International Business

Course Outcomes: On successful completion of the course, the students will

able to

a) Understand the concept of International Business.

b) Differentiate the Internal and External International Business Environment.
c) Understand the difference MNC and TNC
d) Understand the role of International Organisations in International Business.
e) Understand International Operations Management.

Skill Developments Activities:

a) Tabulate the foreign exchange rate of rupee for dollar and euro currencies
for 1 month
b) List any two Indian MNC's along with their products or services offered.
c) Prepare a chart showing currencies of different countries
d) Collect and paste any 2 documents used in Import and Export trade.

Syllabus:

Module No. 1: Introduction to International Business

Introduction- Meaning and definition of international business need and

importance of international business, stages of internationalization, tariffs and
non-tariff barriers to international business.

Mode of entry into international business exporting (direct and indirect),

licensing and franchising, contract manufacturing, turnkey projects,
management contracts, wholly owned manufacturing facility, Assembly
operations, Joint Ventures, Third country location, Mergers and Acquisition,
Strategic alliance, Counter Trade; Foreign investments.

Module No. 2: International Business Environment

Overview, Internal and External environment Economic environment, Political

environment, Demographic environment, Social and Cultural environment,
Technological and Natural environment.
Module No.3: Globalization

Meaning, features, essential conditions favoring globalization, challenges to

globalization, MNCs, TNCS Meaning, features, merits and demerits; Technology
transfer - meaning. Types, Elements and issues in technology transfer.

Module No.4: Organizations Supporting International Business

Meaning, Objectives and functions of IMF, WTO, GATT, GATS, TRIM, TRIP; and
Regional Integration- EU, NAFTA, SAARC, BRICS.

Module No.5: International Operations Management

Global Supply Chain Management Global sourcing, Global manufacturing

strategies, International Logistics, International HRM Staffing policy and it's
determinants; Expatriation and Repatriation (Meaning only).
 Module No.3: Globalization

CONCEPTS
1. Meaning- features-essential conditions favouring globalization
2. Challenges to globalization
3. MNCs-TNCs- meaning, features, merits and demerits
4. Technology transfer – meaning –types – elements
5. Issues in technology transfer.

Globalization

Meaning:

Globalization is the word used to describe the growing interdependence of the

world's economies, cultures, and populations, brought about by cross-border
trade in goods and services, technology, and flows of investment, people, and
information.

Globalization refers to the interconnectedness and integration of economies,

cultures, societies, and governance across the world.

Definition:

Sociologists Martin Albrow and Elizabeth King define globalization as "all those
processes by which the people of the world are incorporated into a single
world society."

In The Consequences of Modernity, Anthony Giddens writes: "Globalization

can thus be defined as the intensification of worldwide social relations

Features:

It is characterized by several key features:

1.Increased Trade:
Globalization has led to a significant increase in international trade, facilitated
by advancements in technology, transportation, and communication. This has
allowed goods, services, and capital to flow more freely across borders.
2.Investment Flows:
There's been a surge in foreign direct investment (FDI) as companies seek to
expand their operations globally, taking advantage of market opportunities,
lower production costs, and access to resources.

3.Cultural Exchange:
Globalization has facilitated the exchange of ideas, values, and cultural
practices among different societies. This is evident in the spread of music,
movies, cuisine, fashion, and other cultural elements across borders.

4.Technological Advancements:
Rapid advancements in technology, particularly in information and
communication technology (ICT), have played a crucial role in driving
globalization. The internet, mobile phones, social media, and other digital
platforms have made communication and information exchange nearly
instantaneous across the globe.

5.Labor Mobility:
Globalization has led to increased labor mobility, with more people moving
across borders in search of better employment opportunities. This includes
both skilled workers, such as professionals and entrepreneurs, and unskilled
laborers seeking jobs in various industries.

6.Global Supply Chains:

Many industries have evolved into complex global supply chains, where
different stages of production are dispersed across multiple countries. This
allows companies to optimize efficiency, reduce costs, and access specialized
resources and expertise.

7.Financial Integration:
Globalization has led to greater interconnectedness of financial markets, with
capital flowing more freely across borders. This includes not only investment in
stocks and bonds but also the rise of complex financial instruments and
derivatives.
8.Political and Legal Harmonization:
Globalization has prompted greater cooperation and harmonization of policies
and regulations among countries. This includes trade agreements, intellectual
property laws, environmental regulations, and standards for labor rights.

