Transcript MULTINATIONAL CORPORATIONS AND GLOBAL CAPITAL: LESSONS

MULTINATIONAL CORPORATIONS
AND GLOBAL CAPITAL: LESSONS
FROM INDIA
Raza Mir
MNCs ARE DOMINANT
• Inflows of Foreign Direct Investment crossed
$1.6 trillion in 2012, with over $500b reported
as mergers and acquisitions.
• The top 500 MNCs of the world showed
revenue growths in excess of 10% and profit
growths in excess of 15% in 2012 despite the
global economic downturn.
NATIONS AND CORPORATIONS
RANKED TOGETHER
Country/MNC
GDP/Ann. Rev.
(2012, US$ b )
Country/MNC
GDP/Ann. Rev.
(2012, US$ b)
Country/MNC
GDP/Ann. Rev.
(2012,US$ b)
USA
16,244
Australia
1,532
Poland
489
China
8,227
Spain
1,3228
Belgium
483
Japan
5,959
Mexico
1,178
Argentina
475
Germany
3,428
S. Korea
1,129
Walmart
469
France
2,612
Indonesia
878
RD Shell
463
UK
2,471
Turkey
789
Exxon Mobil
457
Brazil
2,252
Netherlands
770
China Petr.
425
Russia
2,014
S. Arabia
711
Sinopec
411
Italy
2,014
Switzerland
631
Austria
394
India
1,841
Sweden
523
S. Africa
384
Canada
1,821
Norway
499
BP
370
BASIC MNC THEORY
• Internalization theory
– MNCs profit from internalizing activities that are
difficult to enforce by contracts (such as licensing)
– Get around trade barriers
– Exploit assets at large scale
• Increasing size, unequal development
– MNCs help make a core-periphery possible
– Small, wealthy core, large exploited periphery
WHAT IS GOOD ABOUT MNCs?
• Bring investment to different parts of the
world (also innovation, technology,
management skills)
• Provide better consumption choices (more
goods, cheaper)
• Facilitate specialization, and promote
economic growth (China)
• Provide competition to complacent domestic
firms
WHAT IS BAD ABOUT MNCS?
•
•
•
•
Exploitation of labor, violation of labor laws
Environmental degradation
Destruction of local economies
Using financial power to change pricing cycles
(low followed by high)
• Avoiding local taxes (by using spatial breadth,
transfer pricing) (Apple)
• Influencing governments (Ken Saro Wiwa)
CRITICAL THEORIES OF THE MNC
• MNCs take advantage of spatial and temporal
arbitrage (at global level in case of MNCs) and thus
appropriate surplus value
• Factor advantages (natural resources/labor)
• Governance advantages (laws)
• Technological advantages (absorptive capacity)
• Temporal advantages (global assembly line,
level of development)
• Often, these take on unjust dimensions
RESEARCH QUESTIONS
• Macro
• How do changes in the macro economic
policies (of poorer nations) affect the strategy
and structure of MNCs?
• Conversely, how do MNCs play a part in the
changing macroeconomic policies of nations?
• What are the specific ways in which these
policies are evaluated and resisted?
8
RESEARCH QUESTIONS
• Micro
• What are the ways in which technology is
transferred within corporations?
• How does the headquarter of the MNC prepare
the subsidiary for knowledge transfer?
• How do various groups within the subsidiary
receive and resist the demands made by the
headquarters related to knowledge transfer?
9
MY RESEARCH
• An ethnographic study of the Indian subsidiaries
of 2 US-based MNCs
– One old (economy), one new (economy)
– Spent several months on site, and used a variety of secondary
documents
• A detailed study of four ‘episodes’ of knowledge
transfer in these corporations
– Data gathered through interviews, observations, documents,
websites, communiqués
– Episodes identified after preliminary reports, and followed up
– Theorized, narrativized, frameworks created
10
ORGANIZING PROVERB
How can you pour tea into a cup that is already full?
(Sufi proverb)
Subtext: How can you ‘teach’ someone who already
‘knows’?
11
CONCEPTUAL FRAMEWORK
INTERNATIONAL REGIMES






Perceptions of
Indian “culture”
Bilateral relations
Equalizing tariffs
Reducing corporate tax
Securing international property rights
Local development


Lobbying



USA
12
Protection of
international
brands
Maximizing
revenue
appropriation

MNC


Perceptions of
“foreign threat”
Perceptions of
global promise
Popular will
Global
integration
Loss of
independence
Dialogue vs.
coercion
INDIA
PEOPLE INVOLVED
INTERNATIONAL REGIMES


Management consultants, mainstream
economists and management theorists
Teams re-writing Indian economic and
labor laws (Project LARGE)
World Bank, WTO and IMF teams
suggesting economic reform







USA
13
Top Mgmt 
Global asst.
providers (help
desk workers,
liaison officers)
Asia Pacific
Indian employees on
international deputation
VP International Programs
Quality Teams


CHEMSTAR
OR
NEOLOGIC


Critical academics
Local advocacy groups

Local mgmt.
Non mgmt.
workers
Labor
Subcontractors



Contract
employees
Trade Unionists
Local politicians
and interest
groups
Citizens at large
INDIA
THEORIES USED
INTERNATIONAL REGIMES
Neo-Institutional Theory (Isomorphism)



Competitive Advantage of Nations (Porter)
Neoclassical Economics
I/O Economics



USA
14
Transaction Cost Econ.
Internalization
Eclectic paradigm



CS/NL
Postcolonial Theory
Critical Marxist Analysis
Neo-institutional theory (the use of
myths, routines and symbols)

Knowledge-based theories
(Kogut, Zander, Prahalad,
Conner)
 Knowledge creation (Nonaka)
R Organizational Learning (Senge)
 Resource-based view (Barney)


