Multinational Corporations (MNCs): Meaning, Features and Advantages | Business

Meaning of Multinational Companies (MNCs):

A multinational company is one which is incorporated in one country (called the home

country); but whose operations extend beyond the home country and which carries on
business in other countries (called the host countries) in addition to the home country.

It must be emphasized that the headquarters of a multinational company are located in the
home country.

 Multinational corporations operate in multiple countries.

 MNCs have considerable bargaining power and may negotiate business or trade policies
with success.
 A corporation may choose to locate in a special economic zone, a geographical region
that has economic and other laws that are more free-market-oriented than a country’s
typical or national laws.

Term
 Multinational corporation: A corporation or enterprise that operates in multiple
countries.
Example
 McDonalds operates in over 119 different countries, making it a fairly large MNC by
any standard

A multinational corporation (MNC) or multinational enterprise (MNE) is a corporation

registered in more than one country or has operations in more than one country. It is a large
corporation which both produces and sells goods or services in various countries . It can also
be referred to as an international corporation. The first multinational corporation was the
Dutch East India Company, founded March 20, 1602.

Ford Motor Corp.

Ford is a MNC with operations throughout the world.

Corporations may make a foreign direct investment. Foreign direct investment is direct
investment into one country by a company located in another country. Investors buy a
company in the country or expand operations of an existing business in the country.
Neil H. Jacoby defines a multinational company as follows:
“A multinational corporation owns and manages business in two or more countries.”

Point of comment:

A multinational corporation is known by various names such as: global enterprise,

international enterprise, world enterprise, transnational corporation etc.

Some popular examples of multinationals are given below:

Features of Multinational Corporations (MNCs):

Following are the salient features of MNCs:

(i) Huge Assets and Turnover:

Because of operations on a global basis, MNCs have huge physical and financial assets. This

also results in huge turnover (sales) of MNCs. In fact, in terms of assets and turnover, many
MNCs are bigger than national economies of several countries.

(ii) International Operations Through a Network of Branches:

MNCs have production and marketing operations in several countries; operating through a
network of branches, subsidiaries and affiliates in host countries.
(iii) Unity of Control:

MNCs are characterized by unity of control. MNCs control business activities of their branches

in foreign countries through head office located in the home country. Managements of
branches operate within the policy framework of the parent corporation.

(iv) Mighty Economic Power:

MNCs are powerful economic entities. They keep on adding to their economic power through
constant mergers and acquisitions of companies, in host countries.

(v) Advanced and Sophisticated Technology:

Generally, a MNC has at its command advanced and sophisticated technology. It employs
capital intensive technology in manufacturing and marketing.

(vi) Professional Management:

A MNC employs professionally trained managers to handle huge funds, advanced technology
and international business operations.

(vii)Aggressive Advertising and Marketing:

MNCs spend huge sums of money on advertising and marketing to secure international

business. This is, perhaps, the biggest strategy of success of MNCs. Because of this strategy,
they are able to sell whatever products/services, they produce/generate.

(viii) Better Quality of Products:

A MNC has to compete on the world level. It, therefore, has to pay special attention to the
quality of its products.

Advantages and Limitations of MNCs:

Advantages of MNCs from the Viewpoint of Host Country:
ADVERTISEMENTS:

We propose to examine the advantages and limitations of MNCs from the viewpoint of the

host country. In fact, advantages of MNCs make for the case in favour of MNCs; while
limitations of MNCs become the case against MNCs.
(i) Employment Generation:

MNCs create large scale employment opportunities in host countries. This is a big advantage
of MNCs for countries; where there is a lot of unemployment.

(ii) Automatic Inflow of Foreign Capital:

MNCs bring in much needed capital for the rapid development of developing countries. In

fact, with the entry of MNCs, inflow of foreign capital is automatic. As a result of the entry of
MNCs, India e.g. has attracted foreign investment with several million dollars.