9.Global Governance:
There's been an emergence of global governance structures and institutions
aimed at addressing transnational issues such as climate change, terrorism,
human rights, and public health. Examples include the United Nations, World
Trade Organization, International Monetary Fund, and World Bank.

10. Challenges and Inequalities:

Despite its benefits, globalization has also brought about challenges, including
income inequality, job displacement, cultural homogenization, environmental
degradation, and social unrest. These issues highlight the need for inclusive
and sustainable approaches to globalization.

Essential conditions favouring globalization:

1.Financial Integration: Globalization is facilitated by the integration of
financial markets, allowing for the free flow of capital across borders. This
enables access to investment opportunities, financing for businesses, and risk
diversification for investors. Financial integration also promotes stability and
efficiency in the allocation of capital on a global scale.

2. Multinational Corporations (MNCs): The presence and operations of

multinational corporations play a significant role in driving globalization. MNCs
leverage their global reach, resources, and expertise to establish supply chains,
production networks, and distribution channels across multiple countries. They
facilitate the transfer of technology, knowledge, and best practices,
contributing to economic development and competitiveness.

3. Special Economic Zones (SEZs) and Free Trade Zones (FTZs): Governments
often establish SEZs and FTZs to attract foreign investment, promote export-
oriented industries, and facilitate trade. These designated areas offer favorable
tax incentives, streamlined regulations, and infrastructure support to
businesses, encouraging cross-border trade and investment flows.
4. Global Supply Chains: The fragmentation of production processes across
borders has led to the proliferation of global supply chains. Companies source
components, intermediate goods, and services from multiple countries to
optimize costs, quality, and efficiency. Global supply chains enhance
productivity, innovation, and competitiveness while fostering economic
interdependence among nations.

5. Intellectual Property Rights (IPR) Protection: Strong intellectual property

rights regimes encourage innovation, creativity, and technology transfer,
contributing to globalization. Legal protections for patents, copyrights,
trademarks, and trade secrets incentivize research and development
investment, facilitate technology diffusion, and support knowledge-based
industries in a globalized economy.

6. Global Governance Frameworks: International agreements and frameworks

on issues such as climate change, human rights, and cybersecurity promote
global cooperation and coordination. Multilateral efforts to address common
challenges and risks enhance trust, stability, and sustainability in the globalized
world, fostering peace and prosperity for all.

7. Demographic Trends: Demographic shifts, including population growth,

urbanization, and labor mobility, influence globalization dynamics. Growing
populations, particularly in emerging markets, present opportunities for
market expansion, investment, and talent acquisition. Urbanization creates
concentrated consumer markets and innovation clusters, driving economic
growth and development.

8. Environmental Awareness and Sustainability: Increasing awareness of

environmental issues and sustainability concerns has spurred global efforts to
address climate change, resource depletion, and pollution. Collaboration
among governments, businesses, and civil society organizations is essential for
developing and implementing sustainable practices, technologies, and policies
to mitigate environmental risks and promote sustainable development in a
globalized world.

9.Technological Advancements: Rapid advancements in information and

communication technologies (ICTs), such as the internet, mobile devices, and
transportation infrastructure, have significantly reduced the barriers to
communication, trade, and travel. This enables instant global connectivity and
facilitates the exchange of goods, services, and ideas across borders.

10.Liberalization of Trade and Investment: Policies promoting free trade, open

markets, and foreign investment encourage international economic
cooperation and integration. Reductions in tariffs, quotas, and other trade
barriers foster increased trade flows between countries, leading to greater
specialization, efficiency, and economic growth.

11.Political Stability and Cooperation: Political stability and peaceful relations

between nations create a conducive environment for globalization. Countries
that maintain stable governments and foster diplomatic ties are more likely to
engage in international trade, investment, and cooperation, promoting mutual
prosperity and development.

12.Economic Interdependence: The recognition of the benefits of economic

interdependence encourages countries to participate in global markets and
supply chains. By specializing in the production of goods and services where
they have a comparative advantage, nations can maximize efficiency and
allocate resources more effectively, leading to overall economic growth.

Challenges to globalization

1.Economic Inequality: Globalization has exacerbated economic inequality

both within and between countries. While it has lifted millions out of poverty,
it has also widened the gap between the rich and the poor. Disparities in
income, wealth distribution, and access to opportunities have led to social
tensions and political unrest. For instance, luxury car manufacturers like
Mercedes-Benz or BMW must tailor their marketing strategies and product
offerings to cater to affluent consumers.

