Name: Ginu Abraham Registration Number: H00124734 Course: INTERNATIONAL BUSINESS Coursework type: ESSAY Course Tutor: Dr. UmmeSalma HOW CAN THE EMERGENCE OF MNCs BE BEST EXPLAINED? Multi-National Corporations are corporations which have their head office in one country which is called the host country or the home country from where it manages their operations all over the world. Normally any corporation or group which derives the quarter of their income from their operations outside the host country is considered a multinational corporation.
There are mainly four categories of Multi-National Corporations (1) a multinational, decentralized corporation with strong home country presence, (2) a global, centralized corporation that acquires cost advantages through centralized production wherever cheaper resources are available (3) an international company that builds on the parent corporation’s technology or R;amp;D (4) a transitional enterprise that combines the previous three approaches . As according to the UN data about 35000 companies have direct investment in foreign countries, and the largest 100 of them control about 40 percent of world trade. Anon. , 2012) The birth of MNC’s started from the early days of transitional trade started by Mesopotamian, Phoenician and Greek merchants. As the result of fall of Roman Empire the trade among various nations became difficult. The feudalism in Middle East and Europe resulted in wars among feudal lords and church prohibited the trade with the Muslim nations. After years the trade was established by traders of Italy who are considered as the predecessors of present day Multi-National Corporations.
In the mid of seventeenth and eighteenth century Multinational corporations in the form of trading companies started. The East India Company, the French Levant Company, the Hudson Bay Company, was the main multinational companies established in those days. Standard Oil, British Petroleum, International Nickel and Ana Conda Copper were the main MNCs investing mainly in petroleum and mining industries in the early twentieth century. The MNCs went through three main phases in their growth process. The first phase came to an end almost at the beginning of the 1st World War.
The European Companies such as Imperial Tobacco, Dunlop, Siemens, Philips, etc. captured the field. Due to the recessionary situation prevailing world over during the post-war period amidst of 1930-1950 the growth of Multinational corporations came to a halt. During the first phase, decades of 1950s and 1960s witnessed the emergence of American MNCs such as IBM, General Motors, and Ford Motors. The 1970’s witnessed the third phase of MNC’s. The new age belonged to the German, Europeans and Japanese MNCs.
The recent years witnessed the emergence of MNCS from developing countries such as Indonesia, India etc. (Nirav, 2012) Let us consider the case of Ford Motor Corporation over the years. The life cycle of this company will help us better understand the emergence of the MNCs Ford Motors is an American automotive corporation found by Henry Ford and a number of associates, who were C. H Bennett, Alexander Malcomson, James Couzens, John W. Anderson, John F. Dodge, Charles J. Woodall, Horace H. Rackham, Horace E. Dodge, Vernon C.
Fry, John S. Gray and Albert Strelow started on June 1903. The company have produced automotive parts and heavy vehicles in the past. The Ford Motor company today produces luxury and commercial cars. (Anon. , www. britannica. com) Ford introduced various methods which were later called as Fordism. These were the methods like assembly lines and management of high scale industrial work-force and methods for higher level of production of cars. Henry Ford was one most common symbol of transformation of agricultural to industrial mass production, mass consumption economy.
Ford was the creative or most resourceful force which resulted in the growth to superiority of the automobile industry to the world’s prime manufacturing activity. The foremost of the transformations it made was from the craft production to the mass production which helped in the creation of markets as it is mainly based on the economies of scale and scope which resulted in the rise to giant organizations which were built upon minute divisions of labour and functional specialisation. These were the main factors which resulted in the creation of a wider market.
The company grew on the concept that to manufacture it by mass and to standardize a product in end would mean to price it so low so that even the lay man would afford to buy it. Ford manufactured almost everything he required for his cars right from the basic raw materials. Ford mastered the mass production techniques to achieve significant economies by taking the task of doing everything by him. Ford was cautious about finance, accounting and giving super vision short and straight for the efficient coordination of the free flow of the raw materials and the components through the production procedure.
These were the two reasons why Ford vertically integrated the corporation. Though for the complete vertical integration it needed a huge amount work force including middle managers and specialists which were to be employed and assigned according to the hierarchical scheme. Thus in the end it all helped in the vertical integration of the corporation. By 1950s, the increase in mass production made them the largest single group within every developed country. (Thompson, n. d. The following chain of events will help to shed some light on the three stages of evolution of the company to an MNC. These stages will be further explained following the key moments in history. Ford Motor Corporation sold their first car which was assembled in their Mack Avenue plant in Detroit. The first car that they sold was a two cylinder model A on July 23rd. The Model T was made available to the public in 1908 and in which model production continued until 1927. Ford Motor Corporation of Canada incorporated near Winsor in Ontario.
In the same year Ford Motor corporation starts the production at the Piquette Avenue Plant in Detroit In 1910 The Manufacturing operations of Ford Motor Corporation was transferred to Highland Park, Michigan Plant. The corporation established their first overseas plant in Trafford Park, Manchester, England in 1911. The experiments with the assembly line began at the Highland Park Plant. The early trials with the transmissions and magnetos were followed by the advancement of chassis assembly line by the mid of the 1913 and by the end of the 1915 the one millionth car was produced by the Ford Motor Corporation.
Two years later first Ford truck was introduced which was supported by the Model T engine and in the same year the production of Fordson tractor begins which until Feb 1928 was produced only in North America. It was in the beginning of the 1922 the Ford Motor company purchased Lincoln Motor Company for 8 million dollars and Edsel Ford the son of Henry Ford was named as the president of the Lincoln. After five years from the purchase of Lincoln Motor Company, it ceases the model T production which was being sold to the public since 1908. Ford starts with production of the Model A in the same year which continues till 1932.