(iii) Proper Use of Idle Resources:

Because of their advanced technical knowledge, MNCs are in a position to properly utilise idle
physical and human resources of the host country. This results in an increase in the National
Income of the host country.

(iv) Improvement in Balance of Payment Position:

MNCs help the host countries to increase their exports. As such, they help the host country
to improve upon its Balance of Payment position.

(vi) Technical Development:

MNCs carry the advantages of technical development 10 host countries. In fact, MNCs are a

vehicle for transference of technical development from one country to another. Because of
MNCs poor host countries also begin to develop technically.

(vii) Managerial Development:

MNCs employ latest management techniques. People employed by MNCs do a lot of research

in management. In a way, they help to professionalize management along latest lines of

management theory and practice. This leads to managerial development in host countries.

(viii) End of Local Monopolies:

The entry of MNCs leads to competition in the host countries. Local monopolies of host

countries either start improving their products or reduce their prices. Thus MNCs put an end
to exploitative practices of local monopolists. As a matter of fact, MNCs compel domestic
companies to improve their efficiency and quality.

In India, many Indian companies acquired ISO-9000 quality certificates, due to fear of
competition posed by MNCs.

(ix) Improvement in Standard of Living:

By providing super quality products and services, MNCs help to improve the standard of living
of people of host countries.

(x) Promotion of international brotherhood and culture:

MNCs integrate economies of various nations with the world economy. Through their

international dealings, MNCs promote international brotherhood and culture; and pave way
for world peace and prosperity.

Limitations of MNCs from the Viewpoint of Host Country:

(i) Danger for Domestic Industries:

MNCs, because of their vast economic power, pose a danger to domestic industries; which

are still in the process of development. Domestic industries cannot face challenges posed by

MNCs. Many domestic industries have to wind up, as a result of threat from MNCs. Thus MNCs
give a setback to the economic growth of host countries.

(ii) Repatriation of Profits:

(Repatriation of profits means sending profits to their country).

MNCs earn huge profits. Repatriation of profits by MNCs adversely affects the foreign

exchange reserves of the host country; which means that a large amount of foreign exchange
goes out of the host country.

(iii) No Benefit to Poor People:

MNCs produce only those things, which are used by the rich. Therefore, poor people of host
countries do not get, generally, any benefit, out of MNCs.
(iv) Danger to Independence:

Initially MNCs help the Government of the host country, in a number of ways; and then

gradually start interfering in the political affairs of the host country. There is, then, an implicit
danger to the independence of the host country, in the long-run.

(v) Disregard of the National Interests of the Host Country:

MNCs invest in most profitable sectors; and disregard the national goals and priorities of the

host country. They do not care for the development of backward regions; and never care to
solve chronic problems of the host country like unemployment and poverty.

(vi) Misuse of Mighty Status:

MNCs are powerful economic entities. They can afford to bear losses for a long while, in the

hope of earning huge profits-once they have ended local competition and achieved

monopoly. This may be the dirties strategy of MNCs to wipe off local competitors from the
host country.

(vii) Careless Exploitation of Natural Resources:

MNCs tend to use the natural resources of the host country carelessly. They cause rapid

depletion of some of the non-renewable natural resources of the host country. In this way,
MNCs cause a permanent damage to the economic development of the host country.

(viii) Selfish Promotion of Alien Culture:

MNCs tend to promote alien culture in host country to sell their products. They make people
forget about their own cultural heritage. In India, e.g. MNCs have created a taste for synthetic

food, soft drinks etc. This promotion of foreign culture by MNCs is injurious to the health of
people also.

(ix) Exploitation of People, in a Systematic Manner:

MNCs join hands with big business houses of host country and emerge as powerful

monopolies. This leads to concentration of economic power only in a few hands. Gradually
these monopolies make it their birth right to exploit poor people and enrich themselves at
the cost of the poor working class.

Advantages from the Viewpoint of the Home Country:

Some of the advantages of the MNCs from the viewpoint of the home country are:

(i) MNCs usually get raw-materials and labour supplies from host countries at lower prices;
specially when host countries are backward or developing economies.

