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Part - IV

3.1 Objectives of the Firm

The MNCs on the basis of their strategic objectives can be broadly categorized as*: -

• Market seeking companies: These companies look at large and growing markets in emerging economies. The main determinant of FDI by these companies is that the production of relevant goods in the host country to cater to its demand should be more beneficial than transactions like licensing.

• Resource seeking companies: These companies look at host countries endowments of natural and created assets. They generally look for labor supply at affordable costs, and specific natural resources such as minerals, oil and gas.

A company can have both the objectives and can be both market seeking and resource seeking at the same time.

Joint ventures are common when MNCs are market seeking and want to cater to the host country market (Estrin and Meyer 2001). So, the MNCs are likely to tie up with local partners to mitigate costs associated with understanding markets and developing business contacts and distribution networks. On the other hand "resource seeking" MNCs which are focused on global market prefer a subsidiary route to retain complete control to ensure the quality of their products or services.

While the above point might be correct in a majority of the context, the situation has been different in the Indian FMCG sector. In this sector the MNCs like HLL, Cadburys, Nestle, etc are market-seeking companies but they entered the country through the subsidiary (Greenfield) route only. The JVs in case of market seeking companies have been mainly in machines, equipment and automobile sector.

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* Estrin and Meyer 2001.

* Contributed by: -
Abhishek Gupta & Anurag Ghuwalewala,
PGP-2, Batch 2003-2005,
IIM Bangalore.