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CHAPTER-1 INTRODUCTION TO MULTI-NATIONAL CORPORATIONS A multi-national corporation (MNC) is a business organisation which has its headquarters in one country

but has operations in a range of different countries. There are numerous examples of such organisations, car manufacturers like Ford, Toyota, Honda and Volkswagen, oil companies like Shell, BP and Exxon Mobil, technology companies like Dell, Microsoft, Hewlett Packard and Canon and food and drink companies such as Coca Cola, Interbrew and McDonalds.

Dell and Microsoft - two businesses operating in the high tech industry and who are both good examples of multi-national companies. Copyright: Keran McKenzie and Sam Disegno, These firms, by their very nature, are large organisations. Their size means they often have considerable power and influence and as a result have come in for some criticism of their actions. One of the most famous of such cases was the problem faced by Nestl in marketing its baby milk in Africa. Critics pointed out that Nestl was pushing the product on people when it was likely to cause harm to babies. A code of conduct on marketing the product to countries in Africa was being ignored according to a study in the British Medical Journal in 2003. In addition, events like the Bhopal chemical explosion in 1984 has attracted much criticism and, sometimes, an assumption that MNCs are of necessity a 'bad' thing. It is also assumed that MNCs tend to locate operations in poor countries only. This, of course, is not the case. Honda and Nissan have both invested heavily in production facilities in the UK but are Japanese companies. Many European countries provide a home for MNC operations of different sorts. It must also be remembered that many MNCs have interests in a country but not necessarily production facilities. Nike, for example, does not own factories that make training shoes and clothes. Instead, they make agreements with local producers to manufacture a particular range

of products for them. This might bring different problems to light given that the immediate control of production is not in the hands of Nike. Of course, it could be argued that this does not absolve any corporation of any responsibility for the actions of the factories that they use to outsource production. Why the drive to MNCs? For many companies, the following might be some or all of the reasons to expand into different countries:

Reduce transport and distribution costs Avoid trade barriers Meet different rules and regulations (avoid non-tariff barriers) Secure supplies of raw materials or markets Cost advantages - for example low labour costs

Multinational corporate structure Horizontally integrated multinational corporations manage production establishments located in different countries to produce the same or similar products. (example: McDonald's ) Vertically integrated multinational corporations manage production establishment in certain country/countries to produce products that serve as input to its production establishments in other country/countries. (example: Adidas ) Diversified multinational corporations manage production establishments located in different countries that are neither horizontally nor vertically nor straight, nor non-straight integrated. (example: Hilton Hotels ) MNC In India MNC in India are attracted towards : Indias large market potential India presents a remarkable business opportunity by virtue of its sheer size and growth

Labor competiveness FDI attractiveness Indias vast population is increasing its purchasing power India is also emerging as the manufacturing and sourcing location of choice for various industries

Success factors for MNCs operating in India Commitment at global level Raise the profile of India Formulation of bold long term targets Empowered local Management-More cost effective, enhances continuity, leverages understanding of local environment Localized product / market business models : create customized products and services in response to unique environment in India Deliver the right product at the right price with right positioning for India

Advantages of MNCs Economic Growth and Employment

The essence of a MNC is that they bring inward investment to countries that are not their home base. If they choose to expand by building production facilities they will be bringing in inward investment into the country. This investment is likely to provide a boost, not only to the local economy but also the national economy. Building a new plant requires resources - land, labour and capital. Labour has to be found to help construct the plant and all the equipment that goes into it and some firm somewhere will be hired to build the machinery and equipment, provide the bricks, steel, cement, glass etc. that go into the building. If it is announced that Company X from Germany are to build a new distribution centre in the UK at a cost of 10 million, this effectively means that a whole host of firms will be getting additional work to the value of 10 million. Let us assume that a firm manufactures and supplies cable for electrical work. To this firm, the contract to supply the cabling for the new plant might be worth 350,000. If the plant was not

built then the firm would not generate that order and not receive that work. For workers in the cabling plant, the order helps to maintain the flow of orders and can keep them in employment.It can also be expected that the additional income will find its way through the local economy. If additional people are hired, they will receive an income which they spend. For existing workers, increased orders might equate to job security and they too might feel more confident in spending on new items - furniture, house extension, new white goods, holidays and so on. Inward investment therefore can act as a trigger to generating wealth in the local economy. If a MNC is attracted to an area then this might also lead to other smaller firms in the supply chain deciding to locate in those areas. Other firms providing services to these firms are then attracted to the area and so on.

Honda located a factory in Swindon, Wiltshire, a town known for its railway industry. Now the town is synonymous with car manufacturing. The Honda plant was an investment of over 1.3 billion. It is one of 120 Honda manufacturing facilities in 29 different countries. Copyright: Niels Laan, from stock.xchng. This type of wealth generation has been witnessed in many UK regions. The siting of the car manufacturing plants in Sunderland, Swindon and Derby has done much to help those regions experience a boost to the local economy. In the case of Sunderland and Derby, the investment has partly helped to offset the decline in other industries that caused unemployment. For less developed countries, inward investment can again act as a catalyst for other forms of

investment. The effects of the investment might be less dramatic but nevertheless, it can be something that is seen as essential for helping a country escape from poverty. Skills, production techniques and improvements in the quality of human capital

It can be argued that MNCs bring with them new ideas and new techniques that can help to improve the quality of production and help boost the quality of human capital in the host country. Many will not only look to employ local labour but also provide them with training and new skills to help them improve productivity and efficiency. In Sunderland, one of Europe's most productive car manufacturing plants, the workers have had to get used to different ways of working and different expectations than many might have been used to if working for other British firms. In some cases this can prove a challenge but in others it can lead to improvements in motivation and productivity. The skills that workers build up can then be passed on to other workers and this improves the supply of skilled labour in the area. This makes the area even more attractive to new industry as it helps to reduce the costs of training and skilling of workers. Availability of quality goods and services in the host country:

In some cases, production in a host country may be primarily aimed at the export market. However, in other cases, the inward investment might have been made to gain access to the host country market to circumvent trade barriers. In the case of many Japanese car manufacturers the investment made into UK production has enabled them to get a foothold in the EU and to avoid tariff barriers. The UK has had access to high quality vehicles at cheaper prices and the competition this has created has also led to improvements in working practices, prices and quality in other related industries.

The location of businesses in different countries might mean the availability of high quality and relatively cheap products being available to the home market. Copyright: Jannes, Tax Revenues

For the host country, there is a likelihood that the MNC will have to be subject to the tax regime in that country. As a result, many MNCs pay large sums in taxes to the host government. In less developed countries the problem might be that there is a large amount of corruption and bad governance and as a result MNCs might not contribute the tax revenue they could and even if they do it might not find its way through to the government itself. Improvements in Infrastructure

In addition to the investment in a country in production or distribution facilities, a company might also invest in additional infrastructure facilities like road, rail, port and communications facilities. This can provide benefits for the whole country. The Costs of Multinationals

The costs can be summarised in the points below - for the most part, the costs are closely linked to the benefits but it will depend on the extent of the benefits that might arise as a result of the activity of the MNC.

Employment might not be as extensive as hoped - many jobs might go to skilled workers from other countries rather than to domestic workers. There might be a limit in the effect on the local economy - it will depend on how big the investment into the local economy actually is. Some MNCs may be 'footloose'; this means that they might locate in a country to gain the tax or grant advantages but then move away when these run out. As a result there might not be a long term benefit to the country. How many new jobs are created depends on the type of investment. Investment into capital intensive production facilities might not bring as many jobs to an area as hoped. The size and power of multinationals can be used, it is argued, to exploit weak or corrupt governments to get better deals for the MNC. Mittal, for example, a major steel producer, negotiated a $900 million deal to secure rights to mine iron ore in Liberia. The government that negotiated the deal was not elected. When a new, elected government came to power, they re-negotiated the deal and took the investment to well over $1 billion.

Pollution and environmental damage. Some countries may have less rigorous regulatory authorities that monitor the environmental impact of MNC activities. This can cause long term problems. In India, Coca-Cola has been accused of using up water supplies in its bottling plant in Kerala in Southern India and also of dumping waste products onto land and claiming it was useful as fertiliser when it appeared to have no such beneficial properties.

Production can cause problems - in any country - but in some countries the rules may be less rigorously enforced. Copyright: Sean Carpenter. Bottlenecks Of MNC in India Socio-economic challenges Language Culture Autonomy to local managers how comfortable are we? Handling of potential liabilities related to Labour, IPR etc Difficult operating environment Weak infrastructure De-merit goods. Some companies might be producing goods that are not beneficial. Examples might include tobacco products and baby milk - mentioned earlier. Repatriation of profits. Profits might go back to the headquarters of the MNC rather than staying in the host country - the benefits, therefore, might not be as great.

CHAPTER-2 THEORIES OF MULTI NATIONAL CORPORATIONS MNC has become a concept of that concerns the business world with the establishment of the so called first MNC, Dutch-East India Company in the 17th century. The company was the first that allocates the risk as international trade has considerable risks and allows collective ownership through share issuing that is the impulse of globalization. The modern MNCs were formed mainly in Europe, particularly in Belgium (Cockeril), Germany (Bayer), Switzerland (Nestle), France (Michelin) and UK (Lever) in the 19th century and applied FDI strategies in order to overcome the difficulties in exports resulted from tariffs. The aim of MNC is to get capital where it is cheapest and produce where they get the highest rate of return. Today the number of MNCs and their efficiencies in the world increase parallel with the globalization process. Therefore theories of MNCs have been developed. The most significant ones of these theories are the location and internationalization theories. Location Theory According to the location theory the location of the production is determined by the resources. The determining factors of the location choice are the cost of transportation and trade barriers. If the transportation costs are high then the production is located in the country or region where the product will be marketed. Another reason of such relocation is the high tariff rates that the host country applies. Internationalization Theory According to the internationalization theory the reason why production is done by only one company instead of many in various locations is that it is more profitable to produce with one company. In the explanation of the advantage of internationalization the first approach of the internationalization of MNCs emphasizes the importance of technology transfer. Technology transfer may come across with some difficulties. It is difficult for a potential buyer to appraise the actual value of knowledge. Besides knowledge can not be packed and sold. The intellectual property rights are also difficult to secure. Therefore for a MNC the establishment of a new enterprise in a foreign country is more profitable than the sale of technology to another company.