(ii) MNCs can widen their market for goods by selling in host countries; and increase their

profits. They usually have good earnings by way of dividends earned from operations in host
countries.

(iii) Through operating in many countries and providing quality services, MNCs add to their
international goodwill on which they can capitalize, in the long-run.

Limitations from the Viewpoint of the Home Country:

Some of the limitations of MNCs from the viewpoint of home country may be:
(i) There may be loss of employment in the home country, due to spreading manufacturing
and marketing operations in other countries.

(ii) MNCs face severe problems of managing cultural diversity. This might distract
managements’ attention from main business issues, causing loss to the home country.

(iii) MNCs may face severe competition from bigger MNCs in international markets. Their

attention and finances might be more devoted to wasteful counter and competitive
advertising; resulting in higher marketing costs and lesser profits for the home country.

International Business Role of Multinational Enterprises in International

Business.

Multinational Enterprise (MNE): Is a business entity which conducts business operations in

various countries with its subsidiaries and affiliates. MNEs possess considerable and wide
human resources, finance, expertise and technology as well as enjoy substantial competitive
advantage.
In other words, A Multinational corporation is “an enterprise that engages in foreign direct
investment (FDI) and owns or controls value adding activities in more than one country”.
These Multinational corporations can be either public company, with shares traded in stock
exchanges or private companies such as Cargill.

1 Multinational Enterprises provide an inflow of capital into the developing countries:

Capital mostly in form of Dollars and Material E.g. the investment to build the factory is
counted as a capital flow on the financial account of the balance of payments. This capital
investment helps the economy develop and increase its productive capacity.

2 Multinational corporations provide employment opportunities:

Multinational enterprises require labour in host countries hence they provide employment
opportunities to domestic people of the host countries. It is through this employment
provision that both skilled and unskilled labour force is able to maintain reasonable level of
living standardsin most developing countries.

3 Multinational firms improve infrastructure development in the economy:

These corporations have managed to build improved standard shops, roads to their premises,
warehouses and other infrastructures in the effort to make the area conducive for the
operations. For example, Petra Diamonds Ltd that is the new owner of Williamson Mineat
Mwadui Shinyanga

4 Impart knowledge and skills:

While in the implementation of these infrastructure development, they do impart knowledge
and skills to the host country citizens through conducting staff trainings to equip them with
the relevant skill required to succeed in the operation of the company and other project,
hence it’s a benefit mostly for developing countries a chance to learn new techniques and
skills.

5 Multinational enterprises (MNEs) play a leading role in technological innovation:

Research and Development investment and patenting. By serving various markets and their
size, they often benefit from economies of scale and scope, and have a stronger financial
capacity to invest in innovation including risky innovation projects.

6 Multinational corporations are regarded as agents of modernization and rapid growth:

The Multinational corporations in most developing counties are active and given conducive
environment by the Government to do their businesses and work hand in hand with it in the
development endeavors of these countries.

7 National and International Business Relation and Integration:

MNEs recognizes the country in the international market. It creates harmonious relation
between parent company and subsidiary countries. It recognizes exporting country to all over
the world and apart from that MNEs act as one of the factors that contribute to a better
International Relationship.
MNEs help increase the investment level and thereby the income and employment in host
country. The transnational corporations have become vehicles for the transfer of technology,
especially to the developing countries.

TECNOLOGY TRANSFER

Technology transfer, also called transfer of technology (TOT), is the process

of transferring (disseminating) technology from the person or organization that owns or holds
it to another person or organization.

Technology transfer is the process by which basic science research and fundamental
discoveries are developed into practical and commercially relevant applications and products.
Technology Transfer personnel evaluate and manage invention portfolios, oversee patent
prosecution, negotiate licensing agreements and periodically review cooperative research
agreements already in place. Part of the technology transfer process involves the prosecution
of patents which is overseen by the national Patent and Trademark Office. Individuals with
advanced degrees in the biomedical sciences are needed to review and process patents in the
biotechnology field.

