Page 232 - DMGT401Business Environment

Unit 10: Foreign Trade

(b) highly responsive to different locational environment (a newer name is multicultural Notes
multinational).
Business people define transnational company as a firm formed by the merger of two
firms of approximately the same size that are from two different countries.

Example: Royal Dutch Shell is a company that is jointly owned in the United Kingdom
and the Netherlands, and its corporate management is split between the two countries. Similarly
Unilever is a Dutch and English firm, VFK-Fokker (Germany - Netherlands Aircraft Company).
Presently today this term is frequently used as synonymous for MNE/MNC. MNE as well
as any other company can be categorized into two categories that is a Global Company
and Multidomestic Company.

3. Global Company: The term Global Company is widely used for MNE but every MNE is
not a Global MNE. A global company is one that has a global vision. It is a company which
looks for opportunities worldwide, it sources it products, raw material, and financing and
personnel worldwide, seeks to maintain a presence in key markets of world and look for
similarities, not differences among markets. The biggest characteristic of these companies
is that they look at the whole world as a single market and standardise operations and
products worldwide in one or more of the firm's functional areas.

If we go strictly by this definition then perhaps there is no global firm ever as firms carry
out some alteration in their product or functional strategy according to the local condition.
If overseas market is as big as India and China then certain modifications are essential.

Example: There are firms who to an extent can be classified as global firms, such as Coco
Cola, Pepsi, Kellogg's, SONY, etc.
These are the companies who keep their product portfolio same and manufacture the
product for the whole world considering them as a single market, though they change
their functional strategy according to the local requirements.
4. Multi-domestic Company: It is a company which treats each of its units operating in
different countries as an independent profit centre. It allows its foreign country operations
to act fairly and independently such as by designing and producing a product or service in
India for the Indian market and in China for the Chinese market.

10.2.2 Benefits of Being MNCs

Undoubtedly, firms cross national boundaries and accept the risk of operating in an unknown
environment in the hope of earning more profit and increasing their shareholders wealth.
Besides this, there are many other reasons such as survival, new sources of supplies, cheap
human resource and even just to keep busy the nearest rival in its home country. Some of the key
reasons of crossing national boundaries are as follows:

1. Survival: Most countries are not as fortunate as that of India, Russia, China or the US in
terms of size, resources and opportunities. Most European nations are small in size or
most Middle East and South East countries are rich in only one or very few resources. In
these countries organizations are bound to do business in and with other countries to
survive. Even organisations of big countries are bound to look out for new markets for
their products and cheap resources to remain competitive and to survive.
2. Growth of Overseas Market (Sales): This has been the biggest reason for more and more
companies expanding overseas. In the last 20 years many economies have opened their
doors for the world. This resulted in a big opportunity in terms of Market. Most of the

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