The second approach intensifies on vertical integration. For example under the assumption that both companies are monopolies, the price of input used by first company and produced by second company is tried to be lowered and increased by the first and second companies respectively. Therefore a dispute between these two companies will exist. Moreover some coordination problems may occur because of the demand and supply imbalances between two companies. Volatile prices constitute high risks for both companies. In case of a vertical integration of these two companies the problems will disappear or be relieved. OLI Paradigm (Eclectic Paradigm) The theory has the most extensive scope among FDI theories. Dunning has created the theory by combining many former studies (eclectic). According to Dunning production of a firm in a foreign country depends on these three conditions: 1. Firm should have tangible and intangible assets and skills so that can compete with the domestic firms of the host country who have national knowledge and experience. 2. For a firm through an advantage taken from the host country it should be more profitable to produce in the host country than to produce in the home country and export it. 3. Making FDI should be more profitable than selling, leasing or licensing the skills. These conditions which are called OLI by Dunning are the ownership (O), location (L) and internalization (I) advantages respectively. The ownership advantage can be achieved through privileged ownership of some income bearing properties (patent, trade secrets or trademarks) and governance of separate but related activities from one head firm (economies of scale and synergy, diffusion of geographical risk and cross-country arbitrage). The location advantages are those caused by the superiority of production method in the host country, high transportation costs, cheap labor, and proximity to the consumers, local image and the foreign governments trade applications. Internalization advantage means the advantage that is caused by the imperfect competition. Although the theory is much broader than the others, it is also criticized. First criticism is the decreased significance of the variables as they are immense. The variables are correlated with others. Another criticism is that the theory is static and can not explain the paths and processes of firms in the internalization process. Some blames the theory as entirely micro economic and even claims that it has no difference with the theory of internalization.

Other Theories Although these theories are not as popular as the main stream theories, they have significant contributions in the development of main stream theories. i. Caves Economies: According to Caves, if a firm wants to invest horizontally (the production of the same product in another location) its property should prevail the advantage of domestic firms in the host country resulting from being resident and the firm should decide that FDI is more profitable than either export or licensing. Caves believes that the following factors are important in the decision stage of FDI: Product differentiation (is formed with subjective alterations by little physical

modifications, branding, advertisement, marketing strategies and differences in the complementary products; and maintained by property rights and high cost barriers against physical imitation). Oligopolistic market structure Organizational skills Transportation costs and tariffs R&D activities The FDI decision in vertical foreign investment (the production in which each part of

a product may be produced in different locations and finally assembled) is made after the determination of optimal vertical integration level.

ii. Oligopolistic Reaction Theory: According to the Oligopolistic Reaction Theory of Knickerbocker, one firm invests in one country in order to increase its market share. Immediately thereafter the other rival oligopolistic firms invest in that country in order not to lose their market shares. This kind of investment is also known as Follow-the-leader. Besides as firms avoid ambiguities and risks, they wait for an investment of a leader firm before themselves and its consequences and then they invest. This constitutes the reasoning of follow-the-leader theory. iii.Hymer and Kindlebergers Theory: The most important contribution of Hymers doctoral dissertation -completed in 1960- to the theory of FDI is that it explains why MNCs transfer intermediate goods such as knowledge and technology among countries.

Hymer separates two types of the division of labor. He states that the division of labor among firms is controlled by markets and therefore is the subject of international trade theory and the intra-firm division of labor is controlled by the entrepreneurs. Hymer and his instructor Kindleberger rather focus on firm-specific factors. Foreign firms have superiority such as the ability to find cheap capital, marketing experience, privileged entry permits for some markets, patented or non-tradable technology, managerial efficiencies and economies of scale.

CHAPTER-4 WTO AND SERVICES The World Trade Organization (WTO) is the only body making global trade rules with binding effects on its Members. It is not only an institution, but also a set of agreements. The WTO regime is known as the rules-based multilateral trading system. The history of the Organization dates back to 1947, when the General Agreement on Tariffs and Trade (GATT), was set up to reduce tariffs, remove trade barriers and facilitate trade in goods. Over the years, GATT evolved through eight rounds of multilateral trade negotiations, the last and most extensive being the Uruguay Round (1986-1994). The WTO came into being at Marrakesh on 1 January 1995, following the conclusion of the Uruguay Round. GATT then ceased to exist, and its legal texts were incorporated into the WTO as GATT 1994. The objectives of the WTO The preamble to the WTO Agreement describes its objectives as including: raising standards of living ensuring full employment The Agreement Establishing the WTO (Marrakesh Agreement) The Parties to this Agreement, Recognizing that their relations in the field of trade and economic endeavour should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services, while allowing for the optimal use of the worlds resources in accordance with the objective of sus- tainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their development, respective needs and concerns at different levels of economic

Recognizing further that there is need for positive efforts designed to ensure that developing countries, and especially the least developed among them, secure a share in the growth in international trade commensurate with the needs of their economic development.
realizing these aims consistently with sustainable development and environmental

protection Ensuring that developing countries, especially the least developed countries (LDCs), secure a proper share in the growth of international trade. However, since its creation the WTOs emphasis has slipped from concentrating on these public interest goals to seeing itself primarily as an organization for liberalizing trade, and declaring that the systems overriding purpose is to help trade flow as freely as possible. This has been the source of one of the fundamental tensions surrounding the mandate and activities of the organization. Some such as developing countries and non-governmental organizations would like to see added emphasis on the public interest goals, whilst other private companies and some industrialized countries, for instance favour faster removal of obstacles to free trade. Today, an increasing number of voices are being raised to underline that free trade should not be an end in itself, but rather a tool to achieve equitable development and a better world. That the WTOs public interest objectives remain out of reach of many has drawn criticism that the organization is dominated by rich countries, functions in a secretive manner, and helps feed the greed of the rich in the name of trade liberalization. The WTO agreements The Marrakesh Agreement Establishing the WTO incorporated several new substantive agreements, which gave the WTO a much broader mandate than GATT or any other trade agreement: The WTO introduced new rules on agriculture and textiles. Most significantly, and unlike GATT, the WTO encompasses areas beyond trade in goods.

Three new subjects were brought into the multilateral trading system: trade in services

through the General Agreement on Trade in Services (GATS); intellectual property rights

Higher objectives for the WTO Certain principles other than just fair market access must also be respected in order to make the global trading system fully fair to all. One such principle is that trade liberalization should not be enthroned as an end in itself. It is but a means for achieving ultimate objectives such as high and sustainable growth, full employment and the reduction of poverty. As such, trade policies should be framed with these ends in mind and be evaluated accordingly. That the purpose of the world trade regime is to raise living standards all around the world rather than to maximize trade. In practice, however, these two goals - promoting development and maximizing trade have come to be increasingly viewed as synonymous by the WTO and multilateral lending agencies, to the point where the latter easily substitutes for the former the net result is a confounding of ends and means. Asias experience of gradual liberalization only after an initial period of high growth highlights a deeper point. A sound overall development strategy that produces high economic growth is far more effective in achieving integration with the world economy than a purely integrationist strategy that relies on openness to work its magic. A relatively protected economy like Vietnam is integrating with the world economy much more rapidly than an open economy like Haiti because Vietnam, unlike Haiti, has a reasonably functional economy and polity. Functions and structure of the WTO The major functions of the WTO include: administering the WTO agreements handling trade disputes monitoring national trade policies serving as a forum for trade negotiations cooperating with other international organizations

Organizational chart of the WTO


The Ministerial Conference The Ministerial Conference is the governing body of the WTO. It has the authority to adopt final decisions on all WTO matters. It meets at least once every two years for about four days, and is composed of trade ministers of all Members. Any Member can offer to host the

Ministerial Conference, and Members decide on the venue by consensus. The next Conference is scheduled to take place in December 2005 in Hong Kong .The trade minister of the host country usually chairs the Ministerial Conference and can play a significant role. For example, after the collapse of the Conference in Cancn in 2003, some participants pointed the finger at the Mexican trade minister (and conference chair) Luis Ernesto Derbez, saying that he had decided to end the meeting prematurely although there was still a chance of reaching agreement. Ministerial Conferences are where f inal decisions, such as whether to launch new negotiations, are taken. Members begin preparing for Ministerials months in advance. This often involves intense negotiations in Geneva where delegates discuss numerous draft Ministerial texts for ministers to decide upon during the Conference, usually leaving the most contentious issues to be determined at the ministerial level. In practice, only issues concerning the strategic directions of the WTO are decided there, the bulk of the WTOs work being carried out by councils and committees that meet throughout the year in Geneva. NGOs who can demonstrate genuine interest in trade are eligible for accreditation to Ministerials, which is not the case for other WTO bodies. Almost 800 NGOs including business groups were accredited to participate in the Cancn Ministerial Conference. However, unlike the UN, where the Credentials Committee of ECOSOC has clear procedures for granting NGOs consultative status, the WTOs selection criteria are not clearly def ined, and remain ad hoc. Since the Seattle Ministerial Conference in 1999, which saw unprecedented street protests, the WTO Secretariat has placed increasingly strict controls on the number of accredited NGO personnel that may attend. In Doha in 2001, each accredited NGO was allowed only two passes to enter the Conference site; in Cancn, NGOs were only The General Council The General Council is the highest ruling body of the WTO when the Ministerial Conference is not in session, and the only one which can make binding decisions outside the Ministerial Conference. For instance, in July 2004 the General Council adopted a package of agreements, referred to as the July Framework, which effectively broke months of deadlock following the collapse of minister-level talks in Cancn in September 2003.

