Nature of TNCs

According to John H Dunnings nature of TNCs are

1. Appears as confederation of loosely knit foreign affiliates
2. Designed primarily to serve the parent company on natural
resources of local markets with manufactured products and
services
3. Described as provider of capital, management and technology
to outlaying affiliates
4. Presume themselves and GLOBAL and not national markets
5. Executives are trained in world wide operations and not just
domestic and international division
6. Management I recruited from many countries; components
and supplies are purchased where they can be obtained at
least cost & investments are made where anticipated returns
are the greatest.
Organizational Structure of TNCs
Product Organizing Structure- Activities are divided on the basis of
products, product line and service and are grouped into department
All important functions such are marketing, production, finance and
human resources are contained within each department.
Geographical Organization Structure- Functions are grouped into
departments based on the activities performed in the geographical
areas
Each geographical units include all functions required to produce
and market the products in a particular geographical areas
This structure is used by chain stores, power companies, restaurant
chains, dairy products, banking companies etc.
Decentralized Business Unit Structure- Grouping activities based on
product lines has been a trend among diversified companies. In a
diversified firm, the basic operational building blocks are its
business units, each business is operated as a stand long profit
center.
Strategic Business Unit Structure- business can be effectively
controlled, if the related businesses are grouped into strategic units
and the efficient and senior effective is delegated the authority and
responsibility for its executive.
It is grouping of business subsidiaries based on some important
strategic elements common to each.
Matrix Organization Structure- Some firms possess a dual chain of
command.

Both functional and project managers exercise authority over

organizational activities Therefore personnel in matrix have 2
supervisors.
This is appropriate when:
1. Management attention must be focused on two or more key
issues such as technical issues, consumer needs, financial
efficiency etc.
2. Large amounts of diverse information needs to be processed
3. Problem solving in complex in complex like environment
uncertainty, interdependence among organizational units,
complex products or technology.
4. Economies of scale require the sharing of human resource
expertise to achieve high performance.
Investment Pattern of TNCs
Investments have been made by TNCs in developing countries with
the following motive
1. To exploit the natural resources of the host countries
2. To reduce the production in costs by making use of the cheap
labour and with less transportation costs
3. To enjoy benefits of tax havens
4. To circumvent tariff walls
5. Gain dominance in the foreign markets
6. To adjust to the government regulation in the host country
7. To mitigate the impact the impact of home country
regulations, like anti-trust regulations, regulations against
industries causing ecological problems.
Growth of TNCs

According to PETER DRUCKER period of rapid growth was the

50s and 60s.
Jumped from 7000 in 1970 to 40000 in 1995
Despite growing number power is isolated at the top(300
largest account for of worlds productive assets)
UN describes these as the productive core of globalizing world
economy
Manufacture and sell most of worlds industrial capacity, of
control eg. Automobiles, airplanes, communications etc

Factors Contributing to the Growth of TNCs

i. Financial Superiority- Enjoy F S over National Companies, they
area) Huge financial resources at disposal
b) Easy access to external capital markets
c) Easily mobilize different types of high quality resources

d) Have access to international banks and financial

institutions
e) Can use funds more efficiently, economically and
effectively
ii.

Technical Superiority- Rich in advanced technology developed

through continuous research and development. Rich resources
enable them to invest on R&D and develop advanced
technology

iii.

Product innovation- by virtue of their widespread in many

countries collects information regarding customers, taste and
preferences. Further with strong R&D departments can invent
new products and develop existing products

iv.

Market Superiority- enjoy M S over domestic companies such

asa) Enjoy quick transportation and warehousing facilities
b) Adopt more effective advertising and sales promotion
techniques
c) Availability of more reliable and up to date information
relating to market expansion in different countries

Advantages of TNCs
They help both home and host country
IN HOST COUNTRY
1. Level of industrial and economic development increases due
to growth in ancillary and service of the host country
2. Help increase the investment level and thereby income and
employment
3. Transfer technology, esp in the developing countries
4. Get latest sophisticated management techniques from
managerial practices of TNCs
5. Domestic industry can make use of R&D outcomes of TNCs
6. Enables to increase exports and decrease import requirement
7. Can break protectionism, create competition among domestic
companies and thus enhance their competitiveness
IN HOME COUNTRY
1. Industry activity gets activated
2. Contributes for favorable balance of payments in long run
3. Create opportunities for marketing the products produced in
the home country throughout the world
4. Increase GNP of home country

5. Create employment oppurtunities in home country

Disadvantages of TNCs
IN HOST COUNTRY
1. They imperil political sovereignty of nations
2. Through power flexibility, they can evade or undermine
national economic autonomy and control
3. May destroy competition and acquire monopoly power
4. May adopt ethnocentric approach in staffing and thereby
cause unemployment
5. Large sum of money flows to the foreign countries in terms of
payments towards profits, dividends and royalty
6. Only invest in those sectors which earn high rate of profit,
exploit material
IN HOME COUNTRY
1. May neglect the home countries industrial and economic
development so as to invest in more profitable countries
2. Transfer capital causing unfavorable balance of payment
3. May not create employment in home country as it may follow
geocentric or polycentric approach
4. May bring culture of foreign country which may be detrimental
to the interest of the home country
ROLE OF TNCs in INDIA
At the end of 1990 there were 469 foreign companies in India.
In addition many f=Indian companies with foreign equity
participation
Later with economic liberalization in 1991, the Govt encouraged the
pvt sector and invited foreign firms to invest in India.
Now there are a number of fortune 500 MNCs in India
TNcs are specifically covered under Foreign Exchange Management
act.
India expects NCs to increase their exports and earn foreign
exchange for India
GOVT has allowed TNCs to invest in India through joint ventures or
technical collaborations with the Indian Companies
TnCs are widely criticized in india for not investing in environmental
pollution controlling equipment as they normally do in home
countries.