particularly portfolio capital and debt flows, and the international and
domestic institutions and political structures to which they relate, including the World
Bank and the International Monetary Fund. International finance is viewed by some as
less political and more purely economic than international trade, but that is just not so.
Seemingly very technical aspects of international finance often hide profound political
implications, a fact that has attracted scholars such as Susan Strange and Benjamin J.
Cohen to this field. Political scholars may hesitate to engage in this analysis because of
the necessity to master difficult theories and arcane terminology, but there is no riper
area for IPE analysis. As financial globalization has progressed, the IPE of International
Finance has risen in importance as an IPE problmatique.
Multinational Corporations
Multinational corporations (MNCs) and Transnational Enterprises (TNEs) have always
been objects of interest to IPE scholars and practitioners. MNCs and TNEs were initially

viewed as an essential element of western Cold War strategy. The essence of the
argument that was often made was this: US and western-based international
businesses were linked with their governments by an "invisible handshake." The home
country governments used their influence to create opportunities and open markets
abroad (in "host countries") for these businesses. The businesses, in turn, acted in the
economic and sometimes political interests of the home country. During the Cold War
MNCs were often viewed as economic agents of their home country governments and
political agents of influence abroad.
With the end of the Cold War, analysis of MNC behavior quickly spread to issues well
beyond their role in Cold War geopolitics. The rise of the Asian NICs and the increasing
globalization of production and finance spurred research on the role of MNCs in the
allocation of capital and the control of technology. The presumed close links between
MNCs and their home country governments were increasingly called into question as
MNCs undertook business strategies that were not obviously in host country national
interest. The distinction between home country and host country also grew less clear.
All countries are now host countries in the sense that all countries compete for capital,
technology, and jobs in the global market for multinational investment.
Globalization
Currently the research agenda in IPE is being driven by a number of factors and forces
that are often collectively labeled globalization. The globalization problmatique has
little to do with the traditional state-centered concerns of International Relations, which
is one reason some IPE scholars have now begun to think of IPE as distinct academic
discipline, not just a sub-field of International Relations.
TECHNOLOGY TRANSFER
Technology transfer is recognized as an important mechanism to help developing
countries to overcome their lack of capacity for social and economic development and it
is defined as 'the movement of the technology required for economic development from
where it exists to where it is needed' (Schmidheiny, 1992). Technology transfer can
occur in both vertical and horizontal ways; vertical transfer takes place within the firm
and horizontal transfer from one industry or country to another industry or country
(Osman-Gani, 1999). It involves commercial and non-commercial transactions such as
management, technology and technical operations and focuses our attention to broad
aspects including:
a) the role of educational and research institutions (Anderson, Kilareski and
Goodspeed, 1997; Garcia and Vredenburg, 2003).
b) the interdisciplinary and interdependent nature of technology transfer, and
c) the variety and importance of stakeholders' involvement.

Implementation of Technology Transfer

Almost all developing countries are importing technology of different kinds from different
countries in different ways (Shahidulah, 1991). The major channels for transferring
technology include trade in products, trade in knowledge and technology, foreign direct
investment, contractual agreements (Table 1) and intranational and international
movement of people (Hoekman, Maskus and Saggi, 2005). Although direct investment
is considered as one of the most important channels, trade in products and intranational
and international movement of people has become an important channel as well.
Multinational firms possess the abilities to undertake successful technology transfer in
developing countries (United Nations Industrial Development Organization, 1996).
THE ROLE OF THE MNCs
It is widely recognized that economic growth of countries depends to some extent on
the successful transfer of technology (Teece, 1977; Findlay, 1978; Kohpaiboon, 2006)
and MNCs are recognized as the key players for this to happen, because they control
resources and technology and utilize efficient and sophisticated management systems
(Sharma, Vredenburg and Westley, 1994). Corporations, through foreign direct
investment (FDI), bring technology, management, know-how, and access to host
country markets. FDI also affects employment creation, the environment, community
development and human resources development (Loizides and Khoury, 1996).
However, their contribution in terms of technology transfer is often minimal and in some
cases unnoticeable. Based on the outcomes of our field research, we can argue that
there are many reasons for this, such as a) the misunderstanding of the term
'technology transfer'; b) the ineffective use of resources; c) the lack of capacity of
developing countries to absorb new technologies, and d) the lack of communication with
educational institutions in developing countries.
Some corporations operating in developing countries are bringing new technologies to
improve their production (e.g. technologies to increase heavy oil production in South
America). The question is: is this really transfer of technology? Is the country absorbing
these new technologies? If the corporation is bringing new technologies to improve
production in their local subsidiary, it may not be a transfer of technology. It is the use of
new technology by the same corporation in a different location. But it does not
necessarily follow that there is indeed technology transfer.

Foreign Direct Investment?