2.Protectionism: The rise of protectionist policies, including tariffs, trade

barriers, and nationalist agendas, poses a significant challenge to globalization.
Countries resorting to protectionism aim to shield domestic industries from
foreign competition but risk escalating trade conflicts and disrupting global
supply chains. For example, **India's steel exports faced barriers in the United
States due to tariffs imposed under the Section 232 measures, impacting
Indian steel producers like Tata Steel and JSW Steel.
**trade tensions between the US and China disrupted the supply of electronic
components, affecting Indian electronics manufacturers like Samsung and
Xiaomi.

3.Labor Exploitation: Globalization has led to the outsourcing of

manufacturing and service jobs to countries with lower labor costs, often
resulting in exploitation of workers, poor working conditions, and violations of
labor rights. Sweatshops, child labor, and precarious employment are
prevalent in many industries, raising ethical and humanitarian concerns.

Example: The garment industry in India has been criticized for exploiting
informal and migrant workers, who often lack legal protections and bargaining
power. In 2020, during the COVID-19 pandemic, reports emerged of garment
workers in India facing layoffs, wage cuts, and unsafe working conditions,
highlighting their vulnerability to exploitation.

Example: In 2019, reports emerged of labor law violations in garment factories

supplying global fashion brands like H&M and Gap in countries such as India
and Bangladesh. These violations included forced overtime, low wages, and
unsafe working conditions, highlighting the challenges companies face in
ensuring compliance throughout their supply chains.

4.Environmental Degradation: The pursuit of economic growth and

industrialization associated with globalization has contributed to
environmental degradation, including pollution, deforestation, and climate
change. Unsustainable production and consumption patterns threaten
ecosystems, biodiversity, and the well-being of present and future generations.

Example: The electronics industry faces challenges related to electronic waste

(e-waste) management and disposal. Companies producing electronic products
such as smartphones and laptops must comply with regulations governing the
recycling and proper disposal of electronic waste to prevent environmental
contamination.

5.Cultural Homogenization: Globalization has led to the spread of Western

culture and values, resulting in cultural homogenization and the erosion of
local traditions, languages, and identities. Dominance of Western media,
entertainment, and consumer products can undermine cultural diversity and
indigenous knowledge systems.

Example: Fast food chains like McDonald's and Starbucks face challenges in
adapting their menus and marketing strategies to local cultural preferences
and dietary habits while maintaining a consistent global brand image. These
companies often offer region-specific menu items and marketing campaigns to
resonate with diverse cultural audiences.

6.Digital Divide: Despite the proliferation of information and communication

technologies, a digital divide persists, with disparities in access to digital
resources, connectivity, and digital literacy between developed and developing
regions. Unequal access to the internet and digital technologies exacerbates
social and economic inequalities.

Example: Telecommunications companies like Vodafone and AT&T face

challenges in extending broadband internet access to remote and underserved
areas, particularly in developing countries. These companies invest in
infrastructure development and collaborate with governments and NGOs to
bridge the digital divide and expand connectivity to unserved populations.

7.Global Health Threats: Globalization facilitates the rapid spread of infectious

diseases, such as pandemics, due to increased travel and trade. The
interconnectedness of global health systems poses challenges in containing
outbreaks, ensuring equitable access to healthcare, and coordinating
international responses to health emergencies.

Example: The COVID-19 pandemic disrupted global supply chains, particularly

in industries reliant on international trade and manufacturing. Automotive
companies like Ford and General Motors faced production delays and parts
shortages due to disruptions in the supply of components from countries
heavily impacted by the pandemic, such as China.

8.Political Instability and Conflict: Globalization can exacerbate political

instability and conflicts by intensifying competition over resources, markets,
and geopolitical influence. Ethnic tensions, religious extremism, and territorial
disputes are often exacerbated by economic disparities, cultural differences,
and geopolitical rivalries in a globalized world.

Example: Oil companies operating in regions with political instability, such as

the Middle East or parts of Africa, face security risks to their operations due to
the threat of terrorist attacks, sabotage, and armed conflicts. For instance,
attacks on oil facilities in countries like Nigeria and Iraq have disrupted
production and posed security challenges for companies operating in the oil
and gas sector.