Often it occurs by concerted effort to share skills, knowledge, technologies, methods of

manufacturing, samples of manufacturing, and facilities
among governments or universities and other institutions to ensure that scientific and
technological developments are accessible to a wider range of users who can then further
develop and exploit the technology into new products, processes, applications, materials, or
services. It is closely related to (and may arguably be considered a subset of) knowledge
transfer. Horizontal transfer is the movement of technologies from one area to another. At
present transfer of technology (TOT) is primarily horizontal. Vertical transfer occurs when
technologies are moved from applied research centers to research and development
departments.

Users/beneficiaries of Technology Transfer:

 technology transfer agents who are responsible for the search, adaptation or
translation, packaging and dissemination, training and ensurement that a new
 technology is properly implemented, accepted and used to its full potential by a target
user;
 individuals responsible for technology transfer functions;
 individuals charged with the responsibility of making decisions as to whether a
technology is considered for implementation within the organization;
 individuals charged with budgeting responsibilities which encompass evaluating the
cost of new technology;
 individuals charged with strategic and business planning responsibilities within the
organization;
 individuals who are being trained to perform any of the above noted functions;
 inventors, vendors, licensors and purchasers of technology.
4 Most Important Channels of Technology Transfer in International
Technology Environment
Different modes of technology transfer are foreign direct investment, sharing technologies,
licensing technology, turnkey projects and strategic alliances.

We shall discuss four channels – FDI, Licensing, Joint Ventures and strategic alliances, and
international trade.

1. Foreign Direct Investment (FDI):

FDI is the most preferred route to transfer newer technology. Foreign firms are instrumental
in closing the intellectual (idea, skills) and physical capital gaps. FDI helps in overcoming the
productivity gaps between the foreign and domestic firms. Foreign firms have more
knowledge of world markets, coordination of production, and distribution in many countries
and also manufacturing efficiency.

Many of the newly industrialised countries such as South Korea, Taiwan, Singapore, Malaysia
and China are also involved in outward FDI, showing a successful build-up of their
technological capabilities. Recently, many MNCs have decided to relocate their R&D activities
outside their home country bases, thus helping in enhancement of the overall innovative
capacity of the parent company.

2. Licensing Technology:
The mode of technology transfer through licensing is older than the FDI. Prior to liberalisation
this was a very popular mode. But now almost all states are eager to welcome FDI. Under
licensing arrangement a patent holder allows a foreign company to produce the product in
return of royalty.

Licensing may be inward (using the technology for a fee) and outward (sharing patents for a
royalty. It may be an assignment (all rights in relation to a particular patent handed over to
transferee) or sole licence (rights retained by the licensor but licences not to be extended to
third parties). Licensing is better suited where host country restricts imports. Licensing allows
the licensor to take an ownership interest in the foreign operation.

The patents remain the property of the licensor.

Licensing can be a means for testing and developing a product in a foreign market as a
precursor to FDI. However, if the licensor does not maintain the licensor’s standards, the
licensor’s global reputation gets damaged. Some countries put conditions while granting
approval.
3. Joint Venture and Strategic Alliances:
Innovation through collaboration is in currency among firms in advanced countries and also
between developed and developing countries. Alliances should not be formed to correct a
weakness of one of the partners or a weakness of both the partners. Proprietary technology
should never be licensed in strategic alliances.

Alliances need to be formed when one or both the parties have a unique strength. The most
commonly identified reasons for an alliance are exploitation of complementary technology
need to reduce the time taken for an innovation, and access to markets. One of the most
experienced companies with technological alliances is Toshiba (a major Japanese electronics
company).

Its first alliance was with General Electric Company (GE) (making light bulb filament for GE) at
the beginning of 2oth century. Since then it has engaged in alliances with United
Technologies, apple Computer, Sun Microsystems, Motorola and National Semiconductor,
carrier (all from the US), Olivetti, Siemens, Rhone-Poulen, Ericsson, and S G Thomson (all from
Europe).

