Question

1. Discuss some common firm-specific characteristics of MNCs. As a follow up, choose a well known MNC. Which of these characteristics has had the most impact on that MNC? Why?

2. How due diligence can make a merger more likely to succeed. Can you find an example of the opposite?

Answer 1

1. Some common firm-specific characteristics of MNCs are:

a. Unity of control – MNCs are defined and characterized by unity of control. MNCs control and monitor the business activities of their subsidiaries in foreign countries through their head office that is located in the home country. Each subsidiary is operated within the policy framework laid out by the head office.

b. Professional management – MNCs are managed by professionally trained managers who are capable of making long term strategic decisions.

c. Economic power – MNCs have substantial economic power and these companies keep on adding to their economic power through organic growth and through inorganic route like mergers and acquisitions.

A MNC that I have selected is PepsiCo. The characteristic that has had the most impact on the MNC is unity of control. The company is led by its dynamic CEO Indira Nooyi who is based in USA. PepsiCo. is defined by unity of control and each subsidiary of Pepsi operates within the policy framework laid out by the head office. As such all the subsidiaries are now focusing on developing products that are healthier and have less sugar content.

2. Due diligence can make a merger more likely to succeed as due diligence consists of a proper investigation and audit of the potential investment or the potential buyout. Due diligence involves confirming all facts and reviewing all financial records. A thorough analysis of the financials, management, material facts etc. that is done in due diligence increases the probability of success of a merger.

An example of the opposite is the merger of Diamler Chrysler in 1998. The merger failed as the due diligence failed to do a comprehensive competitive analysis.