Foreign Direct Investment Behavior of Multinational Corporations
There is increasing recognition that understanding the forces of economic globalization
requires looking first at foreign direct investment (FDI) by multinational corporations
(MNCs): that is, when a firm based in one country locates or acquires production
facilities in other countries. While real world GDP grew at a 2.5 percent annual rate and
real world exports grew by 5.6 percent annually from 1986 through 1999, United
Nations data show that real world FDI inflows grew by 17.7 percent over this same
period! Additionally, MNCs mediate most world trade flows. For example, Bernard,
Jensen, and Schott find that 90 percent of U.S. exports and imports flow through a U.S.
MNC, with roughly 50 percent of U.S. trade flows occurring between affiliates of the
same MNC, or what is termed ntra-firm trade.
Exchange Rates and FDI
One good example of this is the effect of exchange rate movements on FDI. For years,
the conventional theory was to compare FDI to bonds, for which exchange rate
movements do not affect the investment decision. A depreciation of the currency in the
host country reduces the amount of foreign currency needed to purchase the asset, but
it also reduces the nominal return one receives in the foreign currency. Thus, the rate of
return for the foreign investor does not change. Empirical studies of FDI seemed to
confirm this, often finding insignificant effects of exchange rates. In contradiction to this,
the popular press often points to host-country exchange rate depreciations as a
contributing factor to inward foreign investment booms, and worries about the selling of
key national technological assets.
Taxes and FDI
Another factor that the literature finds does not affect FDI in a straightforward manner is
tax policy. MNCs are potentially subject to taxation in both the host and parent country.
However, most parent countries have policies to reduce or eliminate double taxation of
their MNCs. James R. Hines, Jr. and co-authors have shown that the way in which
parent countries reduce double taxation on their MNCs (for example, allowing credits or
deductions) can have quite different implications for FDI activity.(4)
Many countries also have negotiated bilateral investment treaties (BITs) to mutually
reduce withholding taxes on MNCs based in the other country. The Organisation for
Economic Co-operation and Development (OECD) has been a big advocate of BITs as
a way to enhance FDI across member countries. Others contend that BITs are mainly
intended to share tax information across countries in order to deter tax evasion and to
reduce administrative costs and, thus, should have little, or even negative, effects on
FDI flows

Trade Protection and FDI

The notion that trade protection encourages FDI is folk wisdom for economists, so much
so that it is rarely examined empirically. But my research into this relationship has also
yielded surprises. In a study examining all U.S. antidumping trade protection actions
from 1980 through 1995, I find that FDI responses to these trade actions (tariff-jumping
FDI) occur only for firms with previous experience as MNCs.(7) Most firms facing such
trade policies (many from developing countries) have no such experience and do not
respond with FDI. Instead, these firms must face either significant antidumping duties or
go through the costly process of raising U.S. prices and requesting recalculations of the
duties.(8) For domestic firms, whether foreign firms tariff-jump the antidumping duties
matters significantly. Work with Tomlin and Wilson finds that domestic firms experience
a 3 percent increase in expected discounted profitability from antidumping dutie s
unless the foreign firms subject to the duties decide to tariff-jump, in which case the
domestic firms do not experience any increase.
Information and FDI
An almost unexplored issue in the literature has been the role of information on FDI
decisions. FDI requires substantial fixed costs of identifying an efficient location,
acquiring knowledge of the local regulatory environment, and coordination of suppliers.
Thus, access to better information about some host countries may make FDI to that
location more likely. Ellis, Fausten, and I find an interesting avenue for investigating this
hypothesis using information on Japanese industrial groups called keiretsu.(11)
Horizontal keiretsu are groups of firms across a wide range of industries, typically
centered around a main bank that owns significant shares in these firms. A number of
studies have focused on the potentially favorable financing received by keiretsu firms
from their main bank as one impetus for greater investment by these firms, including
FDI -- but the evidence is mixed on this. However, the major firms in a keiretsu also get
togeth er on a regular basis in what are termed Presidential Meetings and presumably
share information more than other firms would. My work with Ellis and Fausten
examines whether this information affects FDI choices, by estimating how much prioryear FDI by members of a firm's keiretsu in a particular host country increases the
likelihood that the firm will also choose that country for its FDI. We find that prior-year
investment by a firm in the same keiretsu will raise a firm's probability of locating an
investment in that same host country by about 20 percent.
Estimating Long-Run General-Equilibrium Determinants of FDI
Much of the literature described to this point motivates analysis with partial equilibrium
models of individual firm-level FDI decisions. But we also want to have empirical
specifications of FDI that are grounded in theory and that do a good job of explaining
FDI patterns across the world. Researchers looking at world FDI patterns have
generally used variations of a gravity framework to model FDI, specifying parent- and
host-country GDPs along with distance as core determinants of FDI. These models
seemingly do well to describe FDI patterns statistically, but while Anderson and van

Wincoop have solidified an appropriate gravity specification as theoretically valid for

trade patterns, it is not clear this is true for FDI patterns.
Conclusion
The study of FDI and MNCs is both fascinating and important for understanding
economic globalization. There has been substantial progress in the literature in the past
couple of decades, but it is complicated enough that, in many ways, we are still in the
process of uncovering what we don't know. I am excited to work on filling more gaps in
our understanding in my future research efforts.

Branding?
Strategies of companies entering international market
The primary aim of this project is to study the strategies followed by Companies trying to
enter into international market with respect to branding. Due to globalization, different
companies are now thinking of entering into various markets in other countries. Hence
in this current scenario the importance of branding is even higher. Initially we try to learn
the importance of branding and how it impacts companies going international. The
various architectures of branding, strategic decisions involved in international branding
are all studied. In this project we try to develop a framework for branding which could be
used by other companies so that they can get a better picture of how their branding
strategy should be. The developed framework is then used to evaluate different
companies and see the type of branding strategy that they should have adopted.
Examples are taken from countries like Europe, China, US etc to study about the
branding issues. After that we apply the framework on Pepsi so as to see how it should
be branded in India.
INTRODUCTION
Many companies have started realizing the potential of globalization. There are a lot of
reasons why a company tries to go for globalization. In this competitive environment, we
need to have an effective branding strategy for any company to succeed in the global
markets. Depending upon the product, the companies choose different branding
strategies. Some companies standardize their branding and marketing activities to
achieve economies of scale. The primary aim of this project is to learn about the various
strategies and branding techniques applied by companies in international markets.
Based on the learnings, we have developed a framework for branding. This framework
can be applied for any product. The framework is then utilized in analyzing different
products in different countries and then we make use of it in analyzing the branding of
Pepsi in India.
STATEMENT OF PROBLEM