4. International Trade:
Import of machinery and equipment and the product may provide an alternative to assimilate
the technology. What was an issue in Japan – sharing technology – comes under this category
only. Through reverse engineering Japan got the technology and became a techno leader.

A Chinese company (SAIC Chery), the local partner of General Motors, through reverse
engineering of GM owned Daewoo’s Matiz car have offered their own brand QQ for 30% less
than the Matiz. Sony had bought transistor technology from Bell Laboratories at a price of
$25,000, and today Sony is the world leader with no radio manufacturers in the US.

International Collaborative arrangements and strategic alliance

INTERNATIONAL STRATEGIC ALLIANCES

Strategic alliance is an important mode of doing international business. An alliance is an inter-
firm collaboration over a given economic space and time for the attainment of the
participating companies’ goals.
The use of strategic alliance has expanded dramatically over the past decade and it’s use will
continue to increase in future.
Strategic alliances are partnerships in which two or more companies work together to achieve
objectives that are mutually beneficial while parties remaining independent. Companies may
share resources, information, capabilities and risks to achieve this. International Strategic
Alliance is the combination of two or more firm’s agreed upon future objective, which
achieved by together practices of the MNCs.
According to Lando Zeppei : Managing partner of Booz, Allen and Hamilton, defines Strategic
Alliance as a Cooperative arrangement between two or more Companies where :- A common
strategy is developed in cenison and a win-win attitude is adopted by all parties. A strategic
alliance is a business arrangement whereby two or more firms choose to cooperate for their
mutual benefit.

EXAMPLES

Apple According to "An Overview of Strategic Alliances," Apple has partnered with Sony,
Motorola, Phillips, and AT&T in the past. Apple has also partnered more recently with
Clearwell in order to jointly develop Clearwell's E-Discovery platform for the Apple iPad. E-
Discovery is used by enterprises and legal entities to obtain documents and information in a
"legally defensible" manner.

Starbucks According to Rebecca Larson, assistant Professor of Business at Liberty University,

Starbucks partnered with Barnes and Nobles bookstores in 1993 to provide in- house coffee
shops, benefiting both retailers. In 1996, Starbucks partnered with Pepsico to bottle,
distribute and sell the popular coffee-based drink, Frappacino. A Starbucks-United Airlines
alliance has resulted in their coffee being offered on flights with the Starbucks logo on the
cups and a partnership with Kraft foods has resulted in Starbucks coffee being marketed in
grocery stores. In 2006, Starbucks formed an alliance with the NAACP, the sole purpose of
which was to advance the company's and the NAACP's goals of social and economic justice.

CHARACTERISTICS OF INTERNATIONAL STRATEGIC ALLIANCES

TYPES OF STRATEGIC ALLIANCE
Activities of involved in the Strategic Alliance
 Design Contracts
 Technology Transfer agreements
 Joint product development.
 Purchasing Agreement
 Distribution Agreement
 Marketing and Promotional Collaboration Intellectual Advice.
COLLABORATIVE ARRANGEMENTS GENERAL MOTIVES:

• To spread and reduce costs

[potential volume is relatively low; excess capacity exists ]
• To specialize in core competencies
[Licensing may yield returns on products that lie outside of a firm’s strategic priority]
• To avoid or counter competition
[Markets are too small to support many competitors; firms combine to challenge a market
leader]
• To secure vertical and horizontal links
[Savings and supply assurances exist across the value chain; horizontal economies of scope
exist in distribution]
• To gain knowledge
[Learn about a partner’s technology, operating methods, and/or home markets]

Collaborative Arrangements: International Motives

 To gain location-specific assets
[desire to overcome cultural, political/legal, mcompetitive, and/or economic barriers]
 To overcome legal constraints
[prohibition of foreign ownership in particular sectors; regulations affecting operations and
profitability; Northrop Grumman from US with Rolls Royce of UK to supply marine engines
for US and UK navies]
  To diversify geographically
[greater and faster spread of assets across countries; smoothing of sales and earnings cycles]
 To minimize exposure in risky environments
[secure the safety of foreign assets and earnings; smooth risk across countries]

