How MNCs expand their business:
1. International Licensing: MNC permits the domestic company to use its trademark, brand name or technical know-how for manufacturing and marketing purpose. The license is given against payment of fee, which acts as source of income to the MNCs. E.g. Brand 555 is the licensed user of British American Tobacco company. In India it is manufactured by ITC (the licensee). It has the market of 600 cr. And company pays 5% of the total sales to BAT (licensor) as license fees. The BAT does not provide any raw material but just the brand name is given. This company took 45 years to establish. The licensor generally keeps supervisor in the plant of licensee.
2. International Franchising: the licensor not only provides the brand name but also the raw material. E.g. McDonalds. (Syrup – pharmaceutical companies, printed circuit boards to electronic items, essence – cold drink companies (Pepsi gives its essence to Punjab Agro).
3. Turnkey projects: MNCs undertake to complete the whole project and handover the same when ready to the host country. Such project may be supplied on tender basis. Such projects provide new opportunity to expand the business activities.
4. Joint Ventures: “Like marriage, binding between home country representative and host country representative, to set up a project either in home country or host or 3rd country with a commitment of joint risk taking and joint profit sharing.”
E.g. Modi Luft – Modi and Lufthansa
Indo Gulf fertilizer – Birla group
Taj group of hotels with Russian government.
5. Collaborations: It deals with any one part of management function, either finance or technology collaboration. (it is not possible to have collaboration in consumer products and FMCG. It happens generally with medicines, technological products.)
E.g. Bajaj – Kawasaki
Shree ram Honda (generators)
Collaborations are time bound and not permanent.