Increased globalization has led to a large number of companies targeting the

international markets. Its very essential for any company to have a proper branding for
its products (either local or global). When a company decides to go abroad, it has to
decide the way the product is to be branded. Some products could be branded globally
but several products will have to be branded locally. For deciding the way a product
needs to be branded we require a framework. This framework should be such that if we
place any company into the framework (in different countries), we should be able to get
the desired branding strategy.
BRAND
A brand is defined as a name, term, sign, symbol, or design or a combination of them,
intended to identify the goods and services of one seller or group of sellers and to
differentiate them from competitors
(Reference: Kotler and Keller)
A brand helps in facilitating the buying process and reduces the complications
associated with buying products. Branding helps to distinguish one companys offering
and differentiate the competitor products. Branding helps in shaping the customer
decisions and create economic value for the product.
INTERNATIONAL BRANDING
One of our main conclusions is that brand managers should examine the nature of local
conventions in order to understand how solid they are. When a convention is
undergoing erosion in consumers minds, your brand has an opportunity to challenge it.
By challenging a convention you can differentiate your brand from local brands and offer
a new distinct value to consumers. Another conclusion is that providing consumers with
new experiences can bring more succes in a foreign market that adapting current
values of your brand to match local competitors.
A) Category conventions
There are three sorts of category conventions conventions of representation, of
product experience and of media. Lets have a closer look at two of them. Conventions
of representation describe how and where a brand portrays itself. They consist of such
factors as advertising, packaging, brand name and logo. Conventions of representation
often reveal consumer preferences, less obvious to foreign brand managers. For
instance, dairy products in Russia, Ukraine and Belarus often have packages and logos
that contain references to local traditions and legends. The package communicates that
the product inside is manufactured according to traditional production methods.
B) Needs conventions

The second type of conventions is needs conventions: consumers obtain their brand
experience with an eye to their personal needs. The needs conventions determine how
needs are manifested. Although a particular need may be common to all people, it may
be satisfied in a different manner in different societies. For example, a basic need for
breakfast may be met by eating sandwiches with a cup of tee in Russia, eggs and
toasts in the UK, rice and fritters in China, a muffin and a cup of coffee in the United
States. In this article we will use examples of security needs and social needs to better
understand how needs conventions influence consumers perception of brands.
C) Cultural conventions
The third type of conventions is cultural ones. Culture is a system of shared beliefs,
values, customs and symbols that members of a society use to deal with their world and
with one another. Each society develops specific cultural conventions, which influence
the way its members are supposed to think and behave. Branding strategies and
activities are also viewed by consumers in the context of local cultural conventions.
For instance, different societies have various beliefs about the world. The most typical
example is the so-called country of origin effect. Consumers often have a set of beliefs
or myths about a country that can have a positive or negative influence on brands from
this country.

STRATEGIC DECISIONS IN INTERNATIONAL BRANDING

There are various strategic decisions to be taken in the case of international branding.
Some decisions which need to be taken are
How to position a company so that it could meet its long term objectives
How many products to include in a particular brand
Which market should be targeted?
What type of products to be provided in those markets? New ones or existing ones?
Global/Local branding
Corporate/Product branding
BRANDING OBJECTIVES
In this competitive world, ones competitors can duplicate ones products within a matter
of few months. Branding helps to establish strongly-held, positive and consistent beliefs
among target customer segments. It helps to differentiate between competitors. A good

branding strategy would lead to better word of mouth marketing. There would be better
customer involvement and loyalty.

PERCEPTUAL MAPPING
A perceptual map helps a company to identify its positioning strategy. Two dimensions
are involved when we plot a perceptual map namely Price and Quality.
(Source: Branding strategies of MNCs in international markets Hanna Haggquist)
Different companies would choose to position their companies differently in different
markets. If the perceived quality and price of the product is considered to be low, such
products are called economy brands. If the perceived quality and price is high then it is
categorized as premium branding. If the quality is high but the perceived price is low
then it falls under bargain brands. A high price and a low quality suggest its a cowboy
brand. Any company when trying to brand is products should be in a way similar to
customers perception.
DIFFERENT BRANDING STRATEGIES
(Source: Branding strategies of MNCs in international markets Hanna Haggquist)
Its very important for a company to choose good brand architecture. There are four
types of brand architectures.
Corporate brands
Product brands
Corporate and product brands(corporate brand being dominant)
Product and corporate brand(Product brand being dominant)
Corporate brands share the core values, but the brand would remain individual. It is also
called family branding or umbrella branding. This strategy is used when several
products are sold under one brand name. The corporate brand would be affected if an
individual product fails. Product brands have both individual identity and core values.
Here multiple products would be on offer, all targeted at different segments. By this
method each product can have its own brand identity. Also the corporate brand would
not be affected if an individual brand fails. Several branding might include a combination
of the two branding methods.

