UNIT-1

Dr.N.G.P. Institute of Technology

(An Autonomous Institution)
(Approved by AICTE, New Delhi & Affiliated to Anna University, Chennai)
Recognized by UGC & Accredited by NAAC
Accredited by NBA (BME,CSE,ECE,EEE,MECH)
Dr. N.G.P – Kalapatti Road, Coimbatore – 48, Tamilnadu
Phone: 0422 – 2369105, Fax: 0422 – 2369106, Email:info@drngpit.ac.in, Web: www.drngpit.ac.in

22UMB502-PRINCIPLES OF
MANAGEMENT

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UNIT- 1 INTRODUCTION TO
MANAGEMENT AND ORGANIZATIONS

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Definition of Management – Science or Art – Manager Vs

Entrepreneur – types of managers - managerial roles and skills –
Evolution of Management – Scientific, human relations , system
and contingency approaches – Types of Business organization -
Sole proprietorship, partnership, company-public and private
sector enterprises - Organization culture and Environment –
Current trends and issues in Management.

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COURSE OUTCOME

Analyze the concept of management

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Definition of Management
• The process of dealing with controlling things or people.
• Management is the process of Designing & Maintaining
an environment in which individuals, working together
in groups efficiently to accomplish selected aims.
• Management Definitions by Great Management
Scholars
– Harold Koontz (1909-1984) was professor of business
management at University of California, Los Angeles. He was
a consultant for US largest business organizations.
– Harold Koontz “Management is the art of getting things done
through others and with the people in formally organized
groups.”

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• Geroge Terry says “ Management is the process of

Planning, Organizing, Staffing, Directing and
Controlling to accomplish organizational objectives
through the coordinated use of human and material
resources.”
• Ross Moore : “ Management means Decision Making ”
• Donald J.Clough : “Management is the art & science of
Decision Making and Leadership
• Joseph L.Massie : “ Management is the process by
which a co-operative group directs actions towards
common goals”
• Peter F.Drucker : “ Management is an organ; organs
can be described and defined only through their
functions.

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• Management involves coordinating and overseeing the work

activities of others so that their activities are completed
efficiently and effectively.
• Coordinating and overseeing the work of others is what
distinguishes a managerial position from a non managerial
one.
• Efficiency is getting the most output from the least amount of
inputs in order to minimize resource costs.
• Efficiency is often referred to as “doing things right”
• Effectiveness is completing activities so that organizational
goals are attained and is often described as “doing the right
things”

• Productivity = Outputs / Inputs (within a Time

Period Quality Considered

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Scope & Objective of Management

• The Scope of Management comes from the business ideas, theories, principles
and responsibilities that a business uses for managing its various functions.
• The scope of management can cover:
• Financial Management
• Production Management
• Marketing Management
• Maintenance Management
• Transport Management org
• Objectives of Management
• Getting maximum results with minimum efforts
• Increasing the efficiency of factors of production
• Maximum prosperity for employer and employees
• Human betterment & social justice
• Reduce costs
• Establishes Equilibrium
• Establishes sound organizations

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Nature & Characteristics of Management

• It is a Separate/Social process. - Management is done by people, through people
& for people. It is social process because it is concerned with interpersonal
relations.
• It is an organized activity/Group activity - Efficient use of Resources-Men,
Money, Material
• It is an Integrating process.
• It aims at the accomplishment of predetermined objectives - Integrates Human,
Machine, Materials and other resources for out the operations and for achieving
the stated objective.
• It applies Economic Principles - Art of control of Human & Materials.
• Universality of Management - Management are universal, these can be applied
in different situations Ex : Business, Government, Education Military, Hospitals

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• It is Interdisciplinary /Multidisciplinary - It depends from several

disciplines like Engineering, Sociology, Psychology, Economics etc.
• It is intangible - It is abstract & cannot seen. It is evidenced by the
quality & result.
• It is Dynamic not Static - It adapts itself to social changes & also
introduces innovation in methodology.
• It is Science as well as an Art - It contains a systematic body of
theoretical Knowledge as well as the practical application of such
knowledge.
• It is a profession - Work, Job, Career, Business etc.

