Management of Multinational Corporations ( MNCS )

Chapter 16 : Strategic Issues for Indian MNCs

Evolution of Indian Companies

Moving up the Value Curve

Overcoming Liabilities of Indianness
Developing New Competencies
Building the Future
Role of Government.

Chapter Summary

Most Indian companies that are now in the process of transforming themselves into multinational companies were set up as trading units and later moved up the value chain to become market leaders. Value is the amount the buyers are willing to pay for what the firm gives them. The value chain is a collection of all value-creating activities. Each value creating activity contains a margin.

A margin is the profit generated by the value creating activity. 'Moving up the value curve' means engaging in value creating activities that provide higher margins. The purpose of analyzing the value chain is to identify and develop competitive advantage for the firm. To create and sustain competitive advantage, Indian companies have to provide value to their customers.

Value may be provided by charging less than the competitor and providing similar benefits (becoming a cost leader), or by charging a premium and justifying it by differentiating the products (gaining a differentiation advantage). One of the reasons why companies do not succeed in their globalization efforts is their inability to overcome the liabilities of origin.

International customers do not treat goods from all countries alike. They believe that products of unknown local or foreign companies are of inferior quality. In certain companies the managers themselves feel their products are inferior, while in the rest, the managers are not aware of the perception of international customers. Managers sometimes get trapped in the "prison of local standards."

They become content with the size and growth potential of the domestic market and do not see why they should globalize. To overcome these liabilities, the senior management of companies must ensure two things: they must appoint experienced personnel in the international divisions and they must make organizational resources available to all the international divisions.

Developing core competencies in marketing, sales and distribution is the key to entering foreign markets. While manufacturing companies need a reliable supply chain, service-oriented companies need to be close to their customer. Indian companies may create these competencies internally, or acquire them from other companies. They may also enter into strategic alliances and partnerships.

In their efforts to globalize their businesses, Indian companies should not lose their grip on the domestic market. Indian companies must make efforts to succeed in the international market, and also sustain their position in the domestic market. Finally, governments play a major role in the globalization of companies.

The government can increase the competitiveness of firms by devaluing currency, deregulating industries, encouraging mergers and acquisitions, investing in research and providing tax incentives. It should develop human resources by constantly investing in research, education and training.