Logistic ?
Logistics is the management of the flow of goods between the point of origin and the
point of consumption in order to meet some requirements, of customers or corporations.
The resources managed in logistics can include physical items, such as food, materials,
animals, equipment and liquids, as well as abstract items, such as time, information,
particles, and energy. The logistics of physical items usually involves the integration of
information flow, material handling, production, packaging, inventory, transportation,
warehousing, and often security. The complexity of logistics can be modeled, analyzed,
visualized, and optimized by dedicated simulation software. The minimization of the use
of resources is a common motivation in logistics for import and export.
Logistics fields
Given the services performed by logisticians, the main fields of logistics can be broken
down as follows
Procurement logistics consists of activities such as market research, requirements
planning, make-or-buy decisions, supplier management, ordering, and order controlling.
The targets in procurement logistics might be contradictory: maximizing efficiency by
concentrating on core competences, outsourcing while maintaining the autonomy of the
company, or minimizing procurement costs while maximizing security within the supply
process.
Production logistics connects procurement to distribution logistics. Its main function is
to use available production capacities to produce the products needed in distribution
logistics. Production logistics activities are related to organizational concepts, layout
planning, production planning, and control.
Distribution logistics has, as main tasks, the delivery of the finished products to the
customer. It consists of order processing, warehousing, and transportation. Distribution
logistics is necessary because the time, place, and quantity of production differs with
the time, place, and quantity of consumption.
Disposal logistics has as its main function to reduce logistics cost(s) and enhance
service(s) related to the disposal of waste produced during the operation of a business.
Reverse logistics denotes all those operations related to the reuse of products and
materials. The reverse logistics process includes the management and the sale of
surpluses, as well as products being returned to vendors from buyers. Reverse logistics
stands for all operations related to the reuse of products and materials. It is "the process
of planning, implementing, and controlling the efficient, cost effective flow of raw
materials, in-process inventory, finished goods and related information from the point of
consumption to the point of origin for the purpose of recapturing value or proper
disposal. More precisely, reverse logistics is the process of moving goods from their

typical final destination for the purpose of capturing value, or proper disposal. The
opposite of reverse logistics is forward logistics.
Green Logistics describes all attempts to measure and minimize the ecological impact
of logistics activities. This includes all activities of the forward and reverse flows. This
can be achieved through intermodal freight transport, path optimization, vehicle
saturation and city logistics.
RAM Logistics (see also Logistic engineering) combines both business logistics and
military logistics since it is concerned with highly complicated technological systems
for which Reliability, Availability and Maintainability are essential, ex: telecommunication
systems and military supercomputers.

Supply chain management (SCM) is the management of the flow of goods. It includes
the movement and storage of raw materials, work-in-process inventory, and finished
goods from point of origin to point of consumption. Interconnected or interlinked
networks, channels and node businesses are involved in the provision of products and
services required by end customers in a supply chain. Supply chain management has
been defined as the "design, planning, execution, control, and monitoring of supply
chain activities with the objective of creating net value, building a competitive
infrastructure, leveraging worldwide logistics, synchronizing supply with demand and
measuring performance globally.
Introduction to Supply Chain Management
If your company makes a product from parts purchased from suppliers, and those
products are sold to customers, then you have a supply chain. Some supply chains are
simple, while others are rather complicated. The complexity of the supply chain will vary
with the size of the business and the intricacy and numbers of items that are
manufactured.
Elements of the Supply Chain
A simple supply chain is made up of several elements that are linked by the movement
of products along it. The supply chain starts and ends with the customer.

Customer: The customer starts the chain of events when they decide to
purchase a product that has been offered for sale by a company. The customer
contacts the sales department of the company, which enters the sales order for a
specific quantity to be delivered on a specific date. If the product has to be
manufactured, the sales order will include a requirement that needs to be fulfilled
by the production facility.

Planning: The requirement triggered by the customers sales order will be

combined with other orders. The planning department will create a production
plan to produce the products to fulfill the customers orders. To manufacture the
products the company will then have to purchase the raw materials needed.
Purchasing: The purchasing department receives a list of raw materials and
services required by the production department to complete the customers
orders. The purchasing department sends purchase orders to selected suppliers
to deliver the necessary raw materials to the manufacturing site on the required
date.
Inventory: The raw materials are received from the suppliers, checked for quality
and accuracy and moved into the warehouse. The supplier will then send an
invoice to the company for the items they delivered. The raw materials are stored
until they are required by the production department.
Production: Based on a production plan, the raw materials are moved inventory
to the production area. The finished products ordered by the customer are
manufactured using the raw materials purchased from suppliers. After the items
have been completed and tested, they are stored back in the warehouse prior to
delivery to the customer.
Transportation: When the finished product arrives in the warehouse, the
shipping department determines the most efficient method to ship the products
so that they are delivered on or before the date specified by the customer. When
the goods are received by the customer, the company will send an invoice for the
delivered products.

Supply Chain Management

To ensure that the supply chain is operating as efficient as possible and generating the
highest level of customer satisfaction at the lowest cost, companies have adopted
Supply Chain Management processes and associated technology. Supply Chain
Management has three levels of activities that different parts of the company will focus
on: strategic; tactical; and operational.

Strategic: At this level, company management will be looking to high level

strategic decisions concerning the whole organization, such as the size and
location of manufacturing sites, partnerships with suppliers, products to be
manufactured and sales markets.
Tactical: Tactical decisions focus on adopting measures that will produce cost
benefits such as using industry best practices, developing a purchasing strategy
with favored suppliers, working with logistics companies to develop cost effect
transportation and developing warehouse strategies to reduce the cost of storing
inventory.
Operational: Decisions at this level are made each day in businesses that affect
how the products move along the supply chain. Operational decisions involve
making schedule changes to production, purchasing agreements with suppliers,
taking orders from customers and moving products in the warehouse.