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IMPORTANCE OF MANAGEMENT PRINCIPLES

• Improve understanding
– (How to manage in organization/Given task & make managers more efficient)

• Direction for Training of Managers

– (understand process & existing /future managers should be trained)

• Role of Management
• Utilization of Resources effectively
• Guide to Research in Management
• Fulfilment of Social responsibility/commitment
• Stability
• Human Development
• Achievement of Group Goals

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MANAGEMENT IS SCIENCE OR AN ART

• It is a series of interrelated functions.
• It is the process by which management creates, operates and directs purposive organization coordinated and
cooperated human efforts.
• According to George R. Terry, “Management is a distinct process consisting of planning, organizing, actuating and
controlling, performed to determine and accomplish stated objective by the use of human beings and other
resources”.
• As a process, management consists of three aspects:
• Management is a social process
– Human factor is concerned with developing relationship among people. It is the duty of management to make interaction
between people - productive and useful for obtaining organizational goals.

• Management is an integrating process

– Management undertakes the job of bringing together human physical and financial resources so as to achieve
organizational purpose.

• Management is a continuous process

– It is a never ending process. It is concerned with constantly identifying the problem and solving them by taking adequate
steps. It is an on-going process.
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Management as an Activity
• Activities performed by human beings such as writing, playing, eating, cooking etc,
• Management is also an activity because a manager is one who accomplishes the objectives by directing the
efforts of others.
• According to Koontz, “Management is what a manager does”.
• Management as an activity includes:
• Informational activities
– In the functioning of business enterprise, the manager constantly has to receive and give information orally or in
written.
– A communication link has to be maintained with subordinates as well as superiors for effective functioning of an
enterprise.
• Decisional activities
– Managerial activities are based on decisions.
– E.g. Sales Manager is deciding the media & content of advertising.
• Inter-personal activities
– Management involves achieving goals through people.
– The inter-personal activities include with the sub-ordinates and taking care of the problem. E.g. Bonuses to be given
to the sub-ordinates.
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Management as a Discipline
• It is connected to study of principles & practices of basic
administration. It specifies certain code of conduct to be followed by
the manager & also various methods for managing resources
efficiently.
• Any branch of knowledge that fulfils following two requirements is
known as discipline:
– There must be scholars & thinkers who communicate relevant knowledge
through research and publications.
– The knowledge should be formally imparted by education and training
programmes.

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Management as a Group
• Management as a group refers to all those persons who
perform the task of managing an enterprise.
– All managers taken together
– Managers have become a part of elite (Best) group of society

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Management as a Profession
• A profession may be defined as an occupation that requires
specialized knowledge and intensive academic preparations to
which entry is regulated by a representative body.
• The essentials of a profession are:
– Managers are responsible to many groups such as shareholders,
employees and society.
– All managers are supposed to stand by the code formulated by AIMA
(All India Management Association)
– Managers are known by their performance & not more degrees.

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Is Management is science or an art ?

• Concept of management is universal & very old
• Lot of controversy arises whether management is science or art or both.
• It changes time to time
• Continuous & rapid (Fast) development of management principles &
practices in organization has changed nature of management.
• “ Management is the oldest of arts and youngest of science”

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Management is an art and science Both

“ Management is not as exact science as other
Physical science like physics, chemistry, maths 80 %
Art
,biology, astronomy etc.” Teaches
to Do
•Science provides the knowledge
•Art deals with the application of knowledge and
skills.
•Thus, it has now been accepted that 20 %
Science
management is an art as well as science. It has Teaches to
Know
the elements of both arts and science.
•“ Manager are not Born, Manager are made”

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Managers Vs. Entrepreneurs

• Entrepreneurs and professional managers are the two sides of the coin.
• Who are Manager ?
– A manager is someone who coordinates and overseas the work of other people in order
to accomplish organizational goals.
• Manager job is not about personal achievements. It's about helping others do
their work. i.e Coordinating the work of a departmental group.

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Who are Entrepreneur ?

• An entrepreneur (Owner of organization) is a person , who is motivated to satisfy
a high need for achievement in innovative and creative activities.
• He is a great motivator to start his new business and manage successfully. Taking
on financial risks in the hope of profit.
• Similarities between Managers and Entrepreneurs
– To produce results
– To produce results through people
– To take decisions
– To cooperate under constraints
– To follow sound principles of management
• A successful organization needs both entrepreneurship and management. The
entrepreneur may be a manager but a paid manager cannot acquire the position
of an entrepreneur.