The General Council can meet whenever Members want. In practice its meetings usually take place every two months, and are attended by the highest rank of trade diplomats in Geneva, mostly ambassadors. It is common practice for the General Council to elect its chairperson and those of other WTO bodies during its first meeting of the calendar year. The Councils meetings are often preceded by informal sessions that are not announced publicly. The functions of the General Council are wide-ranging: it follows up on issues arising from Ministerial it oversees the operation of WTO agreements, and shares with the Ministerial Council the responsibility of adopting interpretations of the WTO Agreement. An example is its 2003 decisions on TRIPS and public health (discussed in Chapter 4). it grants and extends waivers from WTO rules, on behalf of the Ministerial Conference. An example is the Kimberley Process waiver, to prevent trade in blood diamonds it meets as the Trade Policy Review Body (TPRB) and the Dispute Settlement Body (DSB); the two bodies and the General Council are considered as second level bodies after the Ministerial Conference, as indicated by the organizational chart it deals with accession-related matters, including authorizing the acces- sion of new

Members when the Ministerial Conference is not in session. For accession matters, the General Council decides on the establishment of working parties on accession, and endorses accession packages upon completion of negotiations. Groups wishing to influence the content of Ministerials documents must start their work many months before the Ministerial Conference for considerations as to whether it is worth while for your NGO to apply to attend a Ministerial.NGOs cannot attend or participate in any meetings of the General Council. Chairpersons of negotiating groups under the Doha Work Programme, for instance, can be influential in organizing the negotiations, setting interim deadlines, and producing draft texts which can frame further discussions. it supervises the overall conduct of negotiations such as the Doha Work Programme. Since the Trade Negotiations Committee (TNC) was set up to carry out the Doha negotiations, the General Council has regularly reviewed its work under a standing agenda item. The TNC

reports to each regular meeting of the General Council on the activities of its negotiating groups. The General Council also deals with systemic issues such as selection of Directors-General and external transparency), and performs specific tasks assigned to it by the Ministerial Conference. The Dispute Settlement Mechanism The Dispute Settlement Mechanism (DSM) is a quasi-judicial system for resolving trade disputes. The Dispute Settlement Body (DSB) can authorize trade retaliation measures, or suspension of concessions in WTO jargon if Members do not comply with DSM panel or Appellate Body rulings. This particular enforcement mechanism of the WTO regime, though a last resort, remains unique among international tribunals. The DSB is composed of all WTO Members. Its functions are: to establish panels which examine the case in dispute to appoint the members of the standing Appellate Body to adopt reports of panels and the Appellate Body (the body which deals with appeals) to monitor implementation of rulings and recommendations to authorize sanctions or retaliation measures under the WTO agreements to adjudicate cases on textiles and clothing if they are not resolved by the Textiles

Monitoring Body (TMB), the only other WTO body dealing with disputes The WTO dispute settlement mechanism is arguably more efficient and effective than almost any other international tribunal dealing with non-criminal matters. The DSM sets clear timeframes for different stages in resolving trade disputes among Members, which avoids cases drag- ging on for a long time. It usually takes between 12 to 18 months to settle a dispute, but the application of rulings often takes longer. The system nevertheless seems slow to traders, especially when the disputed measures are temporary in nature. For example, the US decision to impose temporary (for three years) higher tariffs on certain steel products triggered a dispute case in March 2002. By the time the DSB made a final decision in December 2003 that the measures were illegal, the higher tariffs had

been in place for 19 months, long enough for significant harm to have been caused to countries and companies exporting steel to the US. It is also worth noting that dispute complaints are typically filed at the request of business interests, who usually seek their own expensive legal advice before turning to their government to request it to take up their case.2 The mechanism applies to all WTO agreements, and can cover plurilateral agreements as well, should parties to these agreements so decide. It applies only to WTO agreements: a Mem- ber can only turn to the DSM for resolution of a dispute concerning a WTO rule. Shrimp-Turtle case The US banned imports of shrimp from four Asian countries India, Malaysia, Pakistan and Thailand claiming that the way they caught shrimp harmed endangered species of sea turtles. The four Asian countries above complained about the ban to the WTO. In their rulings, the panel and Appellate Body took international environmental law into account in determining that a ban such as the US had imposed, could be legitima te under WTO law.Therefore only rule on other matters, such as environmental policy, human rights or social questions, if these arise in a dispute concerning a WTO rule, as was the case in the Shrimp-Turtle dispute .Nevertheless, the concern remains that the broad reach of WTO rules and their implications for a wide array of domestic policies makes the DSM a particular threat because it ensures strong enforcement of rules designed to favour trade liberalization, rather than to promote well-being or respect for human rights. Panels A panel is a quasi-judicial body which examines the evidence and decides on the merits of the case, according to the Dispute Settlement Understanding (DSU): A panel usually consists of three (but sometimes five) experts from different countries. Panellists for each case are chosen from a roster of qualified professionals or from else- where, in consultation with Members involved in the dispute. The Director-General can also appoint panellists if the parties cannot agree on the panel. In a dispute between a developed country and a developing country, the latter can request that at least one of the panellists be from a developing country.

Panellists serve in their individual capacity and do not receive instructions from any

government. In general, panellists are considered to be impartial and competent. Panels have the right to seek information and technical advice from any individual or body which they deem appropriate. In many disputes the panel has consulted scientific experts or appointed an expert review group to prepare an advisory report. However, the question of uninvited, non-governmental input into the dispute settlement process is a contentious issue. Appellate Body Either party to a dispute may appeal to the standing Appellate Body against a panels ruling on points of law and legal interpretation of WTO agreements. The Appellate Body can uphold, modify or reverse the legal findings of a panel and its conclusion, but cannot re-examine existing evidence or examine new issues. Case study of a dispute: India versus the EU The EU-India GSP dispute looked at whether industrialized country Members of the WTO could grant different tariff rates to products originating in different developing countries under so-called Generalized System of Preferences (GSP) schemes. In particular, the dispute addressed whether countries granting trade preferences could condition access to their markets on labour and environmental standards, or efforts to combat illegal drugs. India brought the complaint to the WTO in 2002, arguing that anti-drug arrangements included in the EUs GSP were discriminatory, as the benefits the EU granted were available only to certain specified developing countries. In particular, India pointed out that Pakistans entry to the scheme and benefits under the GSP anti-drug arrangements had affected EUR 205 million of Indian exports, which faced higher tariffs than their Pakistani equivalents on the EU market. On 7 April 2004, the WTO Appellate Body released its report, where it ruled that WTO provisions did not prevent developed countries from differentiating among products originating in different developing countries under the GSP, provided that such differential treatment meets certain conditions (set out in the so-called Enabling Clause). In so doing, it overturned the earlier panel decision in the case, which had originally ruled in favour of India. However, the Appellate Body decision was not a clear-cut victory for the EU. The conditions included ensuring that identical treatment is available to all similarly-situated GSP

beneficiaries that have the development, financial and trade needs that the treatment in question is intended to respond to. Looking at the EUs special arrangement for combating the production and trafficking of illegal drugs, the Appellate Body found that as the preferences granted under the drug arrangements were not available to all GSP beneficiaries similarly affected by the drug problem, they were not justified under the Enabling Clause. It therefore urged the EU to bring its GSP scheme into conformity with the Enabling Clause conditions. By contrast, the Appellate Body noted that the EUs GSP incentive arrangements for the protection of labour rights and the environment, which were not at issue in this case, included detailed provisions setting out the procedure and substantive criteria that apply to a request by a country to become a beneficiary. This would seem to imply that these arrangements are WTOcompatible, provided they meet the relevant conditions. The process from notification of consultations to the release of the Appellate Body report took just under two years. But it is not over yet. On 10 August 2004, following a request by India, the WTO appointed an arbitrator to determine the reasonable period of time required for the EU to bring its measures into conformity with WTO rules. As such, it could be another year and a half before the EU either changes its GSP legislation or faces the threat of sanctions.


IMPACT OF TECHNOLOGY AND MARKETS Technology has had a tremendous impact upon the global business environment. Communication, transportation and production efficiency are various areas of business which have been enhanced by the development and improvement of technology. As continual enhancements are made, the world continues to "grow smaller" and businesses have further reach than ever. 1. Computers The most important technological development to impact the global business environment is the world of computers. There are various programs which help maintain records of inventories and shipments. Email allows for instantaneous communication almost anywhere in the world. Besides its speed, email is easily forwarded and retained. The communication in the global business environment is improved with the use of email. The impact of computers on the global business environment is wide-ranging and also includes the Internet, which is a useful tool for international companies. By using the Internet, companies across the world can perform research and learn more about partners and suppliers. 2. Conference Calls and Video Conferencing Conference calls allow people in multiple locations to be involved in the same conversation. Video conferencing provides the same service, but with the added benefit of all parties being able to actually see each other. Both of these forms of communication have a definite impact on the global business environment. With either form of technology, a parent company in Norway can have a conversation with a raw material supplier in Brazil and a manufacturing plant in Taiwan. This improves communication on a global scale and enables all parties to understand specific plans and agreements. 3. Transportation The shipment of raw materials and finished products is absolutely vital to any business, but particularly those with an international scope. Transportation technology enables a company on one continent to send its raw materials or products to another company in a different continent.

Technological advancements in airplanes, cargo ships and railways allow for quicker, cheaper delivery, which impacts business by making global distribution more feasible. 4. Manufacturing Technology Increased efficiency of manufacturing plants has a certain impact on the global business environment. By having the capacity to produce materials and products more quickly and efficiently, a company is able to produce quantities needed to supply global demand. Robotic technologies and factory lines have enhanced the speed at which materials and products are manufactured. For a company to be a player in the global business field, it must be able to keep up with demand. 5.Shipment Tracking Corporations now have the ability to track shipments virtually anywhere across the world. Global Positioning Systems (GPS) allow accurate tracking. The implication of this technology on the global business environment is the ability to let customers know exactly where their shipments are at any given time. This technology creates secure relationships within the global business field.


