Goals of MNCs

8/14/2019 Goals of MNCs

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What can you describe about these businesses?



Objectives1. describe the nature of multi-national corporations;

2. discuss the goals of multi-national corporations;3. explain the reasons of business going abroad



It is any business that has productive activities in two ocountries.



What are some constrains in managing

multi-national corporation?



Fred Johnson, the new operations mfor a French company in Saudi Arabproblem. He wanted to ship the pro

which his five employees were work was almost five o’clock, though, whicquitting time, and the workers were starting to put things away. Fred thothat if they worked a little longer, thfinish the job. He called them togetsaid, “Listen, I think we can get this tIf you stay stay for forty-five minutI’ll buy each of you a drink.”

At five o’clock sharp, the whistle blew andeveryone left. Mr. Johnson was not happy

with this situation and wondered why no onethought his offer was enough motivation.



Cont : Goal of MNC’s

• Obtain Greater Profits• acquire products for the home market

• Satisfy management desire for expansion• Sources of raw materials and financing



Frustration

• Mr. Johnson went to the bar that night to drink by himself, not realizi Arabs do not drink alcohol.



Why do investors would like to operate

multi-national corporation? (goals)• Increase Profits and Sales

• Open up new markets

search for new markets outside their home country

many of these markets are growing faster rate than

the home.• New market creation

With little local manufacturing , it is a good market for exporters of consume



Why are sales in new markets increasingthe home markets?



By increasing total revenue



By decreasing the cost of goods sold



How could multi-national corporation decr

its cost of goods sold?



Acquire products for the homemarketSatisfy management desire forexpansion

Sources of raw materials andfinancing



How could multi-national corporation pro

its market, profit and sales?



• Protect Markets, Profits and Sales• Protect domestic market

• Establish foreign operations in markets where principal accounts are, to prevent compegaining access to those accounts.

• By moving part or all of its production facilities to the countries from which its compecoming.

Example:

1. Japanese auto parts supplier have followed the Japanese car manufacturers to the United

2. Mitsubishi Bank, the lead bank for Honda, opened an office in Columbus, Ohio, to serve HoOhio plant.



Reasons for operating abroad

• Lack of foreign exchange• Local production by competitors• Downstream markets• Protectionism

• Guarantee supply of raw materials• Acquire technology and management know how• Geographic diversification• Political Stability



International Business Theories

1. Mercantilism

An economic philosophy based on the belief that

(1) a nation’s wealth depends on accumulated treasure, usually gold; and

(2) Increase wealth, government policies should promote exports anddiscourage imports

An export that brings dollars to the country is called positive

Imports that cause dollar outflow are labelled negative



objectives

• identify the theories that attempt to explain why certain goods are trainternationally.

• discuss the theories that attempt to explain why certain goods are trainternationally;



Commodity United States Japan

Tons of rice 2 Automobiles 2

Gains from Specialization

and Trade

Both gained: because each nation specialized inproducing the product at which it was moreefficient and then traded its surplus for goodsthat it could not produce as efficiently.

http://famouswonders.com/wp-content/uploads/2009/11/Byodo-in-Temple.jpg



Picture of a country with less expensive lexample India, China



Cont: International Business theorie

• Theory of Absolute Advantage

The capability of one nation to produce more of a good with the saamount of input than another country.

According to Adam Smith: In this theory both nations would gain ftrade.



Questions/Discussion:

1. Explain Adam Smith’s theory of absolute advantage

2. How does Ricardo’s theory of comparative advantage differ from the theoryabsolute advantage?

3. What is the relationship between the Heckscher-Ohlin factor endownmen

and the theories in question 1?4. It seems that free, unrestricted international trade, in which each nation prand exports products for which it has a comparative advantage, will enable evehave a higher level of living. Why, then does every country have import dutyrestrictions?



Cont:

4. “Workers are paid $20 an hour in the United States but only $4 in TaiwaOf course, we can’t compete. We need to protect our jobs from cheap forelabor.” What are some possible problems with these statement?

5. There are two general classifications of import duties: tariff and non

barriers.a. Describe the various types of tariff barriers

b. What are some of the nontariff barriers?



Commodity United States Japan Total

Tons of rice 6 0

Automobiles 0 8

Each CountrySpecializes

http://famouswonders.com/wp-content/uploads/2009/11/Byodo-in-Temple.jpg



Theory of Comparative Advantage by Ric

• A nation having absolute disadvantages in the production of two goorespect to another nation has a comparative or relative advantage in tproduction of the good in which its absolute disadvantage is less.



Factor Endowment – Heckscher-Ohlin the

• States that international and interregional differences in production coccur because of differences in the supply of production factors.

• Countries export products requiring large amounts of their abundancproduction factors and import products requiring large amount of the

scarce production factors.



Examples

• China, relatively well endowed with labor compared to Netherlands, concentrate on producing labor-intensive goods

• Netherlands, with relatively more capital than labor, should specializcapital-intensive products.



Theories of Foreign Direct Investme• Monopolistic advantage theory• Product and factor market imperfections• International product life cycle• Other theories

•

Cross investment• Internalization theory• Dunning’s electric theory of international production Reference: page 112 International Business by Don Ball and Wendell McCullochGS658.049B21



• Nontariff barriersNontariff barriers are all forms of discrimination against imports other than the imduties.• Quantitative

1. Quotas – are numerical limits for a specific kind of goods that a country will pto be imported without restriction during a specified period.

If the quota is absolute – once the specified amount has been imported further

importation for the rest of the period (usually a year) is prohibited.



Kinds of Restrictions

• Tariff Barriers Tariffs or import duties are taxes levied on imported goods primarily for the purpraising their selling price in the importing nation’s market to reduce competition fordomestic producers.



Kinds of tariff• A tariff is a tax placed on imported goods. Each country has separate regulations, but there are fiv

types of tariffs: revenue, ad valorem, specific, prohibitive and protective.• A revenue tariff increases government funds. For example, countries that do not grow bananas m

tax on importing bananas. The government would then make money from businesses that import • An ad valorem tariff means that the tax applies to a percentage of the import's value such as a set

cents on every dollar of value. A specific tariff, on the other hand, means that the tax is not concethe estimated value of the imported goods, but rather is based on specific amount of the goods. T

may apply to the number of goods imported or to the weight, volume or other measurement of th• A prohibitive tariff is one that is such as high cost that it keeps the item from being imported. A

tariff is used to raise the price of imported goods as a protective measure against the competitionforeign markets. A higher tax allows a local company to compete with foreign competition.

http://www.wisegeek.com/what-is-ad-valorem.htm

http://www.wisegeek.com/what-is-a-protective-tariff.htm

http://www.wisegeek.com/what-is-a-protective-tariff.htm

http://www.wisegeek.com/what-is-ad-valorem.htm



Japan formally offered 75 percent of its goods for tariff liberalizationfirst year in negotiations for the Trans-Pacific Partnership free trade p

Saturday, a source close to the negotiations said.



Nonquantitative nontariff barriers

1. Direct government participation in tradeGranting of subsidies

2. Customs and other administrative procedures

Government policies and procedures that either discriminate againsimports or favour exports.



Arguments for Trade Restrictions and ThRebuttal

• National defense• Protect infant industry• Protect domestic jobs from cheap foreign labor• Scientific tariff on fair competition• Retaliation

a. dumping

b. subsidies



• identify the theories of foreign direct investment;• explain some of the theories of foreign direct investment• discuss the importance of knowing the theories of foreign direct inve

Goals of MNCs

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