MULTINATIONALS AS GLOBAL

INTERMEDIARIES

OVERVIEW

A multinational is an organizational firm that engages in some form of cross border commerce, either in the amassing of factor inputs, or in the distribution of finished goods or services.

Here we’ll examine When MNC’s create value When they don’t create value When changes in the environment erode

their potential for value creation

CROSS BORDER INSTITUTIONAL VOIDS

Investors can simply invest money in a MNC in the relevant industry to allocate across its productive activities around the world.

The MNC decides whether backing the entrepreneur exceed the opportunity costs.

MNC compensates for informational and contractual problems in cross border markets.

It adds value when it is able to complete a transaction better than alternative institutional mechanisms for doing so.

CROSS BORDER TRANSACTIONS ISSUES Cost increases due to following reasons: Cultural and language differences Financial reporting differences across

countries Differences in legal regimes and

enforcement mechanism

OTHER EXAMPLES

Helps locate scarce engineering talent for an entrepreneurial venture. This basically helps both potential employees as well as employers.

Intellectual property rights Guarantee quality of goods and services that

are moving cross-border They even substitute for missing specialized

cross-border intermediaries such as executive search firms, financial analysts etc

Energy and efforts invested in developing in developing one common set of international accounting standards.

ACTIVITY BASED VIEW OF THE FIRM

The value chain divides firms’ activities into two classes:

Primary activities that directly generate a good or a service eg. Inbound and outbound logistics, operations, marketing, sales etc.

Support activities that make the primary activities possible eg. procurement, technology development, human resource management etc.

ACTIVITY BASED VIEW OF THE FIRM

FRAMEWORK OF COMPANIES

NIKE It designs its products in US, uses

production facilities in emerging markets such as Indian & China and sells to customers all over the world with major chunk in developed countries that have high disposable income

Shoe making labor intensive activity, countries such as India & China offer significant cost advantage given the low labor costs

Nike basically an intermediary that brings together low cost shoe producers in merging markets with affluent consumers in Western markets by filling the voids more efficiently than others

It is able to add value to the fragmented low cost emerging market shoe producers and to customers in advanced economies who wish to buy branded shoes at affordable prices

CROSS BORDER TRADE

1. Cross border supply demand for funds

2. Transferring financialservices technologyacross borders

3. Cross border product market and labourmarket

SOCIAL IMPACT

Multinationals can behave as impact enterprises, driving progress at scale.

They are uniquely positioned to leverage their size and business models to address social problems sustainably and at scale. Corporations can serve as impact enterprises by creating shared value, using their core businesses to generate economic value through social progress.

SHARED VALUE

•Meeting social needs

•Improving access to products and services (Capital intensive)

By re-conceiving products

•Labour Intensive

•improving company operations to enhance quality, improve efficiency, or decrease risk while addressing a social issue

By enhancing

productivity

•conditions to improve the operating environment affecting business and alleviate social problems

•Labour and Capital intensive

By building clusters

LOCALIZATION

Multinationals have the choice regarding its core business model as it seeks to enter different countries.

It can adapt the way it perform activities or change the context in which it operates.

CONCLUSION

Cross border voids appear to be fairly resilient – value creation predicated on their existence is likely to be long-lived.

Limited incentives for specialized intermediaries ensuring that multinationals become global intermediaries.