INTERNATIONAL VENTURES International Ventures (IVs) are becoming increasingly popular in the business world as they aid companies to form strategic alliances. These strategic alliances allow companies to gain competitive advantage through access to a partners resources, including markets, technologies, capital and people. International Joint Ventures are viewed as a practical vehicle for knowledge transfer, such as technology transfer, from multinational expertise to local companies, and such knowledge transfer can contribute to the performance improvement of local companies. Within IVs one or more of the parties is located outside of United States or where the operations of the IV take place and they frequently involve a local and foreign company. Basic Elements of an International Ventures Contractual Agreement. IVs are established by express contracts that consist of one or more agreements involving two or more individuals or organizations and that are entered into for a specific business purpose. Specific Limited Purpose and Duration. International Ventures are formed for a specific business objective and can have a limited life span or be long-term. International Ventures are frequently established for a limited duration because (a) the complementary activities involve a limited amount of assets; (b) the complementary assets have only a limited service life; and/or (c) the complementary production activities will be of only limited efficacy. Joint Property Interest. Each International Ventures participant contributes property, cash, or other assets and organizational capital for the pursuit of a common and specific business purpose. Thus, a International Ventures is not merely a contractual relationship, but rather the contributions are made to a newly-formed business enterprise, usually a corporation, limited liability company, or partnership. As such, the participants acquire a joint property interest in the assets and subject matter of the International Ventures Common Financial and Intangible Goals and Objectives. The International Ventures participants share a common expectation regarding the nature and amount of the expected financial and intangible goals and objectives of the IV. The goals and objectives of a IV tend to be narrowly focused, recognizing that the assets deployed by each participant represent only a portion of the overall resource base.

Shared Profits, Losses, Management, and Control. The IV participants share in the specific and identifiable financial and intangible profits and losses, as well as in certain elements of the management and control of the IV. Benefits Many of the benefits associated with International Joint Ventures are that they provide companies with the opportunity to obtain new capacity and expertise and they allow companies to enter into related business or new geographic markets or obtain new technological knowledge. Furthermore, International Joint Ventures are in most cases have a short life span, allowing companies to make short term commitments rather than long term commitments.Through International Joint Ventures, companies are given opportunities to increase profit margins, accelerate their revenue growth, produce new products, expand to new domestic markets, gain financial support, and share scientists or other professionals that have unique skills that will benefit the companies. Structure International Joint Ventures are developed when two companies work together to meet a specific goal. For example, Company A and Company B first begin by identifying and selecting an IV partner. This process involves several steps such as market research, partner search, evaluating options, negotiations, business valuation, business planning, and due diligence. These steps are taken on by each company. There are also legal procedures involved such as IV agreement, ancillary agreements, and regulatory approvals.Once this process is complete, the IV Company is formed and during this final procedure the steps taken are formation and management. Structuring IVs can pose a challenge when parties are from two different cultural backgrounds or jurisdictions. Once both parties have come to an agreement on fundamental issues such as commercial nature, scope and mutual objectives of the joint venture, the parties must decide on where, geographically, the venture will take place and what the legal structure for the venture will look like. Most of the time, the structure agreed on will be between different types of corporations, partnerships, or some form of a limited liability company. Management

There are two types of International Joint Ventures: dominant parent and shared management. Within dominant parent IVs, all projects are managed by one parent who decides on all the functional managers for the venture.The board of directors, which is made up of executives from each parent, also plays a key role in managing the venture by making all the operating and strategic decisions.A dominant parent enterprise is beneficial where an International Joint Venture parent is selected for reasons outside of managerial input. On the other hand, shared management ventures consist of both parents managing the enterpris Each parent organizes functional managers and executives that will be within the board of directors.In this form of management, there are also two types of shared management ventures. The first type is 50:50 IV and this is where each partner puts in 50% of the equity in return for 50% participating control. The second type is where both partners can negotiate that not all shared management ventures are 50:50 and that one partner has more than a co-equal role in the IV. Finance When two or more partners get together and form an International Joint Venture agreement, they must decide early on in regards to what the financial structure will entail as this will aid in management and control. Some of the steps include establishing the capital required to start the IV, the impact of securing a strong strategic alliance partner, and financial reporting. Once an arrangement is made, a tax-planned joint venture will be created which will aid in maximizing the after-tax returns. Factors affecting IV Economic Factors Poor formation and planning Problems that arise in joint ventures are usually as a result of poor planning or the parties involved being too hasty to set up shop. For example, a marketing strategy may fail if a product was inappropriate for the joint venture or if the parties involved failed to appropriately asses the factors involved . Parties must pay attention to several analysis both of the environment and customers they hope to operate in. Failure to do this sets off a bad tone for the venture, creating future problems. Unexpected poor financial performance

One of the fastest ways for a joint venture is financial disputes between parties. This usually happens when the financial performance is poorer than expected either due to poor sales, cost overruns or others. Poor financial performance could also be as a result of poor planning by the parties before setting up a joint venture, failure to approach the market with sufficient management efficiency and unanticipated changes in the market situation. A good solution to this is to evaluate financial situations thorough before and during very step of the joint venture. Management Problems One of the biggest problems of joint ventures is the ineffective blending of managers who are not used to working together of have entirely different ways of approaching issues affecting the organization. It is a well-known fact that many joint ventures come apart due to misunderstanding over leadership strategies. For a successful joint venture, there has be understanding and compromise between parties, respect and integration of the strengths of both sides to overcome the weaker points and make their alliance stronger. Inappropriate Management Structure In a bid to have equal rights in the venture, there could be a misfit of managers. As a result, there is a major slowdown of decision making processes. Daily operational decisions that are best made quickly for more efficiency of the business tends to be slowed down because there is now a committee that is in place to make sure both parties support every little decision. This could distract from the bigger picture leading to major problems in the long run. Economic Environment of IV The ultimate goal of a successful JV partnership is more customers and a stronger body. To ensure a JV's partnerships are as profitable as possible, it helps to look at them from the customers point of view. The features a JV partnership should aim to address for an effective marketing campaign: Channeling the expertise and strengths of both parties to maximize value for the customers and stakeholders while downplaying the weaknesses and presenting a united font. Cultures of IV When a joint venture is formed, it is literarily an attempt at blending two or more cultures in the hope of leveraging on the strength of each party. Lack of understanding of the cultures of the individual parties poses a huge problem if not addressed. A common problem in these multi-

cultural enterprises is that the culture is not considered in their initial formation. It is usually assumed that the cultural issues will be addressed later when the new unit has been created. Usually, compromises are reached and certain cultural from the parties are kept on while others are others are either out rightly discarded or modified. Pros and Cons for IV The joint venture is becoming a popular way for companies that outsource their operations to retain a piece of the ownership pie. The creation of a new legal entity during the launch of a joint venture comes with its share of ups and downs. On the plus side Joint ventures enable companies to share technology and complementary IP assets for the production and delivery of innovative goods and services. For the smaller organization with insufficient finance and/or specialist management skills, the joint venture can prove an effective method of obtaining the necessary resources to enter a new market. This can be especially true in attractive markets, where local contacts, access to distribution, and political requirements may make a joint venture the preferred or even legally required solution. Joint ventures can be used to reduce political friction and improve local/national acceptability of the company. Joint ventures may provide specialist knowledge of local markets, entry to required channels of distribution, and access to supplies of raw materials, government contracts and local production facilities. In a growing number of countries, joint ventures with host governments have become increasingly important. These may be formed directly with State-owned enterprises or directed toward national champions. There has been growth in the creation of temporary consortium companies and alliances, to undertake particular projects that are considered to be too large for individual companies to handle alone (e.g. major defence initiatives, civil engineering projects, new global technological ventures).

Exchange controls may prevent a company from exporting capital and thus make the funding of new overseas subsidiaries difficult. The supply of know-how may therefore be used to enable a company to obtain an equity stake in a joint venture, where the local partner may have access to the required funds. On the minus side A major problem is that joint ventures are very difficult to integrate into a global strategy that involves substantial cross-border trading. In such circumstances, there are almost inevitably problems concerning inward and outward transfer pricing and the sourcing of exports, in particular, in favour of wholly owned subsidiaries in other countries. The trend toward an integrated system of global cash management, via a central treasury, may lead to conflict between partners when the corporate headquarters endeavours to impose limits or even guidelines on cash and working capital usage, foreign exchange management, and the amount and means of paying remittable profits. Another serious problem occurs when the objectives of the partners are, or become, incompatible. For example, the multinational enterprise may have a very different attitude to risk than its local partner, and may be prepared to accept short-term losses in order to build market share, to take on higher levels of debt, or to spend more on advertising. Similarly, the objectives of the participants may well change over time, especially when wholly owned subsidiary alternatives may occur for the multinational enterprise with access to the joint venture market. Problems occur with regard to management structures and staffing of joint ventures. Many joint ventures fail because of a conflict in tax interests between the partners. Disputes & Agreements Disputes When two or more partners agree on an International Joint Venture, there are possibilities for disputes to arise. Particularly in IVs, there can be issues between the partners whom are likely to want their home countrys governing law and jurisdiction to apply to any disputes that may come up; therefore, to avoid such a problem, a neutral governing law and jurisdiction if chosen in some cases.A popular dispute resolution technique used in IVs is arbitration; however, many times a court process is given priority as this system has more authority. Other dispute resolution strategies utilized are mediation and litigation.