By the beginning of 1941 ford started producing the Mercury, the first jeep and first V8 en-block engine-equipped car built. All these car productions came to a halt by the beginning of World War II in 1942 and the production of Ford passenger cars was only resumed by July 3rd 1945. Later in 1956 Ford Motor company transforms into a publicly-held company with the common stock sale in the public and was listed on NYSE in the beginning of 1956. By the same year the Ford Motor company subsidiary on Aeronutronics systems, established which specialized in defence weapons and aerospace technology.
As the Ford Motor corporation went on progressing with their production and sales reaching higher demands it finally achieves exceeded earnings than those of the General Motors for the First time in 1986/1987. The same year it earns record profits of 4. 63 billion but later on in 1991 Ford Motor Company’s largest loss in a year was recorded as 2. 3 billion. As the result the Ford Motor company creates a Quality Care system to meet the needs the Ford dealerships and Ford owners. The same year Ford and Volkswagen Embark on a joint venture in “Auto Europa”, which is an organisation which produce multipurpose vehicles in Portugal.
Later next year Ford’s F series truck known as the best-selling truck for the tenth consecutive years in United States. Ford also succeeds in producing the first car which has environment friendly air-conditioning system. By the same year, Ford acquires 50% of the Mazda Motor Manufacturing and renames it as Auto Alliance International. In the year 1993, Ford is claims five of the eight top selling vehicles in the United States. The same year the first formal Ford Dealerships were placed inside the mainland China and the Ford China operations later secured the manufacturing and assembly.
In 1994 the first ford assembly began in India and acquires the world’s largest car rental company named Hertz. Finally in 1995 the Ford 2000 is initiated which was said to combine the power, resources ultimately to be a world company with the intimacy and agility of a small one. (Anon. , 2010) Later through years till to date the Ford Motor Corporation concentrated firmly on increasing the consumer base by marketing and developing new products and to achieve their globalization goals.
Ford also tried to put more effort on the research and development to increase their consumer base by commercialising cars powered with natural gas. The company advanced by developing and introducing new features like side impact airbags to their products. The growth and development of the corporation reached even up to the teaming up with the NASA to develop features for their cars which no other corporations in automobile industry have ever provided.
Over the years though the ford corporation have already started selling their products, after the 90s it came to a broader perspective of growth by extending their fields to various other sections by teaming up with NASA, Oracle Corporation and even a YMCA Childcare, which portrays the in deep goals to become more than a popular automobile manufacturing corporation. At this juncture I would like to shed some light on three stage of evolution that the Ford Corporation had to get through to become a MNC.
There are generally three stages of evolution for a corporation to become a Multinational Corporation; they are the Export stage, Foreign Production Stage and finally the Multinational stage. (BRIMS, n. d. ) The Fords motor Corporation which after its incorporation in 1903 made their first model commercialised for the public after a few years from incorporation. At this first stage of Export, it is the point of time were the Ford Motor Corporation had to completely rely on the export agents for exporting the cars outside their home country as they had no other option to increase their export sales.
They built plants in Detroit and Michigan to increase the production to satisfy the demand for the cars. The company focuses mainly on achieving higher number of export sales and introduces methods like assembly line to reduce cost and to save time which ultimately increases the production. In the second stage of foreign production, the Ford motor corporation’s export sales reach the limits of the sales to the foreign countries in means of export sales.
Now the Corporation had the option of either to start a plant in a foreign country or to license corporation’s technology to a new company in a foreign country is a risky choice as it may result in transfer of trade secrets regarding the technology to a new firm thereby paving way for the rise of a rival. In spite of these facts the Ford Motor Corporation established their foremost overseas manufacturing plant in Trafford Park, Manchester. Thus the productivity of the Ford Motor Corporation increases and in 1915 it produces he one millionth ford car and over the decades the Ford Motor Corporation increases their productivity by building more efficient and advanced plants throughout the home country and in foreign countries as well, which means it has already entered the final stage of being a multinational company. In this final stage, Ford Motor Corporation focuses on research and development, financing, and recruiting and co-ordinating production. By viewing the world market into a broader and growth intended view which results in the standardisation of products and the services paving way for the emergence of MNCs.
From this it is easy for us to understand the different phases involved in an organisation’s transformation into an MNC. This also helps us to understand the changing market trends and consumer behavioural characteristics thus helping us understand the concept of business as a whole.
REFERENCE Anon. , 2010. www. thehenryford. org. [Online] Available at: http://www. thehenryford. org/exhibits/fmc/chrono. asp [Accessed 19 09 2012]. Anon. , 2012. www. businessdictionary. com. [Online] Available at: http://www. businessdictionary. com/definition/multinational-corporation-MNC. html Anon. , www. britannica. com. www. britannica. com. Online] Available at: http://www. britannica. com/EBchecked/topic/213265/Ford-Motor-Company [Accessed 19 09 2012]. BRIMS, D. V. , n. d. A Brief on MNCs inside pages, s. l. : s. n. BRIMS, D. V. , n. d. A Brief on MNCs inside pages, s. l. : s. n. Nirav, S. , 2012. www. preservearticles. com. [Online] Available at: http://www. preservearticles. com/2012020122380/emergence-of-mncs-in-a-historical-perspective. html [Accessed 20 09 2012]. Thompson, G. F. , n. d. Fordism, Post-Fordism and the Flexible System of Production, Virginia: s. n. Thompson, G. F. , n. d. Fordism, Post-Fordism and the Flexible Sytem of Production , Virginia: s. n.
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