RELATIONSHIP OF STRATEGIC ALLIANCES TO COMPANIES’ INTERNATIONAL OBJECTIVES

Emerging Developments and Other Issues: Growing concern for ecology

The following are five concerns of ecologists and environmentalists around the world.
Today, we don’t think of water as a valuable commodity but scientists believe that in the
future fresh water could become as rare and valuable as oil and gold. Scientists have even
made speculations that there will be wars fought between nations to take control of
freshwater resources.
We take the supply of fresh running water for granted in our homes today; however, we don’t
really understand how important water is for life. For many countries around the world, a
supply of fresh and clean water is not so easily available. As the world’s population increases,
freshwater systems around the world will become more stressed. At the current rate of
pollution and overpopulation, scientists speculate that two thirds of the world’s population
may have difficulty accessing clean drinking water by 2050.
“The world could suffer a 40 percent shortfall in water in just 15 years unless countries
dramatically change their use of the resource” – United Nations
2. Climate change
A majority of the scientists, ecologists and environmentalists around the world believe that
the global climate is changing and it’s mainly because of human activities. Our global climate
change has passed the tipping point where the effects cannot be reversed.
At this stage, more and more environmental scientists are needed for developing sustainable
methods to regulate further impacts on the globe.
3. Loss of Biodiversity
Our activities are directly impacting the ecology and biodiversity of the earth. Deforestation,
pollution of land, air, and water, over fishing, hunting, climate change, and unplanned
agriculture, all affect natural evolution and biodiversity, giving rise to more serious ecological
imbalances. Humans have destroyed and are continuously destroying wildlife and habitat and
causing damage to biodiversity.
4. Ozone Layer Depletion
With pollution and greenhouse gas emission, there is a growing concern for the depletion of
the earth’s protective layer of the atmosphere. Release of gases like Chlorine, Bromine, and
CFCs have been identified as the contributors of ozone layer breakdown. Once these gases
reach the upper level of the atmosphere, they react with the protective ozone layer, create a
hole in the atmosphere and allow harmful UV rays to reach the surface of the earth.
Right now, many of the cooling and refrigeration companies are switching to alternative gases
to CFC, or Freon gases, which were widely being used before scientists warned us about ozone
layer depletion. Further reducing greenhouse gas emission and restricting ozone depleting
gasses may help reduce or even repair the protective ozone layer.
5. Over population
The increase and over population of the human race, especially high density of population in
the urban areas, is one of the biggest issues faced by our environmentalists and ecologists.
With the increase of population comes demand for resources, waste management, energy
requirement, people management and other aspects of governance and control over
resources.
Our future depends on how well we manage our resources today. The global temperature
rise and climate change are signs that tells us that there is something very wrong with the
way we have been living our lives and we must change.

What Is Countertrade?
Countertrade is a reciprocal form of international trade in which goods or services are
exchanged for other goods or services rather than for hard currency. This type of
international trade is more common in lesser-developed countries with limited foreign
exchange or credit facilities. Countertrade can be classified into three broad categories:
barter, counterpurchase, and offset.

Countertrade means exchanging goods or services which are paid for, in whole or part, with
other goods or services, rather than with money. A monetary valuation can however be used
in countertrade for accounting purposes. In dealings between sovereign states, the term
bilateral trade is used.

TYPES OF COUNTER TRADE

 Barter
Bartering is the oldest countertrade arrangement. It is the direct exchange of goods and
services with an equivalent value but with no cash settlement. The bartering transaction is
referred to as a trade. For example, a bag of nuts might be exchanged for coffee beans or
meat.

 Counterpurchase
Under a counterpurchase arrangement, the exporter sells goods or services to an importer
and agrees to also purchase other goods from the importer within a specified period. Unlike
bartering, exporters entering into a counterpurchase arrangement must use a trading firm to
sell the goods they purchase and will not use the goods themselves.

