ANSWER:
EFFECTS OF MNC on the developing countries:
- lead to greater levels of employment providing job opportunities to the local labour
- a vehicle for faster transfer and diffusion of technology
- provide access to management and organizational skills
- training and skill creation (of local labour)
- provide the host country with foreign exchange
Disadvantages:
- hurt domestic firms by eliminating competition (due to enjoying comparative advantage over local firms)
- worsen the imbalance between rural and urban areas (growing difference between incomes)
- skills of local labour may not improve if it is used to fill only low-skill positions and no training is provided
- political leverage
- environmental costs
- avoid tax by practising transfer pricing
2. Identify one MNC company and describe its operation.
ANSWER:
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The Company Intelligence Service is used by business development teams, and by corporate analysts and strategists for benchmarking and competitive analysis. The end-user relies on data accuracy, which is why company profiles are systematically researched each year at source, by a combination of web, email and telephone validation. In addition, company updates and new company profiles and executive appointments are added to the database daily through continuous desk research.
3. Describe how the parent control/coordinates with its subsidiaries in other countries or region.
ANSWER:by Richard C. Hoffman The growth of global industries and trading blocks has led to increased interest in international strategy. Most of what is known about multinational corporate (MNC) strategy is concerned with strategy making at the headquarters level (Hout et al., 1982; Leong and Tan, 1993; Prahalad and Doz, 1987). However, as Jarillo and Martinez (1990) have indicated, knowledge about the overall strategy of an MNC does not tell us much about the specific strategies of its subsidiaries. Moreover, subsidiaries of MNCs operating in many different nations have developed different strategies to cope with the peculiarities of their situation (Bartlett and Ghoshal, 1986; Roth and Morrison, 1992). A few studies have identified some strategic roles for MNC subsidiaries. However, these studies do not offer a complete set of strategies because they considered only selected aspects of a subsidiary's context. The purpose of this study is to: (1) review the research on strategic roles of subsidiaries; (2) develop a comprehensive model of generic strategies for MNC subsidiaries; and (3) provide an initial validation of these generic strategies using case evidence. HEADQUARTER-SUBSIDIARY RELATIONSHIPS During the past few years, the headquarters-subsidiary relationship within the multinational corporation has evolved from a control-centered to a strategic-oriented approach.
4. How is IT maximized or used by this MNC?
ANSWER:Under decentralized decision-making (DDM), how does the multinational corporation (MNC) adjust the transfer price when international (effective) corporate tax rates change, ceteris paribus? First, Eric Bond's (1980) decentralized model of transfer pricing is extended by completing the comparative static analysis. The results are more general than Bond (1980), confirm that the MNC uses the transfer price as a profit-shifting mechanism to minimize its global tax liability to maximize its global after-tax profit, and show that an interior solution for the transfer price is possible. An interior solution implies that tax authorities may be less concerned with transfer pricing "abuses" than the centralized Thomas Horst (1971) model predicts. Also, underlying explanations are developed to support the assumptions of DDM, top management maximizing the MNC's global after-tax profit, and DGMs (division general managements) maximizing division after-tax profit. Second, although agency costs are implicit in the basic model, an agency cost channel is explicitly built into the model to further address the criticism that the neoclassical firm is a "black box." That channel is: A perceived unfair transfer price by the parent DGM, reduced managerial incentives, lower parent DGM effort, a lower quality intra-firm good, lower subsidiary productivity, higher subsidiary costs, lower subsidiary profit, and lower MNC after-tax profit. The comparative static results incorporate the effect of a perceived unfair transfer price, which is another important factor in addition to tax rates that determines the MNC's transfer price. The MNC's ability to use the transfer price to shift profit and avoid taxes is further limited when agency costs are considered. Third, under negotiated transfer pricing, profit-maximizing DGMs cooperate and choose the upper or lower arm's length transfer price and the centralized output. Under zero negotiation costs, negotiated transfer pricing dominates centralized transfer pricing, due to the cumulative effect of greater than or equal MNC global after-tax profit and lower agency costs than centralized transfer pricing. After the negotiated transfer price is chosen, profit-maximizing DGMs use a bookkeeping entry, instead of the transfer price, to allocate the joint gain from cooperation, where the share of the gain depends on DGMs' relative bargaining strength.
5. WHat were the weaknesses/problems encountered by this MNC from its environment and global setup?
ANSWER:Since the end of the Cold War, the world economy has been strongly distorted by political intervention. Even though politically oriented trade frictions are being heightened at the government level between Japan and the United States, industrial leaders of the two countries are aggressively forming strategic alliances and promoting friendly collaboration. This tide of corporate level competitive interdependence and global alliance activity is gradually becoming a significant element in the world economy. Indeed it is paradoxical, but relying on corporate alliances and interdependence is perhaps a better strategy for increasing industrial strength than economic nationalism.
The science community has long enjoyed a favorable climate for international communications and collaboration. Unfortunately, the engineering community has experienced numerous constraints due to national economic and security reasons. These constraints may not be removed in the foreseeable future. However, without better management of international engineering and science relationships for improving R&D productivity, we cannot cope with the crucial problems that have put world peace and the survival of the human race at risk.
Modern MNCs are desperately seeking many ways to ensure their own survival. They no longer can survive considering only their own and their national interests, but they need to be good citizens in their host countries as well. They have to receive full support from the engineering community and customers in order to be successful. Hence they are establishing better engineering and science relationships in local communities. Strategic alliances in business and technological development are a step forward. R&D cooperation between Japan and the United States and further with all nations throughout the world should aim to solve global environmental problems such as acid rain, global warming, and preserving the rain forests, as well as developing a cure for AIDS, an epidemic that continues to grow rapidly on a global scale.1
In industrially advanced countries, the people demand highly sophisticated information products since their societies are rapidly becoming highly-information oriented societies. The application software of such products is very much dependent on local culture and is very difficult for engineers from different cultures to develop. Such software has to be developed by local engineers with knowledge of the market. This trend is not limited to information.
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