Supply Chain Management Technology

If a company expects to achieve benefits from their supply chain management process,
they will require some level of investment in technology. The backbone for many large
companies has been the vastly expensive Enterprise Resource Planning (ERP) suites,
such as SAP and Oracle. These enterprise software implementations will encompass a
companys entire supply chain, from purchasing of raw materials to warranty service of
items sold. The complexity of these applications does require a significant cost, not only
a monetary cost, but the time and resources required to successfully implement an
enterprise wide solution. Buy-in by senior management and adequate training of
personnel is key to the success of the implementation. There are now many ERP
solutions to choose from and it is important to select one which fits the overall needs of
a companys supply chain.
Since the wide adoption of Internet technologies, all businesses can take advantage of
Web-based software and Internet communications. Instant communication between
vendors and customers allows for timely updates of information, which is key in
management of the supply chain.

How to enter into MNC Import & Export ?

As trade barriers recede and businesses in developed economies increasingly pursue
market opportunities abroad, competency and effectiveness in international
management are paramount skills at many companies. The issues involved in
international management span the whole gamut of those concerning management in
general, but there are several areas of special interest, including:

international finance and currency matters

cross-cultural communication and understanding (including international
marketing implications)
foreign legal requirements and accounting practices
global strategy
international competition

To ignore such issues in an international business is to open the door to risks like
inappropriate (and hence ineffective) marketing approaches, poor labor-management
relations, adverse currency fluctuations, and other problems. Conversely, companies
that are able to successfully manage these issues have greater potential to extend their
marketing reach, increase market share, improve efficiency and profitability, decrease
costs, and enjoy other competitive advantages.

THE EMERGENCE OF THE GLOBAL

ECONOMY
In the 1980s, the world's leading industrialized nations began an era of cooperation in
which they capitalized on the benefits of working together to improve their individual
economies. They continued to seek individual comparative advantages, i.e., a nation's
ability to produce some products more cheaply or better than it can others, but within
the confines of international cooperation. In the 1990s these trends continued, and in
many cases accelerated. Countries negotiated trade pacts such as the North American
Free Trade Agreement (NAFTA), and the General Agreement on Tariffs and Trade
(GATT), or formed economic communities such as the European Union. These pacts
and communities created new marketing opportunities in the respective markets by
decreasing trade duties and other barriers to cross-border commerce. They opened the
door through which companies of all sizes and in various aspects of business entered
the international market.
INTERNATIONAL BUSINESS MODELS
Prospective international managers must first realize there is no single way to enter a
foreign market. Businesses must choose the model appropriate to their level of
resources, market potential, and experience operating in the international sphere. The
various categories of international business models include export/import businesses,
independent agents, licensing and franchising agreements, direct investment in
established foreign companies, joint ventures, and multinational corporations (MNC).
The differences among these options are sometimes subtle in nature.
IMPORT/EXPORT BUSINESSES.
For instance, an export firm is one that sells its domestically made products to a very
small number of countries. In contrast, import firms import foreign-made goods into the
country for domestic use. Often, export and import firms are operated by a small group
of people who have close ties with the countries in which they do business. Some such
firms may begin as export or import specialists, but eventually expand their operations
to production of goods overseas. IBM and Coca-Cola Co. exemplify companies that
have used that approach.
INDEPENDENT AGENTS, LICENSES, AND FRANCHISES.
Independent agents are businesspeople who contract with foreign residents or
businesses to represent the exporting firm's product in another country. Closely related
are firms with licensing agreements, in which domestic firms grant foreign individuals or
companies the right to manufacture and/or market the ex-porter's product in that country
in return for royalties on sales. Another variation is a franchising arrangement, in which
the parent company grants a franchise upon payment of a franchise fee by a local
business operator, who then agrees to follow a prescribed methodology and marketing
plan using the company's name. The local franchisee may have to pay royalties or

annual franchise fees, but otherwise remains independent of the franchisor. In each of
these models, assuming the partner in the target market is competent, the risks to the
originating company are usually low, as it is not setting up operations of its own in the
foreign country, but rather relying on independent businesses or individuals that are
already there.
JOINT VENTURES.
Joint ventures help distribute the risk of entering foreign markets and can provide
hands-on experience for a company just initiating its presence in a particular country.
Joint ventures can be formed with another domestic company to do business in another
country, e.g., two Japanese companies collaborate in a Chinese business venture, or
between one company from outside the target market and one from within, e.g., a
Mexican firm and a Vietnamese firm create a new venture to do business in Vietnam.
Having a local partner, as in the latter example, can be especially beneficial to a
company that is relatively unfamiliar with the market it is trying to enter. This sort of
arrangement can serve as a validation mechanism to reduce the chance of making
foolish mistakes by not knowing local customs, preferences, laws, and so on.
BUYING A STAKE IN A FOREIGN AFFILIATE.
Buying part or all of a foreign company is a common form of foreign direct investment
and carries with it the advantages of having an experienced partner to help do business
in the foreign market. The foreign affiliate may be left to operate as a relatively
independent entity, functioning more like a partner, or it may be more tightly integrated
into the parent organization as a division or subsidiary.
MULTINATIONAL CORPORATIONS.
Multinational firms are relatively new in the business world, yet they are becoming
increasingly important. There is no specific definition of a MNC. Nor is it easy to
differentiate an MNC from a company that simply has offices or factories in multiple
countries. Some experts define an MNC as a company that derives at least 25 percent
of its sales from foreign sources. However, that is an arbitrary figure. Others define an
MNC by its size. There is general agreement that large, multibillion-dollar enterprises,
such as General Electric Company, Mitsubishi Corporation, DaimlerChrysler AG, and so
forth, constitute MNCs.
Experts predict that the numbers of MNCs, joint ventures, and other international
operations will rise as businesses seek to take advantage of economies of scale and
the growth of new markets as a way of reducing costs and increasing profits. As the
geo-graphic boundaries over which individual companies operate become less defined,
the need for people who are able to manage international activities becomes more
acute. Thus, international managers are becoming more important in the business
world, and their success can directly affect a company seeking to compete in the global

market. As a result, business leaders are placing increased emphasis on the

development of managers with expertise in international management.