Agreements Entering into an International Joint Venture agreement begins with the selection of partners and then generally this process continues to a Memorandum of Understanding or a Letter of Intent is signed by both parties.The Memorandum of Understanding is a document describing an agreement between parties. On the other hand, a Letter of Intent is a document outlining an agreement between the parties before the agreement is finalized. Before signing an IV, specific aspects of the agreement must be addressed such as applicable law, holding shares, transfer of shares, board of directors, dividend policy, funding, access, confidentiality and termination. IV in Different Countries IV in China An IV is an attractive way to get into Chinese market for the people who are unfamiliar with the completed culture and the less opened market. But China is becoming more and more global and familiar to the world. IV is fading out because of the practical difficulties in picking a proper partner, management, technology transfer profit sharing and soon. There are two main types of IV in China: Equity Joint Ventures and Cooperative Joint Ventures. Equity Joint Ventures (EJVs): An equity joint venture is a partnership between an overseas and a Chinese individual, enterprises or financial organizations approved by the Chinese government. Companies in an equity joint venture share both mutual rewards, risks and losses according to the ratio of investment.A minimum of 25% the capital must be contributed by the foreign partners, and no minimum investment for the Chinese partners.A joint venture is free to hire Chinese nationals without the interference form government employment industries by abiding Chinese Labor Law, and purchase land, build their own buildings, and privileges prevented to representative offices. Cooperative Joint Ventures (CJVs) CJVs are a rather unevenly regulated form of IV between Chinese and foreign-based companies. They are usually found in venture, which are both technology-based and have a substantial requirement for fixed assets, for example infrastructure and volume manufacturing.

No minimum foreign contribution is required to initiate cooperative venture and the contributions made by the investors are not necessarily expressed in a monetary value. These contributions can include excluded in the equity joint venture process can be contributed such as labor, resources, and services. Greater flexibility in the structuring of a cooperative venture is also permissible including the structure of the organization, management, and assets. IV in Turkey International joint ventures have been played a significant role in the reform and liberalization of the laws governing foreign investors as part of Turkey's economic program adopted after 2001. Turkey lies on the borders between Europe and Asia and is used as a way to achieve strategic goals to enter into the Asian or European market, which is important for those wanting to entre EU market since Turkey signed the European Customs Union (ECU). The Turkish Accounting Standards Board requires that all enterprises established under the Turkish Commercial Code in Turkey must prepare statutory financial statements in compliance with the Turkish Accounting Standards Board, which makes all accounting data transparent and more reliable for all parties involved. Under Turkish Law, a joint venture may be formed under two umbrellas: Commercial Company, governed by the Turkish Commercial Code or Ordinary Company, Governed by the Turkish Code of Obligations. Commercial Company A Commercial Company is registered and recognized as having a legal identity separate from its shareholders. According to the Turkish Commercial Code, the commercial enterprise JV may be established under five titles; an unlimited partnership (general partnerships), limited partnerships (special partnerships), companies limited by shares (stock corporations), limited liability companies (corporations without shares) and cooperative companies (cooperative societies). Ordinary Company The other form of joint venture, which is an Ordinary Company governed by the Turkish Code of Obligations, is not recognized as having a legal identity. Normal ordinary partnerships and consortiums are used as a vehicle for foreigners who want to partner with Turkish entities or

participate in a tender and are ideal for achieving relatively short-term specific objectives for example construction of a bridge. Examples of successful IV Aera Energy Aera Energy covers a large area of California. The state's leading oil and gas producer (accounting for 30% of California's total production), Aera Energy's properties extend from the Los Angeles Basin in the south to Coalinga in the north. It has daily production of 165,000 barrels of oil and 50 million cubic feet of natural gas and boasts proved onshore and offshore reserves of 800 million barrels of oil equivalent. Aera Energy also has interests in real estate operations (in partnership with homebuilder Toll Brothers). The exploration and production company is a joint venture of affiliates of Exxon Mobil and Royal Dutch Shell. Omega Navigation Enterprises Inc. Omega Navigation Enterprises Inc. is an international provider of marine transportation services focusing on seaborne transportation of refined petroleum products.One of the vessels, namely the Omega Duke, is owned through a 50% controlled joint venture with Topley Corporation, a wholly owned subsidiary of Glencore International AG (Glencore). They have also formed an equal partnership joint venture company with Topley Corporation, namely Megacore Shipping Ltd. Japan Nuclear Fuel Co., Ltd. (JNF) Japan Nuclear Fuel Co., Ltd. (JNF), the predecessor of Global Nuclear Fuel Japan Co., Ltd. (GNF-J), started operation here in Kurihama in 1967 as a nuclear fuel manufacturing joint venture among General Electric Company (US), Toshiba Corporation and Hitachi Limited.Since it began supplying the first domestically produced nuclear fuel in 1971, GNF-J, a pioneer nuclear fuel manufacturer, has delivered more than 70,000 fuel bundles to various nuclear power plants across the country and contributed to the stable supply of energy in Japan. On January 1, 2000, the sales, design and development operations were transferred from the three joint venture partners to JNF and JNF made a new start as a GE group company, later changing its name to GNF-J, by offering core management services as well as handling MOX fuel design and quality control. IJM (India) Infrastructure Limited (IJMII) is a Company registered under the

Companies Act 1956 IJMII is a Malaysian Multinational, which is a subsidiary of IJM Corporation Bhd.(IJM), Malaysia. IJM, whose core competency is construction, is one of the Malaysia's largest and most diversified construction groups, with world-wide presence with specialization in the areas of construction, property development, manufacturing, quarrying, plantation and international ventures. Its current operations are spread over Malaysia, India, Australia, Argentina, Chile, China, Myanmar, Singapore and Vietnam. IJM is a highly quality conscious company with the motto of "Excellence Through Quality". IJMII has been actively participating in the high growth opportunities offered by Indian Infrastructure Industry, more specifically in the construction sector. IJMII's main thrust is in construction and upgrading of highways and property development including world class townships and commercial buildings using modern technology and equipment. IJM (India) Infrastructure Limited is firmly committed to its quality motto of "We Deliver" On Time within Budget with Commitment. Tata Precision- Tata Precision is set up in 1995, which is a 50:50 joint venture between Tata Precision Industries Pte. Ltd., Singapore and Tata International Limited, India. The business line includes precision metal and plastic parts for engineering, wireless control and automobile sectors. Tata Precision is a world class manufacturer of precision engineering parts and the company has facilities in India, at Dewas. Tata Precision, an ISO 9001:2000 accredited organisation, endeavours to provide customer delight through world class quality and services.


Creating an effective global work force means knowing when to use "expats," when to hire "locals" and how to create that new class of employees -- the "glopats." By John A. Quelch and Helen Bloom The scarcity of qualified managers has become a major constraint on the speed with which multinational companies can expand their international sales. The growth of the knowledgebased society, along with the pressures of opening up emerging markets, has led cutting-edge global companies to recognize now more than ever that human resources and intellectual capital are as significant as financial assets in building sustainable competitive advantage. To follow their lead, chief executives in other multinational companies will have to bridge the yawning chasm between their companies' human resources rhetoric and reality. H.R. must now be given a prominent seat in the boardroom. Good H.R. management in a multinational company comes down to getting the right people in the right jobs in the right places at the right times and at the right cost. These international managers must then be meshed into a cohesive network in which they quickly identify and leverage good ideas worldwide. Such an integrated network depends on executive continuity. This in turn requires career management to insure that internal qualified executives are readily available when vacancies occur around the world and that good managers do not jump ship because they have not been recognized. Very few companies come close to achieving this. Most multinational companies do not have the leadership capital they need to perform effectively in all their markets around the world. One reason is the lack of managerial mobility. Neither companies nor individuals have come to terms with the role that managerial mobility now has to play in marrying business strategy with H.R. strategy and in insuring that careers are developed for both profitability and employability. Ethnocentricity is another reason. In most multinationals, H.R. development policies have tended to concentrate on nationals of the headquarters country. Only the brightest local stars were given the career management skills and overseas assignments necessary to develop an international mindset. The chief executives of many United States-based multinational companies lack confidence in the ability of their H.R. functions to screen, review and develop candidates for the most

important posts across the globe. This is not surprising: H.R. directors rarely have extensive overseas experience and their managers often lack business knowledge. Also, most H.R. directors do not have adequate information about the brightest candidates coming through the ranks of the overseas subsidiaries. "H.R. managers also frequently lack a true commitment to the value of the multinational company experience," notes Brian Brooks, group director of human resources for the global advertising company WPP Group Plc. The consequent lack of world-wise multicultural managerial talent is now biting into companies' bottom lines through high staff turnover, high training costs, stagnant market shares, failed joint ventures and mergers and the high opportunity costs that inevitably follow bad management selections around the globe. Companies new to the global scene quickly discover that finding savvy, trustworthy managers for their overseas markets is one of their biggest challenges. This holds true for companies across the technology spectrum, from software manufacturers to textile companies that have to manage a global supply chain. The pressure is on these newly globalizing companies to cut the trial-and-error time in building a cadre of global managers in order to shorten the leads of their larger, established competitors, but they are stymied as to how to do it. The solution for multinationals is to find a way to emulate companies that have decades of experience in recruiting, training and retaining good employees across the globe. Many of these multinational companies are European, but not all. Both Unilever and the International Business Machines Corporation, for example, leverage their worldwide H.R. function as a source of competitive advantage. Anglo-Dutch Unilever has long set a high priority on human resources. H.R. has a seat on the board's executive committee and an organization that focuses on developing in-house talent and hot-housing future leaders in all markets. The result is that 95 percent of Unilever's top 300 managers are fully home grown. Internationalization is bred into its managers through job content as well as overseas assignments. Since 1989, Unilever has redefined 75 percent of its managerial posts as "international" and doubled its number of managers assigned abroad, its expatriates, or "expats." I.B.M., with 80 years' experience in overseas markets, reversed its H.R. policy in 1995 to deal with the new global gestalt and a new business strategy. Instead of cutting jobs abroad to reduce costs, I.B.M. is now focusing on its customers' needs and increasing overseas

assignments. "We are a growing service business -- our people are what our customers are buying from us," explained Eileen Major, director of international mobility at I.B.M. When managers sign on with these companies, they know from the start that overseas assignments are part of the deal if they wish to climb high on the corporate ladder. These multinational companies manage their H.R. talent through international databases that, within hours, can provide a choice of Grade-A in-house candidates for any assignment. Even allowing for company size, few United States-based multinationals come close to matching the bench strength of a Unilever or Nestl. The Japanese multinationals are even farther behind. The strategy demands global H.R. leadership with standard systems but local adaptation. The key underlying ideas are to satisfy your company's global human resources needs via feeder mechanisms at regional, national and local levels, and to leverage your current assets to the fullest extent by actively engaging people in developing their own careers.
The first, and perhaps most fundamental, step toward building a global H.R. program is

to end all favouritism toward managers who are nationals of the country in which the company is based. Companies tend to consider nationals of their headquarters country as potential expatriates and to regard everyone else as "local nationals." But in today's global markets, such "us-versus-them" distinctions can put companies at a clear disadvantage, and there are strong reasons to discard them:

Ethnocentric companies tend to be xenophobic -- they put the most confidence in nationals of their headquarters country. This is why more nationals get the juicy assignments, climb the ranks and wind up sitting on the board -- and why the company ends up with a skewed perception of the world. Relatively few multinational companies have more than token representation on their boards. A.B.B. is one company that recognizes the danger and now considers it a priority to move more executives from emerging countries in eastern Europe and Asia into the higher levels of the company.