9.Loss of Sovereignty (ಸಾರ್ವಭೌಮತ್ವ): Some critics argue that globalization

undermines national sovereignty and democratic governance by transferring
decision-making power to supranational institutions, multinational
corporations, and global financial markets. Countries may face pressure to
adopt policies dictated by global economic forces, limiting their autonomy and
policymaking flexibility.

Example: Companies in the automotive industry face challenges due to trade

disputes and tariffs imposed on automobiles and auto parts. For instance,
tariffs imposed by the United States on steel and aluminum imports from
countries like China and the European Union have led to retaliatory tariffs on
American-made vehicles, affecting the competitiveness of automotive
manufacturers operating globally.

10.Social Dislocation and Marginalization: Globalization can lead to social

dislocation and marginalization, particularly in communities dependent on
traditional industries or vulnerable to economic shocks. Job displacement,
urbanization, and migration can disrupt social cohesion, exacerbate urban
poverty, and fuel social unrest, challenging efforts to achieve inclusive and
sustainable development.

One example of a company facing challenges related to social dislocation and

marginalization due to globalization is the manufacturing giant, General
Motors (GM), particularly in the context of its operations in Detroit, Michigan,
USA.

Historically, Detroit was known as the heart of the American automotive

industry, with GM being one of the major employers in the region. However,
globalization and technological advancements in the automotive industry have
led to significant changes, including the outsourcing of manufacturing jobs to
countries with lower labor costs and the automation of production processes.

As a result, many traditional manufacturing jobs in Detroit have been displaced

or eliminated, leading to widespread unemployment, poverty, and social
dislocation in the local community. The decline of the automotive industry has
had ripple effects across various sectors, contributing to urban decay,
population decline, and social unrest in Detroit.

GM itself has faced criticism for its role in the decline of manufacturing jobs in
Detroit and the marginalization of local communities. The company's
restructuring efforts, including plant closures and layoffs, have further
exacerbated social and economic challenges in the region.

Efforts to address these issues and promote inclusive and sustainable

development in Detroit have involved collaboration between GM, local
government, community organizations, and philanthropic partners. Initiatives
focusing on economic diversification, workforce development, and community
revitalization aim to create new opportunities for residents and foster social
cohesion amidst the challenges posed by globalization and economic
transformation.

MNCs
A Multinational corporation (MNC) is a type of company that operates in
multiple countries with a centralized management at the headquarters at the
home country.

Whereas, Transnational corporation (TNC) also operates globally but without a

centralized system, means each firm in respective country have its own
management which is the decision making body.

For example: McDonald’s is an example of a transnational company and Coca-

Cola is an example of Multinational company, both operates globally but one
does not have a centralized system and other has centralized system of
management.
 Differences between Multinational and Transnational
Basis Multinational Corporations Transnational Corporations
Definition Multinational refers to a corporation Transnational refers to a
that has assets and facilities in one or corporation which operates in
more countries, other than the home other countries, other than the
country, and has a centralized office home country, and do not have a
where global management is centralized management system.
coordinated.
Operations multinationals have subsidiaries in While, a transnational does not
other countries have subsidiaries in other
countries.
Decision Decision making in a multinational is Decision making in a
making made in the mother country and transnational is made by
should be effected in all the individual transnational
subsidiaries globally corporations.
Local markets Multinationals face restrictions when Transnational companies are
it comes to local markets since they free to make decisions
have centralized management independently based on local
systems. markets.
Global MNCs may focus on local TNCs emphasize global
Strategy: responsiveness, adapting their integration and standardization,
products, services, and strategies to aiming to achieve economies of
suit the preferences and needs of scale and maximize efficiency
each market. They may prioritize across their international
customization and localization to operations. They may prioritize
gain a competitive edge. global branding and product
uniformity to create a consistent
brand experience worldwide.

Features of MNC’s:

Multinational Corporations or Multinational Companies are corporate

organizations that operate in more than one country other than home country.
Multinational Companies (MNCs) have their central head office in the home
country and secondary offices, facilities, factories, industries, and other such
assets in other countries.

These companies operate worldwide and hence also known as global

enterprises. The activities are controlled and operated by the parent company
worldwide. Products and services of MNCs are sold around various countries
which require global management.

High turnover and many assets, aggressive marketing are some of the features of
Multinational Companies. LTI, TCS, Tech Mahindra, Deloitte, Capgemini are some
of the examples of MNCs in India.

