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

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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?

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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?

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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

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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’?

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CONCEPTUAL FRAMEWORK

USA INDIA

MNC

Perceptions of Indian “culture”

Bilateral relations

Perceptions of “foreign threat”

Perceptions of global promise

Popular will Lobbying

Protection of international brands

Maximizing revenue appropriation

Global integration

Loss of independence

Dialogue vs. coercion

INTERNATIONAL REGIMES Equalizing tariffs Reducing corporate tax Securing international property rights Local development

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PEOPLE INVOLVED

USA INDIA

CHEMSTAROR

NEOLOGIC

Contractemployees

Trade Unionists Local politicians

and interestgroups

Citizens at large

Top Mgmt Global asst.

providers (helpdesk workers,liaison officers)

Local mgmt. Non mgmt.

workers Labor Subcontractors

INTERNATIONAL REGIMES

Asia Pacific Indian employees on

international deputation VP International Programs Quality Teams

Teams re-writing Indian economic andlabor laws (Project LARGE)

World Bank, WTO and IMF teamssuggesting economic reform

Management consultants, mainstreameconomists and management theorists

Critical academics Local advocacy groups

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THEORIES USED

USA INDIA

R

Competitive Advantage of Nations (Porter) Neoclassical Economics I/O Economics

Transaction Cost Econ. Internalization Eclectic paradigm

Knowledge-based theories(Kogut, Zander, Prahalad,Conner)

Knowledge creation (Nonaka) Organizational Learning (Senge) Resource-based view (Barney)

Neo-Institutional Theory (Isomorphism)

Postcolonial Theory Critical Marxist Analysis Neo-institutional theory (the use of

myths, routines and symbols)

INTERNATIONAL REGIMES

CS/NL

Subalternhistoriography

Postcolonialtheory

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 ReddyOwner 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 INGENUITYThey (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”