CHALLENGES OF GROWING MNCS

• Presented By:
Subhechchha Pokhrel
Shobha Regmi
Grishmi Rimal
Rahul Kumar Shah
Sawika Shakya
Rusha Shrestha
 MULTI-NATIONAL COMPANIES (MNC’S)

 A Multinational company is a corporate organization that owns or

controls the production of goods or services in at least one country
other than its home country.

 For example: Coca Cola , Dabur, Unilever, Axiata,etc

 CHALLENGES OF GROWING MNCS

1. Globalization
2. Open & closed economy
3. Cultural Differences
4. Tax Competition
5. Market Imperfections
6. Political Instability
7. Market Withdrawal
8. Fluctuation of Exchange Rates
9. Manpower
 GLOBALIZATION

 It refers to interconnectedness among countries through various

relationships, from business, geopolitics, and technology to travel,
culture, and the media.
 Increasing competition
 Sharing technology
 Sharing knowledge
 High Investment Costs
 Immigration Challenges
 Localized Job Loss
 CHALLENGES OF GROWING MNC’S

2. Open & Closed Economy

3. Cultural Differences
 Tax Competition

 Tax competition is a term for cutting the corporate tax rates and deregulating to attract
foreign investment specially in the form of MNCs.
 It is the process by which countries, states or even the local administration use tax cuts,
tax breaks , tax loopholes or tax subsidies to attract the foreign investment .
 Globalization and the rise of intangible capital have increased tax avoidance opportunities
from multinational companies in the present day scenario.
 TAX COMPE TITION AS A CHALL E NGE TO GROWING MNCS…….

Competition challenge
 Tax rebates and reductions are given mostly to MNCs operating on a large scale.
 It is very difficult for emerging MNCs to compete with the already well established
MNCs owing to high tax rebates already being offered.
Price challenge
 Growing MNCs are unable to compete in prices with the already well place MNCs.
 Huge tax benefits already availed by such MNCs result in the reduction in the overall cost
which ultimately results in the reduction in final price to customers.
 New and growing MNCs who cannot avail such levels of tax recessions cannot cope with
the competitive prices offered by big MNCs without incurring losses.
 CONDT…

Expansion challenge
 There is a limit in expansion opportunities to growing MNCs due to tax competition.
 Countries with already existing successful MNCs are not that likely to provide tax recessions to
new and growing MNCs.
 This limits the expansion potentialities of the new MNCs and they may be forced to limit their
operations only to few countries.
Goodwill challenge
 Huge MNCs get huge concessions and rebates in tax which in itself add brand recognition and
value to the products of such MNCs
 This leads to no investment advertisement and increased goodwill as people are more attracted
to companies well favored by the government.
 The Faith of the people in such MNCs is also higher. So growing MNCs already face an uphill
task in having their products and services differentiated and recognized from the huge MNCs.
 MARKET IMPERFECTIONS

 Market imperfections theory states that when an imperfection in the market makes
a transaction less efficient than it could be, a company will undertake foreign trade
investment to internalize the transaction and thereby remove the imperfection.
 Market imperfections are factors that inhibit markets from working perfectly
 Firms can also in their own market be isolated from competition by transportation
costs and others tariff and non-tariff barriers.
 HOW DOES MARKET IMPERFECTIONS AFFECTS
GROWING MNCS?

 When transaction costs are high relative to the administrative costs of organizing
an activity internally.
 Market imperfections concerns the relative inefficiency of markets for the transfer
of certain types of resources.
 Markets do not exist at all until individuals exercise entrepreneurship and deploy
resources to create or co-create them.
 POLITICAL INSTABILITY

 Political instability: The propensity of a government collapse either because

of conflicts or rampant competition between various political parties. The
problems faced by multinational companies due to political instability are:-
 Causes losses in financial , market or personal due to political decisions.
 It adds business cost, increase risks of doing business and sometimes reduces
managers ability to forecast business trends.
 Associated with corruption and weak legal frameworks that discourage
foreign investment.
 Example: Disruptions such as terrorism, civil war, outbreak, deposition,
international war, and even elections that may change the ruling government. These
can dramatically affect business ability to operate.
 M A R K E T W I T H D R AWA L

 A market withdrawal is a firm's removal or correction of a distributed product which

involves a minor violation that would not be subject to legal action by the FDA or
which involves no violation.
 The company removes the product from the market or corrects the problem
 The size of multinationals can have a significant impact on government policy,
primarily through the threat of market withdrawal.
 Lack of consistency between reasons to export and corporate objective has influence
on the decision of withdrawal.
 For example, in an effort to reduce health care costs, some countries have tried to
force pharmaceutical companies to license their patented drugs to local competitors
for a very low fee, thereby artificially lowering the price.
 FLUCTUATION OF EXCHANGE RATES

 Exchange rate is the price of one currency in terms of another currency.

 Every goods, services, and property value is measured by currencies.
 May affect company’s assets price, financial structure, profit margin, and cash
flow (Feixiang, 2012).
 Most important factor that affect the overall economy
 Multinational companies value affected more than national companies.
 Determine their nature and rate of growth.
 Even leads to closing; Example-Lebanese company
 TYPES OF EXCHANGE RATE RISK

 Translation risk: Results from the fluctuation of currency exchange rate lead to the loss
or gain in translation of the multinational companies annual accounts.
 Impact on : Profitability of the company
 Transactional risk: Cash flow risk generated from region currencies.
 Impact on : Cash flow converting their foreign currencies into home currencies
 Economic exposure risk: definite change in the financial performance of the company
due to fluctuation in the rate of exchange.
 Impact on : Net cash flows
 IS EXCHANGE RATE RISK RELEVANT?

 Affects investment decision through Inflation and interest rates factors.

 Cannot be forecasted with perfect accuracy, but at least measure their
exposure to fluctuations.
 Fluctuation in exchange rate results in variation within the domestic
currency strength relative to international market
 A weak domestic currency promotes exports and hinders import and vice-versa
 Response from MNCs: Yes, and even attempted to stabilize the earnings
with hedging strategies
 MANPOWER

 Total supply of peoples available

 Skill and competency of the available human resources
 Affects each and every site of an organization from production to client relationships.
 Challenges faced by growing MNCs with Manpower:
 Compliance with labor laws
 Talent Acquisition
 Developing agile leaders
 Building capability
 Retaining critical talent
 CONCLUSION

 A Multinational company – a large business organization which

is established in one country as home country and which
performs its manufacturing, trading, and service business in
other countries its subsidiaries or branches.
 MNC’s have to face many challenges in the growing market as
some of them are explained above by my group members.
 In order to overcome that challenges, MNC’s use various
strategies so that they will sustain in the market for a long period
of time with proper customer relationships and satisfaction .