1. High Turnover and Many Assets

MNCs operate on a global scale. Which means they have huge assets in almost
all countries in which they operate. Their turnovers can also be incomprehensibly
large. For example, Apple has a market capitalization of 1 trillion dollars. This is
bigger than the entire economy of Saudi Arabia!

2. Control
MNCs have unity of control. So while they have many branches in many
countries, the main control will remain with the head office in its country of
origin. The business operations in the host country have their
own management and offices, but the ultimate control will still remain at the
head office.

3. Technological Advantages
As we saw earlier, an MNC has at its disposal huge amounts of wealth
and investments. This allows them to use the best technology available to boost
their products and their company. Most companies also invest huge money in
their Research & Development Department to invent and discover new
technological marvels.

4. Management by Professionals
An MNC is run by very competent and capable individuals. They have
suitable managers to take care of their business operations, technology,
finances, expansion etc. And they are also able to attract the top talent to their
corporations due to their resources and their reputations.
5. Aggressive Marketing
MNCs can spend a lot of their money on marketing, advertising, and promotional
activities. They target an international audience, so effective marketing becomes
necessary. Aggressive marketing allows them to capture the market and sell their
products globally.

6. Complex Organizational Structure: MNCs typically have complex organizational

structures with headquarters, regional offices, and subsidiaries spread across
different countries. This complexity presents challenges in terms of coordination,
communication, and management.

7. Risk Management: MNCs face various risks related to currency fluctuations,

political instability, regulatory changes, and global competition. They employ
sophisticated risk management strategies to mitigate these risks and safeguard
their operations and investments.

8. Global Presence: MNCs have a presence in multiple countries, with

subsidiaries, branches, or offices established internationally. This global footprint
allows them to access diverse markets, resources, and talent pools.

9. Diverse Operations: MNCs often engage in diverse business activities across

different sectors such as manufacturing, services, technology, and finance. This
diversification helps them mitigate risks associated with fluctuations in specific
markets or industries.

10. Human Capital Management: MNCs prioritize human capital management to

attract, retain, and develop talent on a global scale. They implement talent
acquisition strategies, training programs, and career development opportunities
to build a skilled and motivated workforce capable of driving innovation and
growth.

Merits of Multinational Corporation:

The following are the merits of Multinational corporations.

1. Proper use of Idle Resources: The national income of the host country
increases as MNCs use idle physical and human resources with the latest
technologies.

2. The inflow of Foreign Capital: Multinational corporations bring much needed

foreign capital for the rapid development of developing countries. This capital is
useful for the growth of domestic countries.

3. Promotion of International Brotherhood and Culture: MNCs integrate

economies of various nations with the world economy and promote
international brotherhood and culture with peace and prosperity in the world.

4. End of Local Monopolies: In the global market, Multinational Corporations

end local monopolies of host countries improving their products and reduces
prices.

5. Technical development: Multinational corporations gives a lot of importance

to research and development activities. They are also fully equipped and have
the necessary infrastructure. The research and development is undertaken for
finding out new products, new systems, and new technology of doing business in
an economical way.

6. Improvement of Standard of Living: Multinational Corporations supply their

product at very reasonable prices in the global market. E.g. the price of
wristwatches, cell phones, etc. This helps to improve the standard of living of
people in host countries.

7. Managerial Development: Multinational corporations have a highly

specialized and expert team of management. These experts are hired by
different countries of the world. Also, their functioning is highly professional.
They adopt new technology and use huge resources.

8. Employment Generation: MNCs create large scale employment opportunities

in host countries and helps in reducing unemployment.

Demerits of Multinational Corporations:

1. The danger for Domestic Industries: Multinational Corporations have vast
economic power so they are a danger to domestic industries which are still in
process of development. Domestic industries are not so powerful to face the
challenges of Multinational corporations.

2. Create Problem for Environment: Profit is the sole objective of Multinational

corporations. Such companies damage the environment of developing countries.
To lower the price of goods they dump lower standard quality products which
harm local soil, water, and air.

3. Outsourcing of Job: Normally MNCs outsource the job work due to lower cost,
due to this their liabilities towards employees are reduced.

4. Misuse of Mighty Status: Multinational Corporations have powerful financial

strength because of huge capital. They can afford to bear losses for a long while
in the hope of earning huge profits. They have ended local competition and
achieved a monopoly. This may be unfair.