 Offset
In an offset arrangement, the seller assists in marketing products manufactured by the buying
country or allows part of the exported product's assembly to be carried out by manufacturers
in the buying country. This practice is common in aerospace, defense and certain
infrastructure industries. Offsetting is also more common for larger, more expensive items.
An offset arrangement may also be referred to as industrial participation or industrial
cooperation.

 Switch trading: Practice in which one company sells to another its obligation to make a
purchase in a given country.
 Counter purchase: Sale of goods and services to one company in other country by a
company that promises to make a future purchase of a specific product from the same
company in that country.
 Buyback: occurs when a firm builds a plant in a country - or supplies technology,
equipment, training, or other services to the country and agrees to take a certain
percentage of the plant's output as partial payment for the contract.
 Compensation trade: Compensation trade is a form of barter in which one of the flows is
partly in goods and partly in hard currency.

Other Examples of a Countertrades

 A counter purchase refers to the sale of goods and services to a company in a foreign
country by a company that promises to make a future purchase of a specific product
from the same company in that country.
 A buyback is a countertrade occurs when a firm builds a manufacturing facility in a
country—or supplies technology, equipment, training, or other services to the country
and agrees to take a certain percentage of the plant's output as partial payment for
the contract.
 An offset is a countertrade agreement in which a company offsets a hard currency
purchase of an unspecified product from that nation in the future.
 Compensation trade is a form of barter in which one of the flows is partly in goods
and partly in hard currency.

Benefits and Drawbacks

A major benefit of countertrade is that it facilitates the conservation of foreign currency,
which is a prime consideration for cash-strapped nations and provides an alternative to
traditional financing that may not be available in developing nations. Other benefits include
lower unemployment, higher sales, better capacity utilization, and ease of entry into
challenging markets.

A major drawback of countertrade is that the value proposition may be uncertain,

particularly in cases where the goods being exchanged have significant price volatility. Other
disadvantages of countertrade include complex negotiations, potentially higher costs and
logistical issues.

Additionally, how the activities interact with various trade policies can also be a point of
concern for open-market operations. Opportunities for trade advancement, shifting terms,
and conditions instituted by developing nations could lead to discrimination in the
marketplace.

IT AND INTERNATIONAL BUSINESS

Information Technology is a terminology which is known to all educated people of the World
at present times. Information technology (IT), as defined by the Information Technology
Association of America (ITAA), is “the study, design, development, implementation, support
or management of computer-based information systems, particularly software applications
and computer hardware.” IT deals with the use of electronic computers and computer
software to convert, store, protect, process, transmit, and securely retrieve information.
When computer and communications technologies are combined, the result is information
technology, or “InfoTech”. Information technology is a general term that describes any
technology that helps to produce, manipulate, store, communicate, and/or disseminate
information. Presumably, when speaking of Information Technology (IT) as a whole, it is noted
that the use of computers and information are associated.

Globalization has brought in many changes in the business scenario with the whole world
inching towards one big market place. Communication between the buyers and sellers has
become critical as each can opt to explore a greater number of alternatives than ever before.
E-commerce through Internet, e-mails, websites, and other facilities, enables a businessman
to be linked with every corner of the world, and thus opens up greater opportunities in the
world market.

Another important factor is the time required for completing a business transaction. As
markets are becoming competitive and information is more readily available, a quick, reliable
and replicable transaction implies availing of prevailing opportunities. On the contrary, delays
in processing a transaction might become synonymous to wasting an opportunity. Therefore,
a fast and alternative mechanism of communication, contract, and payment is an integral part
of a globally competitive business organization.

OBJECTIVE

The information technology based business facilitates the very process of international
transaction; this involve securing and finalizing a contract, delivery of the product, and finally
payment for performance of the contract. The movement of goods and services, as well as
the payment mechanisms within a country and more so outside a country, are governed by
regulatory and legal issues. Hence, the regulatory environment is at the core of e-Business
development.