Big distinctions can be found between expatriate and local national pay, benefits and bonuses, and these differences send loud signals to the brightest local nationals to learn as much as they can and move on.

Less effort is put into recruiting top-notch young people in overseas markets than in the headquarters country. This leaves fast-growing developing markets with shallow bench strength.

Insufficient attention and budget are devoted to assessing, training and developing the careers of valuable local nationals already on the company payroll.

Conventional wisdom has defined a lot of the pros and cons of using expatriates versus local nationals. (See Exhibits I and II). But in an increasingly global environment, cultural sensitivity and cumulative skills are what count. And these come with an individual, not a nationality.

After all, what exactly is a "local national"? Someone who was born in the country? Has a parent or a spouse born there? Was educated there? Speaks the language(s)? Worked there for a while? All employees are local nationals of at least one country, but often they can claim a connection with several. More frequent international travel, population mobility and crossborder university education are increasing the pool of available hybrid local nationals. Every country-connection a person has is a potential advantage for the individual and the company. So it is in a multinational company's interests to expand the definition of the term "local national" rather than restrict it. Based on your company's business strategy, identify the activities that are essential to achieving success around the world and specify the positions that hold responsibility for performing them. These positions represent the "lifeline" of your company. Typically, they account for about 10 percent of management. Then define the technical, functional and soft skills needed for success in each "lifeline" role. As Ms. Major of I.B.M. notes, "It is important to understand what people need to develop as

executives. They can be savvy functionally and internationally, but they also have to be savvy inside the organization." This second step requires integrated teams of business and H.R. specialists working with line managers. Over time, they should extend the skills descriptions to cover all of the company's executive posts. It took 18 months for I.B.M. to roll out its worldwide skills management process to more than 100,000 people in manufacturing and development. A good starting point is with posts carrying the same title around the globe, but local circumstances need to be taken into account. Chief financial officers in Latin American and eastern European subsidiaries, for example, should know how to deal with volatile exchange rates and high infiation. Unilever circulates skills profiles for most of its posts, but expects managers to adapt them to meet local needs. Compiling these descriptions is a major undertaking, and they will not be perfect because job descriptions are subject to continuous change in today's markets and because perfect matches of candidates with job descriptions are unlikely to be found. But they are an essential building block to a global H.R. policy because they establish common standards. The lifeline and role descriptions should be revisited at least annually to ensure they express the business strategy. Many companies recognize the need to review the impact of strategy and marketplace changes on high-technology and R&D roles but overlook the fact that managerial jobs are also redrawn by market pressures. The roles involved in running an emerging market operation, for example, expand as the company builds its investment and sales base. At I.B.M., skills teams update their role descriptions every six months to keep pace with the markets and to inform senior managers which skills are "hot" and which the company has in good supply. The main tool of a global H.R. policy has to be a global database simply because multinational companies now have many more strategic posts scattered around the globe and must monitor the career development of many more managers. Although some multinational companies have been compiling worldwide H.R. databases over the past decade, these still tend to concentrate on posts at the top of the organization, neglecting the middle managers in the country markets and potential stars coming through the ranks. I.B.M. has compiled a database of senior managers for 20 years, into which it feeds names of promising middle managers, tracking them all with annual reviews. But it made the base

worldwide only 10 years ago. Now the company is building another global database that will cover 40,000 competencies and include all employees worldwide who can deliver those skills or be groomed to do so. I.B.M. plans to link the two databases by 2000. Unilever has practiced a broader sweep for the past 40 years. It has five talent "pools" stretching from individual companies (e.g., Good Humor Breyers Ice Cream in the United States and Walls Ice Cream in Britain) to foreign subsidiaries (e.g., Unilever United States Inc. and Unilever U.K. Holdings Ltd.) to global corporate headquarters. From day one, new executive trainees are given targets for personal development Evaluate your managers in terms of their willingness to move to new locations as well as their ability and experience. Most H.R. departments look at mobility in black-orwhite terms: "movable" or "not movable." But in today's global markets this concept should be viewed as a graduated scale and constantly reassessed because of changing circumstances in managers' lives and company opportunities. This will encourage many more managers to opt for overseas assignments and open the thinking of line and H.R. managers to different ways to use available in-house talent.

Some multinational companies, for example, have been developing a new type of manager whom we term "glopats": executives who are used as business-builders and trouble shooters in short or medium-length assignments in different markets. Other multinational companies are exploring the geographical elasticity of their local nationals. I.B.M. uses its global H.R. database increasingly for international projects. In preparing a proposal for a German car manufacturer, for instance, it pulled together a team of experts with automotive experience in the client's major and new markets. To reduce costs for its overseas assignments, I.B.M. has introduced geographic "filters": a line manager signals the need for outside skills to one of I.B.M.'s 400 resource coordinators, who aims to respond in 72 hours; the coordinator then searches the global skills database for a match, filtering the request through a series of ever-widening geographic circles. Preference is often given to the suitable candidate who is geographically closest to the assignment. The line manager then negotiates with that employee's boss or team for the employee's availability.

The shape of a company's mobility pyramid will depend on its businesses, markets and development stage and will evolve as the company grows. A mature multinational foodprocessing company with decentralized operations, for example, might find a fiat pyramid adequate, whereas a multinational company in a fast-moving, high-technology business might need a steeper pyramid with proportionately more glopats. Require over time that every executive join the global H.R. system. This makes it harder for uncut diamonds to be hidden by their local bosses. Recognizing that people's situations and career preferences shift over time, hold all managers and technical experts responsible for updating their c.v.'s and reviewing their personal profiles at least once a year. Companies should make it clear that individual inputs to the system are voluntary but that H.R. and line managers nevertheless will be using the data to plan promotions and international assignments and to assess training needs Compare the skills detailed in the personal assessments with those required by your business strategy. This information should form the basis for your management development and training programs and show whether you have time to prepare internal candidates for new job descriptions. Unilever uses a nine-point competency framework for its senior managers. It then holds the information in private databases that serve as feeder information for its five talent pools. The company thoroughly reviews the five pools every two years and skims them in between, always using a three- to five-year perspective. In 1990, for example, its ice cream division had a strategic plan to move into 30 new countries within seven years. Unilever began hiring in its current markets with that in mind and set up a mobile "ice cream academy" to communicate the necessary technical skills. I.B.M. applies its competency framework to a much broader personnel base and conducts its skills gap analyses every six months. Business strategists in every strategic business unit define a plan for each market and, working with H.R. specialists, determine the skills required to succeed in it. Competencies are graded against five proficiency levels. Managers and functional experts are responsible for checking into the database to compare their capabilities against the relevant skills profiles and to determine whether they need additional training. Their assessments are reviewed, discussed and validated by each

executive's boss, and then put into the database. "Through the database, we get a business view of what we need versus what we have," explains Rick Weiss, director of skills at I.B.M. "Once the gaps are identified, the question for H.R. is whether there is time to develop the necessary people or whether they have to be headhunted from the outside." Search for new recruits in every important local market as regularly as you do in the headquarters country. Develop a reputation as "the company to join" among graduates of the best universities, as Citibank has in India, for example. The best way to attract stellar local national recruits is to demonstrate how far up the organization they can climb. Although many Fortune 500 companies in the United States derive 50 per cent or more of their revenues from non-domestic sales, only 15 percent of their senior posts are held by non-Americans. There may be nothing to stop a local national from reaching the top, but the executive suite inevitably reflects where a company was recruiting 30 years earlier. Even today, many multinational companies recruit disproportionately more people in their largest -- often their longest-established -- markets, thereby perpetuating the status quo. To counter such imbalances, a multinational company must stress recruitment in emerging markets and, when possible, hire local nationals from these markets for the middle as well as the lower rungs of its career ladder. Philips Electronics N.V., for example, gives each country subsidiary a target number of people to bring through the ranks for international experience. Some go on to lengthy international careers; others return to home base, where they then command more respect, both in the business and with government officials, as a result of their international assignments.
Run your own global labour market. In a large company, it is hard to keep track of the

best candidates. For this reason, I.B.M. now advertises many of its posts on its worldwide Intranet. Unilever usually advertises only posts in the lower two pools, but this policy varies by country and by business unit. Routine internal advertising has many advantages in that it:

Allows a competitive internal job market to function across nationalities, genders and other categories. Shows ambitious people they can make their future in the company.

Makes it harder for bosses to hide their leading lights. Attracts high-fiyers who may be ready to jump ship. Helps to break down business-unit and divisional baronies. Reduces inbreeding by transferring managers across businesses and divisions. Gives the rest of the company first pick of talent made redundant in another part of the world. Solidifies company culture. Is consistent with giving employees responsibility to manage their own careers.

