International-Business-Dr-R-Chandran-E-book

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130 International Business- Dr. R. Chandran disincentive to expropriation is concerned over the loss of future investments. Multiple joint ventures in different countries reduce the risk of expropriation, even if there is no local participation. If the government of one country does expropriate the business if faces the risk of being isolated simultaneously by numerous foreign powers. PROBLEMS FROM THE GORWTH OF MNCs Much of the concern about MNCs stems from their size, which can be formidable. MNCs may impose on their host governments to the advantage of their own shareholders and the disadvantage of citizens and shareholders in the country of operation. Even in India, MNCs have neglected the interests of the minority shareholders in the past. It can be difficult to manage economies in which MNCs have extensive investments. Since MNCs often have ready access to external sources of finances, they can blunt local monetary policy. When the host government wishes to constrain any economic activity, MNCs may nevertheless expand through foreign borrowing. Similarly, efforts at economic expansion elsewhere. Although it is true that any firm can frustrate plans for economic expansion due to integrated financial markets, MNCs are likely to take advantage of any opportunity to gain profits. As we have seen, MNCs can also shift profits to reduce their total tax burden by showing larger profits in countries with lower tax rates. Concern has been expressed, especially within the US, that their MNCs can defy the foreign policy objectives of the government through their foreign branches and subsidiaries. MNCs might break a blockade and avoid sanctions by operating through overseas subsidiaries. This has led to greater concern in some host countries, as they feel that companies operating within their boundaries may follow orders of the US or any other foreign government, and even within international trade unions. For example, in 1981 Chrysler Corporation was given loan guarantee to continue its operation. The US government insisted on wage and salary roll backs as a Only for Private Circulation
131 International Business- Dr. R. Chandran condition. Chrysler workers in Canada did not appreciate the instructions from the US Congress to accept a reduced wage. The examples below illustrate some of the controversies faced by MNCs. Parke-Davis Parke-Davis India is a 40% subsidiary of Parke-Davis Inc, USA which in turn is a division of the US-based company, Warner-Lambert. In 1995 the latter set up a 100% subsidiary. Among other products, it planned to manufacture and market confectionary products, although Parke-Davis India was already operating in this field. Later the parent company bought the brands of ‘Halls’ and ‘Chiclets’ from Parke-Davis India for about Rs.10 crores, which according to analysts was low price in relation to growth prospects and sales. Post-transfer, the sales of Parke-Davis grew just 3% in 1995-96 and then fell 1.5% the following year. And revealingly while the Sensex dropped 39% in 17 months from September 1994, Parke-Davis shares plunged almost 70% in the same period. Practically, a loss of about Rs.285 crores in market capitalization was witnessed during the same period. Pfizer There is undeniable attraction for an MNC to retain all the profits of a venture, rather than sharing them with minority shareholders. Obviously such a prospect is attractive to the MNC and alarming to the retail investor, especially since the regulatory framework cannot control corporate action in this matter. Although not having to share the profits may be the real reason. MNCs cite other factors, including lack of stringent patent and copyright laws in India for their actions. Often it is also the high cost of acquiring the additional shares to take the parent company’s holding above 51%. For example the additional 11% equity stake required for Pfizer would set the parent company back some Rs. 290 crore at the current valuation, and to buy out the remaining 60% from the other shareholders, would cost it Rs.775 crore. Setting up a 100% subsidiary is possible. SmithKline Beecham This case gives us an insight into the royalty issues. In 1997, SmithKline Beecham India announced its plan to pay 5% of net revenues earned from the sale of Horlicks to its parent company for using the brand name. At that Only for Private Circulation
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COMPANY COUNTRY OF ORIGIN REFORM PR
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10. Legal aspects 11. Investment an
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LICENSOR LICENSEE PROVIDE THE RIGHT
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10. MERGERS AND ACQISITIONS 25 Inte
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12. TURNKEY PROJECTS 27 Internation
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13. COUNTER TRADE 29 International
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a) Home country Economy 35 Internat
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SOCIAL ENVIRONMENT 39 International
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FDI Policy Initiatives 61 Internati
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Bahrain international Business Cent
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Tariff Barriers 191 International B
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D) On the basis of trade relations
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Types of non-tariff barriers 195 In
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World Bank 199 International Busine
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• Macroeconomic & Economic Growth
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• Local Currency Financing • Mu
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INTERNATIONAL MONETARY FUND 205 Int
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ASIAN DEVELOPMENT BANK 207 Internat
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Mode of transport Type of delivery
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How many intermediaries are require
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Factor Conditions PURCHASING POWER
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R= 44 ×100 = Rs. 40 110 243 Intern
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Strategy of the organization Need f
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