The Legal Factors in MNC to culture ?

How an MNC can Adjust to Different Cultures
Multinational firms are those who have direct operations and employees within several
countries (Almond and Tregaskis, 2007). The types of policies and practices in which
multinational corporations inhibit have created vast interest within the realm of academic
literature. It would be wrong to suggest that policies and practices are of homogenous
nature throughout the globe, since every country has their own distinct cultures and
societal beliefs. Thus, what is suitable in one nation such as Japan may not be deemed
as suitable within others such as the U.S (Almond and Tregaskis, 2007). Because of
their wide stretched global operations, MNC's open themselves up to a wide range of
factors. Since MNC's are not just operating within their country-of-origin, expatriate (host
country) factors must also be acknowledged.
Many academics have created their own favoured frameworks in which they try to
explain factors that influence MNC policy and practice. Assessment of academic
literature therefore concludes that there is no one specific factor or approach that
explains influence. Thus, in order to create a valid discussion a range of approaches
and factors shall be explored. It is important to note that the factors explored should not
be considered in isolation because factors of influence can act as forces that either
complement or oppose each other.
Edwards, Rees and Coller (1999) explore the influence of structural and political factors.
They acknowledge that these two factors can indeed have determining effects upon
each other. Edwards, Rees and Coller (1999) identify structural factors as the MNC's
external environment as well as its organisational structure. The external environment
can incorporate the 4 influences framework (Edwards and Ferner, 2002). Elements of
these 4 influences have also been incorporated into the work of others (see Edwards,
Rees, Coller, 1999; Ferner, 1997; Ferner, Quintanilla and Varul, 2001; Muller-Camen et
al, 2001).
The first of the 4 influences is that of the country-of-origin effects or sometimes called
home-country effects. This is from where the MNC originates. Country-of-origin effects
can be best described via cultural and institutional approaches (Almond et al, 2005).
Cultural approaches are based upon the norms, values and attitudes of a given country.
Hofstede (1980) developed a framework called dimensions of national cultures'. This
focuses upon explaining the differences in culture between countries and is based upon
4 value dimensions which included, power distance, individualism/collectivism,
masculinity/femininity and uncertainty avoidance. For example, it is advocated that
Japan has less emphasis upon individualism that the U.S. Another example is how

Japan has high tendencies of masculinity compared to the feminine culture of Spain.
These differences in culture could be problematic for MNCs who want to implement
home grown practices in expatriate subsidiaries. For example the U.S and their MNCs
have an anti-union ethos and would possibly struggle to implement this policy within
host country subsidiaries such as Japan, where Japanese culture shows that they have
high emphasis upon collectivism. The greater the cultural difference between home
country and the host, the harder it will be for the MNC to transfer home-country
philosophies (Ferner, 1997:25). Although Hofstede (1980) and his cultural dimensions
show differences between nations it does not solely explain country-of-origin effects.
This is due to the fact that it does not explain why different nations are categorised by
different values.
A multi National is a company that has unlimited boundaries, unlimited areas, unlimited
aspects and unlimited people under one roof. These international organizations operate
globally, crossing their borders and territories. They serve different cultures, economies
and people. The question is that do these multinationals follow the same policies,
procedures and codes of conduct that are pre defined by their parent company? Well,
the answer is obviously a big No.
In every nation, specific mores, laws, ethical standards and culture exist, which differ
from any other country. Sometimes, these differences are so wide that an MNC
operating in those two regions has to work out from the beginning for each of them. This
is the major reason why most international businesses have a mixture of diverse
cultures since there are dissimilar people operating within the corporation. Under this
condition, it becomes critically important for the MNCs to know the ways to adjust to
different cultures of the countries in which they are operating, otherwise, their policies
that are conflicting to the laws and norms of any particular country might bring severe
problems.

Legal and political forces: MNCs must understand the legal structure of the
country they have decided to enter.

How to understand: Since these forces are the major influencers, multinational
corporations must satisfy them by shaping their policies and rules according to them.
Economic forces: MNC must analyze the profitability before entering any economy or
nation.
How to analyze: The overall economic scenario, purchasing power of buyers, interest
rates, taxation policies etc are some of the factors to be considered in order to be
adjust.
Social culture: This is the most important factor for an MNC to penetrate in the
consumer market of any region. Unless and until they get the support from the potential
consumers, they wont be able to be recognized among the masses.

How to penetrate: For this purpose, they must engage themselves in people friendly
activities and social welfare programs. They must take care of the basic norms of that
society, their values, religions and culture. MNCs can do this by market themselves and
their brand in that society cultures friendly manner.
Work force diversity: Since MNC also holds a diverse work force belonging to different
regions, cultures, beliefs and values; they must try to create a professional harmony
among their work force.
How to create harmony: MNC can achieve this objective by establishing
and implementing a harmonious and valued organizational culture that teach people
how to behave in a corporation and what are the acceptable ways to be within the
workplace.