There are also certain disadvantages to this practice: Line managers have to fill the shoes of those who move; a central arbiter may need to settle disputes between departments and divisions, and applicants not chosen might decide to leave. To prevent that, disappointed applicants should automatically be routed through the career development office to discuss how their skills and performance mesh with their ambitions. I.B.M. used to hire only from the inside, but five years ago it began to recruit outsiders -including those from other industries -- to broaden thinking and add objectivity. Unilever is large enough that it can garner a short list of three to five internal candidates for any post. Yet it still fills 15 percent to 20 percent of managerial jobs from outside because of the need for specialist skills and because of the decreasing ability to plan where future growth opportunities will occur. Every manager in a lifeline job should be required to nominate up to three candidates who could take over that post in the next week, in three months or within a year, and their bosses should sign off on the nominations. This should go a long way toward solving succession questions, but it will not resolve them completely. The problem in large multinational companies is that many of today's successors may leave the company tomorrow. In addition, managers name only those people they know as successors. Third, the chief executives of many multinational companies keep their succession plans if they have any only in their heads. This seems to overlook the harsh realities of life and death. A better approach is that of one European shipping magnate who always carries a written list with the name of a successor for the captain of every boat in his fleet. Global networks that transfer knowledge and good practices run on people-to-people contact and continuity. Executive continuity also cuts down on turnover, recruitment

and opportunity costs. As international competition for talent intensifies, therefore, it becomes increasingly important for companies to retain their good managers. Monetary incentives are not sufficient: the package must include challenge, personal growth and job satisfaction. A policy should be adopted that invites employees to grow with the company, in every market. In addition, a career plan should be drawn up for every executive within his or her first 100 days in the organization. And plans should be reviewed regularly to be sure they stay aligned with the business strategy and the individual's need for job satisfaction and employability. Overseas assignments and cross-border task forces are excellent ways to challenge, develop and retain good managers. They can also be awarded as horizontal "promotions." This is particularly useful since the fiat organizations currently in fashion do not have enough levels for hierarchical promotions alone to provide sufficient motivation. Unilever has long had a policy of retentive development and manages to hold on to 50 per cent of its high-flyers. As an integral part of its global H.R. policy, it develops the "good" as well as the "best." Unilever reasons realistically that it needs to back up its high-flyers at every stage and location with a strong bench of crisis-proof, experienced supporters who also understand how to move with the markets. Unilever bases these policies on three principles: 1. Be very open with people about the company's assessment of their potential and future. 2. Pay people well -- and pay those with high potential really well, even though it may look like a distortion to others. 3. Don't hesitate too long to promote people who have shown ability. Sometimes this policy involves taking risks with people. But the point of a good system is to enable a company to place bets on the right people. Most multinational companies now do a good job of globalizing the supply chains for all their essential raw materials -- except human resources. Players in global markets can no longer afford this blind spot. Competition for talent is intensifying, and demand far outstrips supply. To have the multicultural skills and vision they need to succeed, companies will have to put into place programs that recruit, train and retain managers in all their markets.

If companies are to handle the challenges of globalization and shift to a knowledge-based economy, they must develop systems that "walk their talk" that people are their most valuable resource. The purpose of a global H.R. program is to insure that a multinational company has the right talent, managerial mobility and cultural mix to manage effectively all of its operating units and growth opportunities and that its managers mesh into a knowledge-sharing network with common values.


Toyota is one of the worlds leading car manufacturers and is the third largest in the world. Although based in Japan, Toyota produces most of its cars in its transplants in Georgetown, Kentucky, and Burnaston, Derbyshire. Toyota is a typical transnational corporation who understand that considerable gains can be made by locating manufacturing plants outside their country of origin. Toyota expanded to Europe in 1992 in order to achieve the benefits associated with establishing a manufacturing base in another country. Toyota's need for a European location came in 1992. The quotas and tariffs that had protected domestic car industries since the 1970's would be removed in January 1993 to create a 'Single European Market'. By locating a transplant in Burnaston, Toyota effectively became 'a European car manufacturer', and could therefore avoid paying the tariffs that still existed for countries outside the EU. Toyota's previous problem was that it could not supply enough cars to meet demand in Europe due to quotas restricting the number of cars that could be manufactured. In 1992, they were able to overcome this by moving the manufacture of the more popular models to the Burnaston plant. The less popular models were still produced in Japan.

At Burn Aston, Toyota was able to employ an educated work force. The large labour force had good engineering skills and high levels of productivity and training. As well as this, labour costs were also relatively low, causing the UK to be known as the Taiwan of Europe.' Toyota was attracted to the East Midlands because of its engineering tradition. They may have looked at the success of Rolls Royce in the area and hoped to follow in their footsteps. Toyota also has a plant in Deeside, North Wales; this provides the engines, which are transported to Burn Aston by a road linking the two plants. Infrastructure is very important for a TNC. By locating transplants in MEDC's, Toyota benefits from the sophisticated infrastructure that is already likely to exist, whereas in LEDC's, lack of infrastructure may cause problems. In Burn Aston, Toyota benefited from the money that was available to build new road. The ASS and A50 make access to the plant easy, and provide a link with the Ml and M6. At the plant in Kentucky, there weren't many trained labourers, so Toyota had the advantage of green labour' where many of their employees had never worked in a factory before. With 'green labour', there are less likely to be disputes over pay or working conditions. Employees can also be trained from scratch the 'Toyota way; they won't be stuck in the ways of their previous company. In Kentucky, Toyota pays double the average wage in the area, and its popularity is shown in the fact that 70000 people applied for only 3000 jobs.

Toyota is a 'footloose industry' and is not tied to any particular location by raw materials or industrial inertia. Toyota's plant at Burnaston is located on a 'greenfield site' a piece of land that has never been used for industry. The land was once an airfield, and provided 280 acres for the development and expansion of the transplant. MEDC's offer lots of incentives to TNC's which are looking to locate a factory in their country. This is because the introduction of a new industry will make a big difference to that country's economy. Toyota was given $3million to help build the plant in Kentucky. At the Burnaston plant, Derbyshire county council offered many financial and social incentives to attract the factory to their area. Toyota has many philosophies behind the way its transplants operate. Toyota demands loyalty and commitment from its employees in return for regular pay rises, a generous pension plan, and a safe, well run environment in which to work. Toyota calls its employees 'team members'. This is unusual, and adds to the originality of the company. Becoming 'team members' makes each individual feel like an important part of an international company. Toyota is such a popular company to work for that it can afford to choose its employees carefully to ensure they get the highest quality labour force. They are one of the few companies that interviews applicants who will work on the 'shop floor' and they have one of the most technical training programs around. Workshops are set up where potential employees can demonstrate their technical and practical skills as well as their ability to work as a team. Team work is essential if Toyota is to continue its success. Toyota sets high standards and aims to produce 1 car per minute. There is no room for carelessness or mistakes. However, the factory line is not highly automated and they rely on quality and rectification. This means 'team members' are given a lot of trust and responsibility, this leads to a high level of job satisfaction. The employees work better because they know they are trusted and don't want to let the company down. A win-win situation is created. The system of car production in Toyota's transplants is very precise so maximum efficiency is achieved. Employees know exactly how many car parts they fit each day. This can lead to problems. Repetitiveness can lead to low job satisfaction and repetitive strain injury. To overcome these problems, Toyota operates on a rotation job basis. Workers use different muscles so risk of injury is lowered. It also leads to the development of a multi skilled work force.

A multi skilled work force is very important because it means that if people are ill or are on holiday, there will be no problem finding someone else to carry out their tasks. It also prevents demarcation disputes; there are no dividing lines between one job function and another. Toyota recently decided to introduce a third shift at its Derbyshire plant. It pushes its employees hard, but despite this, there are no trade unions. This is surprising, because although Toyota appears to be the ideal company to work for, there must be disputes that occur. There is an anonymous complaints line which is put in place to deal with problems that workers may have. Toyota offers a job for life, but may find that they cannot always fulfil this promise and this could be seen as going back on their word, and give the company a bad name. Toyota has a 'no blame' culture, if anything goes wrong, the system is blamed, not the employees. Toyota has a teamwork ethos, and there is less of a hierarchical structure compared to other companies. Toyota uses Just-in-time production, a Japanese philosophy whereby components are not stockpiled months in advance, but ordered when required. This has implications such as their quality control must be excellent and ensure 'zero defects'. It also means that local suppliers would be at an advantage if they locate close to the assembly point, as some batches must be delivered several times a day. Just-in-time production removes storage costs and benefits local suppliers. When companies such as Toyota locate transplants in another country, their impact on the local economy is great. There are also social and environmental impacts. Transplants create direct and indirect employment, local people become wealthier and spend more, and therefore local services benefit too. This is known as the multiplier effect. When the factory opened, it was thought to be 'the most talked about industrial site in the Midlands', it produces 220,000 cars a year, and so requires a large work force. The employees have greater spending power, and this benefits local services. There may be an influx of people moving to the area if they don't want to have to commute long distances, so houses may be in high demand in areas such as Chellaston. People will pay higher taxes, government revenue is increased, and then more money is invested in the area. Toyota relies on other manufacturing industries to supply it with components. These industries become wealthier due to the custom of Toyota. These companies are all over the country, so the impact of Toyota can be seen many miles away from the actual factory.

