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Multinational business 

DFI is the most common way to enter an international business but this method is quite expensive as for some reason the

business fails, the firms face difficulties in disposing the plant and machinery etc. However, there are several alternative

methods for entering foreign market and are less risky and involve smaller fund than DFI, other than DFI, the alternatives

are:-

  Joint venture.

  Mergers & acquisitions.

  Licensing

  Franchising.

Joint Venture: – Between multinational & host country as partner is viable strategy. Advantages are that the local

partner’s is aware of local procedures/customs, ethical Value, Institution, Procedures and process. Also local Competent

management is available which shall be cost effective. In some countries 100% investment (FDI) not permitted and the

 joint ventures channel provides a way to do it. Contacts & influence of local partner helps in raising funds. Local marketing

turns convenient.

Mergers and Acquisitions 

(Cross Boarder Acquisitions)

Foreign direct investments are made in green field projects or by acquiring assets of existing units in other countries. It

creates new facilities through cross boarder acquisition which involves buying existing foreign assets and/or updating it’s

technically. Strategic alliances are merger and are popular all over the world. The Major advantage being quick production

and lower gestation period. As an example take the case of alliance between Crisil and Standard and Poor, here both the

firms are reputed one in credit rating business. They have separate business identity but alliance is to share the Knowledge

and cover wider market. The Merger also results into monopoly resulting into higher profit due to lower administrative over

head (Fixed Cost) and also charging higher prices. Specialized knowledge is also shared which enriches the firm. Indian

example is Coke- which by acquiring thumbs up etc turned monopolistic in the market.

Licensing:-

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MNC’s use licensing method gain profit from foreign market without need to invest major funds. Since the foreign producer

is 100% locally owned the political risk is minimized.

In case of l icensing, a firm of host country produces goods as per specification of licensing firm. A part of revenue earned

by selling these goods is parted with as per MOU. The major advantage of licensing are that cost of transportation is

negligible and DFI is minimum as the host firm produces goods. In other hand the disadvantage are that profit are limited,

Quality control is not strictly followed, possibility of technology transfer leakage is there.

Franchising:-

Where far franchising is concerned the firm allows individual to sell its products in a fixed territory. The firm gets initial fee

and royalty payment. Best example under multinational projects are Mc Donald and Pizza Hut who have franchises all over

the world.

Prospect of MNCs for India 

FDI by MNCS in India has an impact on country’s development. The Major Advantages are:-

1.  New Technology and management are introduced of global standard.2.  Optimum initiation of local resources Man, Machine, Material etc.3.  Produces better excess to information and manufacturing capabilities.4.  It links host economy with Global market.

5.  For developing countries it enhances the capability to invest i.e. more capital injected in a capital scarceeconomy,

6.  Changes productive structure in developing economy.7.  Increases employment potential.8.  Helps in Building better style of life.