Developing, Developed & Under Developed ?

The Role of MNCs in Developing Countries
MNCs have contributed significantly to the development of world economy at large.
They have also served as an engine of growth in many host countries. Their importance
in a developing country may be traced as follows:
1. MNCs help a developing host country by increasing investment, income and
employment in its economy.
2. They contribute to the rapid process of development of the country through transfer of
technology, finance and Tnodern management.
3. MNCs promote professionalisation management in the companies of the host
countries.
4. MNCs help in promoting exports of the host country.
5. MNCs by producing certain required goods in the host country help in reducing its
dependence on imports.
6. MNCs due to their wide network of productive activity equalise the cost of production
in the global market.

7. Entry of MNCs in the host country makes its market more competitive and break the
domestic monopolies.
8. MNCs accelerate the growth process in the host country through rapid
industrialisation and allied activities.
9. The growth of MNCs creates a positive impact on the business environment in the
host country.
10. MNCs are regarded as agents of modernisation and rapid growth.
11. MNCs are the vehicles for peace in the world. They help in developing cordial
political relations among the countries of the world.
12. MNCs bring ideas and help in exchange of cultural values.
13. MNCs through their positive attitude and efforts work for the establishment of social
welfare institutions and improvement of health facilities in the host countries.
14. Growth of MNCs help in improving the balance of payment status of the host
country.
15. The MNCs integrate national and international markets. Their growth in these days
has remarkably influenced economic, industrial, social environment and business
conditions.
In short, through basically seeking maximisation of profits by using all types of
resources and strategies of the global economy, eventually globalisation has become
the main focus of their business. In this way, it has become a main propelling force
behind the expansion of world economy at large.
The Role of MNCs in Developed countries
The economic role of multinational corporations (MNCs) is simply to channel physical
and financial capital to countries with capital shortages. As a consequence, wealth is
created, which yields new jobs directly and through crowding-in effects. In addition,
new tax revenues arise from MNC generated income, allowing developing countries to
improve their infrastructures and to strengthen their human capital. By improving the
efficiency of capital flows, MNCs reduce world poverty levels and provide a positive
externality that is consistent with the United Nations (UN) mission countries are
encouraged to cooperate and to seek peaceful solutions to external and internal
conflicts.
It follows that a supporting role for the UN would be to motivate developing
countries to achieve the necessary political and economic environment that attracts

foreign direct investment (FDI). Nations lacking FDI have common characteristics: they
have economies that are heavily dependent on government regulations and controlled
by inefficient state-operated monopolistic enterprises, and they tend to have nondemocratic regimes. As a consequence, these nations are experiencing extreme rates
of poverty, repressed human rights, and excessive environmental damage. These
problem countries are primarily concentrated in Sub-Saharan Africa, South Asia, North
Africa, and the Middle East.
Monopoly Power
Competition is not destructive, it has compelled MNCs to provide the world with an
immense diversity of high-quality and low-priced products. Competition, given free
trade, delivers mutually beneficial gains from exchange and sparks the collaborative
effort of all nations to produce commodities efficiently.
Has the monopoly power of MNCs grown? Granted, some MNCs are very large:
as of 1998, they produced 25 percent of global output, and in 1997, the top 100 firms
controlled 16 percent of the worlds productive assets and the top 300 controlled 25
percent. Firm size and market power, however, are dynamic. The Wall Street Journal
(WSJ) annually surveys the worlds 100 largest public companies ranked by market
value.1 Comparing the rankings in 1999 to that of 1990, there were five new firms
(Microsoft, Wal-Mart, Cisco Systems, Lucent Technologies, and Intel) in the top ten.
Four of the five new firms were not even in the top 100 in 1990. Even more remarkable
is that there were 66 new members on the 1999 list. The UN tracks the 100 largest
nonfinancial MNCs ranked by foreign assets.2 Although not as dramatic as the change
in the WSJ rankings, from 1990 to 1997, the UN reported a 25 percent change in the
composition of their top 100. An increase in monopoly power should also lead to fewer
and larger MNCs, but as reported by the UN, from 1988 to 1997, the number of MNCs
rose substantially from 17,50020,000 to approximately 60,000 with over 500,000
foreign affiliates.
The Right/Left Wing Conundrum

Paradoxically, both the extreme right and extreme left are united in their belief
that MNCs, with an evil intent, are infringing on national sovereignty. 3 They view MNCs
to be amoral government-manipulating rent-seeking monoliths that exploit the lack of
environmental regulations and cheap foreign labor in developing countries.4 Their
remarks, however, lack substance.
MNCs do not operate with immunity they are heavily monitored both in the
United States and abroad.5 Admittedly, from 1991 to 1998, there has been a tendency
toward the liberalization of FDI regulations. According to the UN, there were 895 new
FDI regulations enacted by more than 75 countries, but only 52 of these regulations
sought greater control over FDI.6 The role of multilaterals (primarily the UN and World
Bank) should be to promote responsible deregulation that encourages competition,
discourages rewards to special interests (both domestic and foreign), and defines and
protects private property rights.
Profits are very important to MNCs, but their investment decisions are heavily
deterred by the presence of economic and political corruption. A UN survey of MNCs
revealed that the number one reason MNCs do not invest in given countries is the
presence of extortion and bribery, and not surprisingly, the main source of the
corruption is government officials. Both the International Chamber of Commerce and the
International Organization of Employers have established social codes and standards
agreed upon by their members that attempt to discourage bribes and extortion and to
establish principles for responsible environmental management.
MNCs are not committed to the destruction of the worlds environment, but
instead have been the driving force in the spread of green technologies and in creating
markets for green products.7 Market incentives (e.g., the threat of liability, consumer