This paper aims to highlight the status, statutes, potential and constraints of e-Business. Both
the statutory laws as well as the challenges in implementing them will be attempted. The
paper shall also list specific policy changes aimed at bringing improvement to the legal and
regulatory environment affecting e-commerce.

Important ways in which technology is facilitating International Business are as follows:

Technology is beneficial to international business. It may be stated that lowering of trade

barriers has made globalization of markets and production a theoretical possibility,

technology has made it a practical reality.

Specifically, technology is facilitating international business in at least six ways, which are

as follows:
1) Telecommunications:
This is the most obvious dimension of the technological environment facing international

business. Now people are using cellular phones, beepers and other telecommunications

service, giving a way to international growth. As a result, growth in the wireless technology

business worldwide has been rapid and the future promises even more. This growth is

welcome as business, domestic or global, cannot prosper without an efficient telephone

system. Technologies such as 3G, MMS of NOKIA have fostered closely knit global business.

2) Transportation:

Technology In addition to developments in computers and telecommunications, several

major innovations in transportation have occurred since World War II. In economic terms, the

most important are probably the development of commercial jet aircraft and super freighters

and the introduction of containerization, which simplifies transshipment from one mode of

transport to another. While the advent of commercial jet has reduced the travel time of
businessmen, containerization has lowered the costs of shipping goods over long distances.

3) Globalization of Production:

Technological breakthroughs have facilitated globalization of production. A worldwide

communications network has become essential for any MNC. Texas Instruments (TI), the US

electronics firm, For example, has nearly 50 plants in 19 countries. A satellite based

communications system allows TI to coordinate on a global scale; its production planning,

cost accounting, financial planning, marketing, customer service and human resource, 21 in
some ways conventional Ricardian theories appear to be irrelevant as shown in figure 2.5.
Figure 2.5: Ricardian and Contemporary Models of International Business
4) Globalization of Markets:

Along with the globalization of production, technological innovations have facilitated the

internationalization of markets. As stated earlier, containerization has made it more

economical to transport goods over long distances, thereby creating global markets. Low-cost

global communications networks such as the World Wide Web are helping to create

electronic global market places. In addition, low-cost jet travel has resulted in the mass

movement of people around the world. This has reduced the cultural distance between the

countries and is bringing about convergence of consumer tastes and preferences. At the same

time, global communications networks and global media are creating a worldwide culture.

Worldwide culture is creating world market for consumer goods. Signs of a global market are

already visible. It is now easy to find, a McDonald’s restaurant in Tokyo as it is in New York, to

buy a Sony Walkman in Mumbai as it is in Berlin and to buy Lewis’s jeans in Paris as it is in San
Francisco.

5) E-Commerce:

The Internet and the access gained to the World Wide Web have revolutionized international

marketing practices. Firms ranging from a few employees to large multinationals have

realized the potential of marketing globally online and so have developed the facility to buy
and sell their products and services online to the world.

Because of the low entry costs of the Internet it has permitted firms with low capital resources

to become global marketers, in some cases overnight. There are, therefore, quite significant

implications for SMEs. For all companies, the implications of being able to market goods and
services online have been far reaching.

The Internet has led to an explosion of information to consumers, giving them the potential

to source products from the cheapest supplier in the world. This had led to the increasing

standardization of prices across borders or, atleast, to the narrowing of price differentials as
consumers become more aware of prices in different countries and buy a whole range of
products via the net.

In B2C marketing this has been most dramatically seen in the purchase of such things as

flights, holidays, CDs and books. The Internet, by connecting end- users and producers

directly, has reduced the importance of traditional intermediaries in international marketing

(i.e., agents and distributors) as more companies have built the online capability to deal direct
with their customers, particularly in B2B marketing.

6) Technology Transfer:

Technology transfer is a process that permits the flow of technology from a source to a
receiver. The source in this case is the owner or holder of the knowledge, while the recipient

is the beneficiary of such knowledge. The source could be an individual, a company, or a

country.