5. Multinational Corporations Import Skilled Labours: Most companies in this

position import the skilled labour they require from other economic to meet
their needs. That means the best jobs, especially in the developing world, are
given to people who don't even live in the local economy. Those wages do not
offer the same economic benefits because spending occurs internationally
instead of at the local level.

6. Interference: Multinational Corporations are gigantic organizations with huge

finance and efficient management. They try to bring about the expansion of
business through mergers, acquisitions, and amalgamations. As they are huge
corporations they exert influence on political parties and try to spread the
political ideology of their home country.

7. Take away Profits to Home Country: Profits made by multinational

corporations are not used in the same country from where they are earned. They
are not interested in the development of other countries. They do not use their
profits on the infrastructural development of other countries.

8. Encourage Political Corruption: To get favorable terms and conditions in host

country multinational corporations bribe to political parties.
9. Repatriation of Profiles: Multinational Corporations get huge profits.
Repatriation of profit by Multinational corporations adversely affects the foreign
exchange reserves of the host country. If means that a large amount of foreign
exchange goes out of the host country.

TNCs

FEATURES OF TNCs

The main features of TNCs are as follows:

i) TNCs are normally very large in size as measured by the value of their
total sales. The average TNC has billions of US dollars as its total sales
value which is often equivalent to more than the national incomes of
one, two or three large developing countries. In the eighties, and
nineties, however there has been a growth of smaller TNCs from
Canada. Japan and the UK. Even the USA has now some small TNCs.
ii) Many TNCs depend to a large extent on their foreign sales. There has
been a steady growth of the share of foreign sales in total sales. Sales
of TNCs exceed the value of world trade in goods and services.
iii) TNCs are multi product enterprises something that gives them
tremendous market power.
iv) The main strength of TNCs is their command of technology and
innovation. They spend sizable amount on research and development
(R & D). Most TNCs spend 5-6 percent of their sales value on R & D
which amounts to billions of dollars. This is the reason for their
tremendous market power.
v) The affiliates of the TNCs arc responsive to a number of important
environmental forces, including competitors, customer, suppliers,
financial institutions and government.
 vi) It draws on a common pool of resources including assets, patents
trademarks, information and human resources.
vii) The affiliates of the TNCs are linked by a common strategic vision.
Each TNC formulates its strategic plan so as to bring the affiliates
together in a harmonious way.

Advantages to Host Country:

1.Foreign Capital: Developing countries suffer from shortage of capital

required for rapid industrialization. TNCs bring in capital for the development
of these countries. Direct foreign investment speeds up the process of
economic development.

2.Advanced Technology: Developing countries are technologically backward.

They do not have sufficient resources to carry on research and development.
TNCs bring advanced technology to developing countries. Through continuous
research and development, TNCs serve as a source of inventions and
innovations.

3.Employment Opportunities: Developing countries face unemployment

problem. TNCs create large scale employment opportunities in host countries.
TNCs increase the investment level and thereby the employment level.

4.Foreign Exchange: Most of the developing countries face adverse balance of

payment position. TNCs help the host countries to increase their exports and
reduce their dependence on imports. As a result, balance of payment position
of host countries improves.

5.Development of Human Resources: TNCs employ modern management

techniques and trained managers. TNCs help to professionalism management
in host countries. As carriers of knowledge and experience, TNCs build up
knowledge base and thereby assist the development of human resources in
host countries.

6.Healthy Competition: TNCs increase competition and thereby break

domestic monopolies. TNCs compel the domestic companies to improve their
efficiency or withdraw from the market. For example, many Indian companies
acquired ISO-9002 quality certification due to competition from multinational
corporations after 1991.
7.Growth of Domestic Firms: TNCs stimulate the growth of local enterprises. In
order to support its other operations, a TNC may assist domestic suppliers and
ancillary units.

8.Standard of Living: TNCs provide superior products and services and help to
improve living standards in host countries.

9.World Economy: TNCs help to integrate national economies into a world

economy. TNCs encourage international brotherhood and cultural exchanges
through international business. Different TNCs operate in different countries.
As a TNC offers many benefits to each of the host countries, these countries
are getting united. Cultural differences between them are reducing and they
are gradually moving towards a single i.e. global economy.