Subaltern
historiography
Postcolonial
theory
INDIA
EMPIRICAL CONTEXT
• Reagent, a large US-based MNC
• Reagent-India, 50 years old
• Pre-1991 scenario
• Restrictions on level of foreign ownership
• Histories of import-substitution policies
• Organizations rarely “risked” introducing global brands
EMPIRICAL CONTEXT (contd.)
• Post-1991 scenario
• Reagent was able to ramp up its ownership
• Corporate decision to introduce well-known
pharmaceutical brand “Soledone”
• Cost profile was simply unfeasible (5x generic
competition)
• Decision to outsource to a local sub-contractor (Satish
Enterprises)
• Tremendous worries about the “theft” of IP (processes)
THE REALITY… QUITE THE OPPOSITE
When the R&D people of Reagent came up to me and showed me their
plans, they acted as if they were dealing with very big secrets. They
gave me these big multicolored binders and said, “you should be very
careful – this material should not be photocopied. You should just look
at it and tell us whether you can do it or not.” At first I got a little
excited, thinking that I would see some very new information. But after
I studied it for 2-3 days, I called them up and asked them to take it
back. I told them, “Thank you very much. But really your process is not
going to work at all because it is far too expensive. You are asking me
to buy completely all new kinds of equipment just to manufacture a
simple product, one that I already manufacture far more efficiently.
There are many companies with similar products as yours, who give me
their manufacturing contracts, and they are all happy with my way.
Why do you want your process to be three times as expensive when the
product itself is quite the same?”
Sreekanth Reddy
Owner of Satish Enterprises, a Reagent contractor
A CORPORATE “RASHOMON”
• Cast of principal characters
• Scott Burbank (Head of Global Marketing, Reagent USA)
• Pinchoo Kapoor (CEO, Reagent India)
• Sreekanth Reddy (Owner/CEO of Satish Enterprises)
SATISH’S INGENUITY
They (Reagent corporate) said they did not like chlorination because of two things –
one is that it is carcinogenic. Any residue of chlorine that was more than 2 ppm. (parts
per million) is bad for human beings in the long run. I told them that in my process, the
residual chlorine is brought down to 1 ppm. or less without any problem. Nobody
believed me when I said that, but I have achieved it batch after batch. The second
thing they said was that you have to use ozonization in the process in order to achieve
some kind of bactericidal quality. I said there’s no need to ozonize, because one can
achieve the same with hydrogen peroxide and 0.4% chloroform and that will do the
exact same job by itself.
They did not believe me at first. So I said that, you know, chlorination will help you also
not to use preservatives. And the less preservatives you use, the more your
manufacturing efficiency. And they asked, how can that be done? So I said you add
bromidium to the process. And that will take care of it. Then they asked how I would
get rid of the bromidium catalyst. I said I have a good recovery system and I have been
using it for many of the products that I manufacture. When they found I was giving
technically feasible answers to all their questions, they had no choice. So they said OK,
you can try.
And I used aluminum chloride, which I made by adding some hydrochloric acid to
aluminum scrap. And did the reaction with sodium carbonate - actually through the
bicarbonate route. And I was able to get about 80% efficiencies. Once I made a full
batch, they subjected it to a number of really comprehensive tests for taste, flavor,
color, and carcinogenics. And they found that it was as good as any of their other
products in other plants.
Sreekanth Reddy, Owner of Satish Enterprises
ONE TYPE OF “CAPABILITY TRANSFER”
• Excerpt from Pinchoo Kapoor’s annual R&D
report (co-signed by Scott Burbank):
– “This year, we have, under the guidance of corporate,
developed a new way of manufacturing Soledone that
uses chlorination instead of pasteurization.
– “This process, which uses a chlorination technique,
has led to an over-50% reduction in the production
cost of Soledone. The process has been thoroughly
documented for ISO 9000 certification (annexure
enclosed), and is under consideration for manufacture
at other Reagent locations in Europe and USA.”
A CORPORATE “RASHOMON”
• Kapoor/Burbank: “Of course the process is ours.
Satish had some ideas, but most of them came
from studying the plans supplied to them by
Tarrytown (Reagent’s headquarter city). And my
team worked constantly with them to fine-tune
their process. It is not as if they came up with it
on their own. And once we stabilized the process,
we documented it as a matter of routine. It is part
of our corporate policy. Anyway, before we began
manufacture, Reddy had signed an agreement
that all patents derived from this process would
belong to us.”
DÉNOUEMENT
• Reddy passed up on an invitation to a gala party
to celebrate the success of Soledone. “They
mentioned that this would be a celebration for
the entire ‘Reagent family.’ Why should the family
servant be part of the family celebration?”
• Somewhere in a server housing the electronic
archives of Reagent’s production processes, there
is a stored document about the patent protected
process by which Reagent manufactures
Soledone using the technique of chlorination.
DEFINING A CAPABILITY
•
•
•
•
•
Fluidity
Judgmental component
Tacit (good) vs. Explicit (not so good)
Embedded
The challenge of strategy is to monetize and
commoditize a capability (transform it into a
strategic resource)
• PROPERTY RIGHTS underlie it all
INTRA-ORGANIZATIONAL
CAPABILITY TRANSFER
• Creation
– Turning individual knowledge to organizational
knowledge
• Codification
– Paradox: Codifiability reduces value
• Transfer
– Absorptive capacity issues
WHAT IS LEFT OUT
• Power relationships
– The presence of the colony in the imperial
corporation
– Imperialism through signification and hegemony
– Paleo-Imperialism (the return of place
– Resistance as dialogical
WE NEED TO SEE…
• Everyday resistance in the global workplace
• Uncontested appropriations as normalized
organizational “strategy,” legitimated as
“capability transfer”
• The role of national and global symbols in the
power struggle
• Production of the “global subject”