'Johnson Controls' in Telford produces car seats for Toyota, and another company; 'Quick Tool' produces brackets and fixtures. These industries can take on more workers and may gain a good reputation for supplying such a well known car manufacturer. This could earn them more deals in the future.Transplants employ relatively few workers and more jobs are created indirectly. Toyota has an identical transplant in Georgetown, Kentucky. Georgetown has benefited because of additions in the payment of taxes and evidence of the multiplier effect is great. Toyota pays a total of $350 million in wages, giving a huge boost to the local economy. There are 3400 jobs in the plant, and 9000 jobs in related industries. Overall, 35,000 jobs were created. This reduces unemployment levels greatly. One of the conditions of Toyotas move to Europe was that its cars had to be 80% local content. Toyota had to buy the components from local suppliers so the British economy would benefit. However, legislation states that, if two Japanese components are put together in Britain to form a new component that can be classed as local content, even though the parts are essentially Japanese. This affects the extent of the multiplier effect on the economy, because a large amount of money is going to Japan. Toyota has achieved overwhelming success in Britain. This is shown in the number of extra jobs that are created and the output of cars that are exported to the rest of Europe. Toyota's competitors complain that Toyota has unfair advantages, such as still using Japanese components. British car manufacturers have suffered greatly due to competition from foreign manufacturers, and their complaints could be regarded as sour grapes, but they may have valid points to make. Toyota is a Japanese manufacturer taking advantage of the benefits it gains from having a plant in Britain, but it also has all the advantages of the Japanese philosophies, and it continues to use Japanese components and they can still be regarded as 'Local content'. Japan is making most of the money and using Britain as a cheap place to manufacture its cars. 60% of Toyotas cars are transported to Europe, and British manufacturers are suffering due to the overwhelming competition. Competitors say that Britain has turned into a 'Japanese aircraft carrier,' a base for Japan to sell cars and make money at the expense of British car manufacturers. Ford and other British car manufacturers have suffered closures and job losses. Ford had to stop car production at Dagenham, Vauxhall was forced to close its Luton plant,

and Rover went bankrupt and was bought out by a Chinese company. Many British cars have been taken over by other companies; the mini is now owned by BMW, Jaguar by Ford. One of the reasons that the British car manufacturers have suffered is because their methods of manufacture are slower than and not as efficient as Toyotas. Toyota uses the latest technology and best methods of production which ensures its profits are high, whereas other companies like Ford and GM are stuck in a downward spiral unable to achieve the same success as Toyota. Another reason for the downfall of British manufacturers is the impact the weak Euro had on the strong pound, which meant, in effect, that British cars were getting more expensive for people buying them in Europe. However, Toyota's decision to increase production at its Burnaston plant shows that it has faith in the British economy and the UK operation as part of its European strategy. Toyota is a thriving corporation, and overall, I believe competitors complaints can be regarded as sour grapes, simply because they realise they will never be able to keep up with the fast pace of Toyota.

2. PEPSI'S ENTRY INTO INDIA In 1988, the New York office of the President of the multi-billion cola company PepsiCo received a letter from India. The company had been trying for some time to enter the Indian market - without much success.

The letter was written by George Fernandes (Fernandes), the General Secretary of one of the country's leading political parties, Janata Dal. He wrote, "I learned that you are coming here. I am the one that threw Coca-Cola out, and we are soon going to come back into the government. If you come into the country, you have to remember that the same fate awaits you as Coca-Cola."2 This development did not seem to be a matter that could be ignored. PepsiCo's arch-rival and the world's number one cola company, Coca-Cola, had indeed been forced to close operations and leave India in 1977 after the Janata Dal came to power. 3 Even in the late 1980s, India had a closed economy and government intervention in the corporate sector was quite high. However, multinational companies such as PepsiCo had been eyeing the Indian market for a long time for a host of reasons. As the major market for PepsiCo, the US, seemed to be reaching saturation levels, the option to expand on a global scale seemed to have become inevitable for the company. India was a lucrative destination since its vast population offered a huge, untapped customer base. During the late 1980s, the per capita consumption of soft drinks in India was only three bottles per annum as against 63 and 38 for Egypt and Thailand respectively. Even its neighbor Pakistan boasted of a per capita soft drink consumption of 13 bottles. PepsiCo was also encouraged by the fact that increasing urbanization had already familiarized Indians with leading global brands. Given these circumstances, PepsiCo officials had been involved in hectic lobbying with the Indian government to obtain permission to begin operations in the country. However, the company could not deny that many political parties and factions were opposed to its entry into the country. It had therefore become imperative for PepsiCo to come up with a package attractive enough for the Indian government a few months later.

The company knew that the political and social problems4 that plagued Punjab were an extremely sensitive issue for India in the 1980s. PepsiCo's decision to link its entry with the development and welfare of the state was thus a conscious one, aimed at winning the government over. The fact that Punjab boasted a healthy agricultural sector (with good crop yields in the past) also played a role in PepsiCo's decision. Reportedly, the new proposal gave a lot of emphasis to the effects of PepsiCo's entry on agriculture and employment in Punjab. The company claimed that it would play a central role in bringing about an agricultural revolution in the state and would create many employment opportunities. To make its proposal even more lucrative, PepsiCo claimed that these new employment opportunities would tempt many of the terrorists to return to society... Pepsi began by setting up a fruit and vegetable processing plant at Zahura village in Punjab's Hoshiarpur district. The plant would focus on processing tomatoes to make tomato paste. Since the local varieties of tomatoes were found to be of inferior quality, Pepsi imported the required material for tomato cultivation. The company entered into agreements with a few big farmers (well-off farmers with large land holdings) and began growing tomatoes through the contract farming route (though the agro-climatic profile of Punjab was not exactly suitable for a crop like tomato, Pepsi had chosen the state because its farmers were progressive, their landholdings were on the larger side, and water availability was sufficient). Initially, Pepsi had a tough time convincing farmers to work for the company. Its experts from the US had to interact extensively with the farmers to explain how they could benefit from working with the company. Another problem, although a minor one, was regarding financial transactions with the farmers. When the company insisted on payments by cheque, it found out that as many as 80% of the farmers did not even have a bank account. In the early 1990s, the Government of India was facing a foreign exchange crisis. The country was finding it extremely difficult to borrow funds from the international markets due to a host of problems on the political, economic and social fronts.

Organizations like the International Monetary Fund agreed to help the Indian government deal with the financial crisis, on condition that it liberalized the Indian economy. As a result, the government decided to liberalize the economy. The removal of the numerous restrictions on foreign trade and the increased role of private equity in Indian markets were the two most prominent features of the government's new economic policy. Pepsi benefited from the economic changes in many ways. The removal of various restrictions meant that it no longer had to fulfill many of the commitments it had made at the time of its entry. The government removed the restrictions that bound Pepsi's investments in the soft drinks business to 25% of the overall investments and required it to export 50% of its production. Though Pepsi attracted a lot of criticism, many people felt there was a positive side to the company's entry into India. According to a article, Pepsi's tomato farming project was primarily responsible for increasing India's tomato production. Production increased from 4.24 million tonnes in 1991-92 to 5.44 million tones in 1995-96. The company's use of high yielding seeds was regarded as one of the reasons for the increase in productivity in tomato cultivation during the same period. Commenting on the above issue, Abhiram Seth, [Seth, the company's Executive Director (Exports and External Affairs)] said, "When we set up our tomato paste plant in 1989, Punjab's tomato crop was just 28,000 tonnes, whereas our own requirement alone was 40,000 tonnes. Today, the state produces 250,000 tonnes. Per hectare yields, which used to be 16 tonnes, have crossed 50 tonnes." Pepsi was, however, not as successful in the chili contract farming venture that was started soon after the tomato venture stabilized... The company's contract farming initiatives and its focus on improving Punjab's agricultural sector seemed to indicate that Pepsi had been working towards fulfilling its pre-entry commitments. However, the reality was quite different. In 2000, the company's exports added up to Rs 3 billion. The items exported included not only processed foods, basmati rice and guar gum , but also soft drink concentrate. Though the company did not make the figures public, in all probability, the portion of soft drink concentrate in its exports was much higher than that of any other product. In fact, the company met the soft drink concentrate requirements of many of its plants worldwide through its Indian operations. Even by 2000, of its annual requirement of 25,000 tonnes of potatoes per annum, Pepsi got only 3,000 tonnes from its contract farmers. Given these figures, it would be interesting to see how it planned to achieve its objectives of meeting its complete requirement of potatoes through the contract farming route by 2004

Questions 1. What kind of strategy a multinational company develops inorder to enter highly regulated economies that have immense market potential? 2. Analyse the importance of formulating and selling a business proposal in such a manner that it becomes attractive to the regulatory authorities of a foreign country.

3. Explain how and why a company changes its strategies in tune with changes in the regulatory environment of a foreign country?


Coca Cola is the number one manufacturer of soft drinks in the world. Their headquarters is situated in Atlanta Georgia, USA. It is probably the best known brand symbol in the world. They sell nearly 400 different products in more than 200 different countries. 70% of its sales are generated outside of North America. Production is based on the franchise system. Have a strong bargaining position and can negotiate favorable conditions for entry into countries. Governments offer incentives to encourage Transnational Companies to locate there. Coca Cola dont always own their factories, they subcontract out to pre-existing bottling companies to save more money. Transnational Companies want to have access to high earning large populations such as India, by manufacturing their goods close to their intended market they can save on transportation costs. Creates jobs both directly and indirectly in the host country. Many of the bottling firms are local companies so all the profit stays in the host country. Transnational Companies offer training and education. Many TNCs to improve their image get involved with schemes to help the poor. Coca Cola runs some community schemes in Africa and South East Asia. One of Cokes microfinance startup schemes provide 4000 Vietnamese women with the merchandise, training and basic equipment to begin selling Coca Cola. TNCs attract other TNCs to the host country. Coca Cola has invested $1.5 billion in the Russian Economy; this includes training, the construction of manufacturing plants and improvements to infrastructure. If the TNC experiences problems, the newest oversea branch plants are the first to be closed. Some people think that companies like Coca Cola are adding to the water stress of the area because the water should be used for agriculture. TNCs are very powerful; if they are not happy with the economic conditions within the host country they will pull out leaving people unemployed. Working conditions in some factories are harsh: long hours for very little pay. Employees get very few benefits and there are unlikely to be any unions. Coca Cola manufactures their drink concentrate in America. The marketing of its products is also completed in America. Bottlers buy the concentrate from the Coca Cola Company. They then mix it with water and sweeteners then they bottle the finished product. Each bottling company has exclusive rights to a region of the world. Coca Cola owns shares in some of the companies but not all of them,

some are independent. Bottlers are in charge of distributing the products to the retailers. Retailers sell the bottled products to the public to buy. Questions 1. What are the Advantages of being a TNC? 2. Mention the Positive effects that TNCs have on the host country. 3. Mention the Negative effects that TNCs have on the host country. 4. Mention the Coca Cola hierarchy.