boycotts, and the negative impact on reputation) have forced firms to police their foreign
affiliates and to maintain high environmental standards.
Poverty
Evidence supplied by the World Bank and the UN strongly suggests that MNCs are a
key factor in the large improvement in welfare that has occurred in developing countries
over the last 40 years.8 In those countries (the LDC) where the presence of MNCs is
negligible, severe poverty rates persist and show little sign of improvement.
From 1960 to 1995 for developing countries:9 The purchasing power parity
measure of real per capita GDP improved a healthy 3.5 percent per year. While the
LDCs growth rate was a mere 1.7 percent per year. Adult literacy rates increased from
48 to 70 percent. Only the Sub-Saharan African and South Asian regions literacy rates
remained stagnant. Overall, infant mortality rates dropped 56 percent. Children born in
1995 were expected to live 16 years longer as compared to 1960 it took
industrialized countries one century to achieve the same results.
From 1980 to 1997,
life expectancy for low income countries increased from 52 to 59 years.10 Sub-Saharan
Africa and South Asia were only able to increase their life expectancies from 48 to 51
and 54 to 62 respectively. But in developing countries most open to MNCs, the
improvement in life expectancy has been dramatic: East Asia and Latin America and the
Caribbean regions have achieved a life expectancy nearing that of the industrialized
countries.
The daily per capita supply of calories, cereals, fat, and protein and the
production of food has, with one minor exception, improved over the last 16 to 25 years
at all levels of human development for developing nations.11 The production of food per

capita has risen 39 percent from 1980 to 1996. The weakest performance, from 1970 to
1995, in diet improvements and food production per capita occurred in Sub-Saharan
Africa, which lost 3 percent of their daily per capita supply of protein and for whom food
production per capita dropped 1 percent from 1980 to 1996. From 1975 to 1990-97,
malnutrition rates for children under age five plummeted from 40 to 30 percent. SubSaharan African rates improved by only one percentage point and in South Asia, 50
percent of children under age five still suffer from malnutrition.
The operation of MNCs in underdeveloped countries
Arguments for MNCs(The positive role): The MNCs play an important role in the
economic development of underdeveloped countries.
1. Filling Savings Gap: The first important contribution of MNCs is its role in filling the
resource gap between targeted or desired investment and domestically mobilized
savings. For example, to achieve a 7% growth rate of national output if the required rate
of saving is 21% but if the savings that can be domestically mobilised is only 16% then
there is a saving gap of 5%. If the country can fill this gap with foreign direct
investments from the MNCs, it will be in a better position to achieve its target rate of
economic growth.
2. Filling Trade Gap: The second contribution relates to filling the foreign exchange or
trade gap. An inflow of foreign capital can reduce or even remove the deficit in the
balance of payments if the MNCs can generate a net positive flow of export earnings.
3. Filling Revenue Gap: The third important role of MNCs is filling the gap between
targeted governmental tax revenues and locally raised taxes. By taxing MNC profits,
LDC governments are able to mobilize public financial resources for development
projects.
4. Filling Management/Technological Gap: Fourthly, Multinationals not only provide
financial resources but they also supply a package of needed resources including
management experience, entrepreneurial abilities, and technological skills. These can
be transferred to their local counterparts by means of training programs and the process
of learning by doing.
Moreover, MNCs bring with them the most sophisticated technological knowledge about
production processes while transferring modern machinery and equipment to capital
poor LDCs. Such transfers of knowledge, skills, and technology are assumed to be both
desirable and productive for the recipient country.
5.Other Beneficial Roles: The MNCs also bring several other benefits to the host
country.
(a) The domestic labour may benefit in the form of higher real wages.

(b) The consumers benefits by way of lower prices and better quality products.
(c) Investments by MNCs will also induce more domestic investment. For example,
ancillary units can be set up to feed the main industries of the MNCs
(d) MNCs expenditures on research and development(R&D), although limited is bound
to benefit the host country.
Apart from these there are indirect gains through the realization of external economies.
Arguments Against MNCs(The negative role): There are several arguments against
MNCs which are discuss below.
1. Although MNCs provide capital, they may lower domestic savings and investment
rates by stifling competition through exclusive production agreements with the host
governments. MNCs often fail to reinvest much of their profits and also they may inhibit
the expansion of indigenous firms.
2. Although the initial impact of MNC investment is to improve the foreign exchange
position of the recipient nation, its long-run impact may reduce foreign exchange
earnings on both current and capital accounts. The current account may deteriorate as
a result of substantial importation of intermediate and capital goods while the capital
account may worsen because of the overseas repatriation of profits, interest, royalties,
etc.
3. While MNCs do contribute to public revenue in the form of corporate taxes, their
contribution is considerably less than it should be as a result of liberal tax concessions,
excessive investment allowances, subsidies and tariff protection provided by the host
government.
4. The management, entrepreneurial skills, technology, and overseas contacts provided
by the MNCs may have little impact on developing local skills and resources. In fact, the
development of these local skills may be inhibited by the MNCs by stifling the growth of
indigenous entrepreneurship as a result of the MNCs dominance of local markets.
5. MNCs impact on development is very uneven. In many situations MNC activities
reinforce dualistic economic structures and widens income inequalities. They tend to
promote the interests of some few modern-sector workers only. They also divert
resources away from the production of consumer goods by producing luxurious goods
demanded by the local elites.