Disadvantages to Host Country:

1.Disregard of National Goals: TNCs invest in the most profitable sectors e.g.
consumer goods disregarding the goals and priorities of host country. TNCs do
very little for underdeveloped strategic sectors and regions. Due to their
capital-intensive technology and profit maximization approach, TNCs have
failed to help in solving the problems of unemployment and poverty.

2.Threat to National Sovereignty: TNCs pose a danger to the independence of

host countries. To promote their interests TNCs tend to interface in the
political affairs of host countries. Some TNCs are accused of overthrowing
governments in countries such as Chile.

3.Alien Culture: TNCs bring not only capital and technology, but their own
culture also. TNCs tend to vitiate the cultural heritage of local people and
propagate their own culture to sell their products. For example, TNCs have
encouraged the consumption of soft drinks, packaged food etc. in India.

4.Obsolete Technology: TNCs often transfer outdated technology to their

collaborators in host countries. In a number of cases technology transferred by
TNCs was found unsuitable causing waste of scarce capital. Repetitive imports
of similar technology led to excessive royalty payments without adding to
technical knowledge in host countries. Sometimes machinery available locally
was imported or it remained idle for want of repairs and maintenance
facilities. TNCs have failed to develop local skills and talents.
5.Excessive Remittance: TNCs remit huge amount to the home country by way
of royalty, technical fee, dividend, licensing fee etc. This puts severe pressures
on the foreign exchange reserves and balance of payments of host countries.

6.Creation of Monopoly: TNCs give rise to monopoly and concentration of

economic power in host countries by exploiting their strategic advantages like
patents, superior technology etc. TNCs kill indigenous enterprises for example,
Parle Soft Drinks and Kwality Ice Cream Co. had to sell themselves to foreign
TNCs in India.

7.Restrictive Clauses: Due to strong bargaining power, TNCs introduce

restrictive clauses in collaboration agreements. According to these restrictive
clauses, technology cannot be passed to their parties or pricing of products will
be by the TNC, or exports from host country will be restricted or managerial
posts will be filled by parent company. TNCs do not transfer R&D, training and
other facilities to host countries.

8.Depletion of Natural Resources: TNCs have caused rapid depletion of some

of the non-renewable natural resources in host countries.

Technology transfer – meaning –types – elements

Technology transfer is the movement of data, designs, inventions, materials,

software, technical knowledge or trade secrets from one organisation to another
or from one purpose to another. The technology transfer process is guided by
the policies, procedures and values of each organisation involved in the process.

The process of disseminating knowledge, skills and other know-how that

manifests in the form of technology from its owner (individual or an
organization) to another person or organization is known as technology
transfer. It is also popularly known as Transfer of Technology. Various
stakeholders amongst whom technology transfer takes place includes
universities, business organizations, research and innovation societies and
others. Such transfer takes place with the motive to share skills, knowledge,
technologies, methods of manufacturing and other related profit motives. The
transfer is further done with an intention to provide improved accessibility to a
wide range of users who can then further develop and exploit the technology
to develop new products, processes, applications, materials or services.

Types of Technology Transfer

Technology transfer can be broadly classified into vertical and horizontal

technology transfer.

1. Vertical Technology Transfer- This chain of transfer includes basic

research to applied research, applied research to development and from
development to production. It is also known as internal technology
transfer. This type of transfer is mostly carried out between research
associations, universities, and governments, among others.

2. Horizontal Technology Transfer- When technology which has already

been put in place or use within one organization is further transferred
and used in another place, the transfer is known as horizontal
technology transfer. It is also known as external technology transfer.
This type of transfer takes place between private companies, small and
large business organizations, among others.

Methods of Technology Transfer

Technology transfer can take place using the following instruments.

1. Licensing-

An agreement between the owner of the technology (Licensor) and the

receiver (Licensee) which gives the right to use the technology developed or
owned by the transferring individual or company for a specified time period is
known as licensing. The two broad categories of licensing include the one
which grants exclusive rights to use the technology and another which grants
non-exclusive rights wherein the owner reserves the right to further transfer
the technology to other company apart from the receiver. It may also include
the right to sub-license, permitting the licensee to grant someone else the right
to use the technology.

2. Joint Venture Agreement-

The company executes a joint venture agreement with respect to technology
transfer for a particular business with a vision to incorporate long-term
cooperation between the parties, motivation of all participants in the
successful transfer and to incur lower costs as compared to working
independently.

3. Franchising-

It is one of the most preferred methods of transferring technology. The

companies generally transfer technical know-how or skill involved under this
type of agreement.

4.Original Equipment Manufacturer-

It is a kind of sub-contracting agreement wherein a foreign company transfers

a relevant portion of its technologies and a local company manufactures
according to the specifications in the agreement. Such agreement enables local
companies and firms to absorb technologies and restructure their production
mechanism.

5.Buy-Back Contracts-
It is a form of agreement between stakeholders from developing countries and
large foreign companies, wherein a foreign company supplies industrial
equipment in exchange for profits derived from the sale of raw materials or
goods produced. This kind of technology transfer is often used in the
construction of new plants and other related business.
Elements of Technology Transfer

Technology transfer involves the process of transferring knowledge, skills,

processes, or technologies from one entity to another. Several key elements
are involved in successful technology transfer:

1. Source of Technology: This refers to the originator of the technology,

which could be a research institution, a company, or even an individual
inventor.
2. Recipient: The entity receiving the technology, which could be another
company, a government agency, or a research institution.

3. Technology: The specific knowledge, processes, or tools being

transferred. This could range from patented inventions to manufacturing
processes to software algorithms.

4. Agreement: Formal agreements or contracts are often necessary to

define the terms of the technology transfer, including rights,
responsibilities, and any financial arrangements such as licensing fees or
royalties.

5. Intellectual Property Rights (IPR): Clear understanding and

management of intellectual property rights are crucial in technology
transfer to ensure that both the source and recipient have appropriate
rights to use and commercialize the technology.

6. Training and Support: Depending on the complexity of the technology,

training and ongoing support may be necessary to ensure successful
adoption and implementation by the recipient.

7. Infrastructure and Resources: The recipient must have the necessary

infrastructure, resources, and capabilities to effectively utilize and
further develop the transferred technology.

8. Regulatory Compliance: Compliance with relevant regulations and

standards, particularly in industries such as healthcare, pharmaceuticals,
and aerospace, is essential for successful technology transfer.

9. Monitoring and Evaluation: Continuous monitoring and evaluation of

the technology transfer process are important to identify any issues or
challenges and make necessary adjustments to ensure its success.

10. Feedback and Iteration: Feedback mechanisms should be in place to

gather input from both the source and recipient of the technology,
allowing for continuous improvement and refinement of the transfer
process.
Issues in technology transfer.

Issues in technology transfer can manifest in various forms, hindering the

effective dissemination and adoption of innovations.

1. Intellectual Property Disputes: Disputes over intellectual property rights

can arise, particularly when multiple parties are involved in the
development or commercialization of a technology. For instance, in the
pharmaceutical industry, disputes over patents for new drugs can delay
their availability to patients.

2. Access to Technology: Limited access to technology due to high licensing

fees or restrictive intellectual property agreements can hinder
technology transfer. For example, developing countries may struggle to
access life-saving medical technologies due to prohibitive costs set by
multinational corporations.

3. Technology Compatibility and Adaptation: Technologies developed in

one context may not be easily adaptable to different environments or
user needs. For instance, a renewable energy technology optimized for
use in developed countries may require significant modifications to be
suitable for rural communities in developing countries with limited
infrastructure.

4. Lack of Technical Expertise: Inadequate technical expertise or capacity

within recipient organizations can impede technology transfer efforts.
For example, a research institution may struggle to implement a new
laboratory technique without sufficient training and support from the
technology provider.

5. Regulatory Compliance: Compliance with regulatory requirements can

pose challenges to technology transfer, particularly in highly regulated
industries such as healthcare and aerospace. For instance, the approval
process for medical devices can be lengthy and complex, delaying their
introduction to the market.
6. Cultural and Organizational Barriers: Differences in organizational
cultures, priorities, or communication styles between technology
providers and recipients can create barriers to effective technology
transfer. For example, a multinational corporation may encounter
resistance from local partners when implementing new management
practices in international subsidiaries.

7. Market Dynamics and Commercialization: Lack of market awareness or

ineffective commercialization strategies can impede the uptake of
transferred technologies. For example, a startup developing a novel
agricultural technology may struggle to attract investors or customers
due to limited understanding of market needs or competition.

8. Sustainability and Scalability: Ensuring the sustainability and scalability

of transferred technologies is essential for long-term impact. For
example, a clean cooking stove introduced in a rural community may
face challenges related to maintenance, fuel availability, or user
behavior, affecting its long-term viability.

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