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Features of Entrepreneurs and Professional
Manager
• Professional Manager (Executor or Servant) • Entrepreneur (Owner or Innovator)
1. Setting of objectives 1. Perception of opportunity
2. Policy formulation 2. Risk-taking
3. Strategic Planning 3. Strategic Planning
4. Interpersonal communication
4. Formal communication
5. Negotiating
5. Organising 6. Troubleshooting
6. Motivating 7. Making it a growing concern
7. Controlling 8. Innovator
8. Administrator 9. Motivator
10. Determined
9. Skilled, knowledgeable
11. Idealist
10. Confident 12. Committed
11. Specialist 13. Visionary
12. Loyal 14. Planner
13. Planner
14. Implementer

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TYPES OF MANAGER
Top Level Management
Levels of
Middle Level Management
Management
Low Level Management

Non Managerial Employees

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Types of Manager
• Top Level Managers
– Chief Executive Officer President/Vice President Managing Director
• Middle Level Managers
– Sales manager Branch manager Department Head
• Low Level Managers
– Crew leader Supervisor/foreman Head, Nurse/office manager

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What Make Managers Successful?

• Hard work
• Smart work
• Patience
• Out of box thinking
• Reading and acquiring knowledge
• Ethical consciousness
• Collaborative relationship
• Perseverance

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Manager Roles
Specific Categories of Managerial Behavior
• Manager is responsible to integrates all the activities which are
performed in an organization.

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Interpersonal Roles
• Interpersonal Roles The ones that, like the name suggests,
involve people and other ceremonial duties.
• It can be further classified as follows:
• Leader – Responsible for staffing, training, and associated
duties.
• Figurehead – The symbolic head of the organization.
• Liaison – Maintains the communication between all contacts
and informers that compose the organizational network.

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Informational Roles
• Informational Roles - Related to collecting, receiving, and
disseminating information.
• Monitor – Personally seek and receive information, to be able
to understand the organization.
• Disseminator – Transmits all import information received from
outsiders to the members of the organization.
• Spokesperson –The manager transmits the organization’s
plans, policies and actions to outsiders.

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Decisional Roles
• Decisional Roles - Roles that revolve around making choices.
• Entrepreneur – Seeks opportunities. Basically they search for
change, respond to it, and exploit it.
• Negotiator – Represents the organization at major negotiations.
• Resource Allocator – Makes or approves all significant decisions
related to the allocation of resources.
• Disturbance Handler – Responsible for corrective action when
the organization faces disturbances.

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Manager Skills
• The Ability to
something well;
expertise “difficult
work taking great
skill.”

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Technical skills
• Technical skills that reflect both an understanding of and a
proficiency in a specialized field.
• Ability to use tools, & techniques in specialized area.
• Example: accounting, finance, engineering, manufacturing, or
computer science.

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Human Skills
• Ability to motivate and counsel the people who need more
help an guidance most important o middle level manager.
• Human skills are skills associated with manager’s leadership
ability.
• Ability to get the things done by understanding an working
through others outside of formally prescribed organizational
mechanism is crucial for managerial success.

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Concept Skills
• Ability to visualize the organization as a whole.
• Include creative, analytical and innovative skills.
• Identify the problem not a symptoms.
• Coupled with technical skills, human skills and knowledge base
• Mostly required for top level management because they spent
more time in planning, organizing and problem solving.

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Evolution of Management Thought

• Pre Scientific Management Era (Before 1880)

• Classical Management Era (1880 – 1930)

• Neo Classical Management Era (1930 – 1950)

• Modern Management Era (1950 on word)

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• Classical Management Era (1880 – 1930)

• Modern Management Era (1950 on word)
• Scientific Management School
• Social System School
• Administration Management School
• Decision Theory School
• Bureaucracy Management
• Quantitative Man Management School
• Neo Classical Management Era (1930 – 1950)
• System Management School
• Human Relational School
• Contingency Management School
• Behavioral Management School

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Scientific Management School

Frederick Winslow Taylor 1856 – 1915
• Father of Scientific Management

• Midvale steel, Simonds Rolling Machine Bethleham steel

(Apprentice Machinist, Chief Engineer)
• It is an Art of knowing exactly what you want your men to do
and seeing that they do it in the best and cheapest way.

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Principles of Scientific Management

• Replacing rules of thumb with science (Enquire, investigation, data
collection, analysis and framing a rule)
• Obtaining harmony in group action, rather than discord
• Achieving cooperation of human beings, rather than chaotic individualism
• Working for max. output rather than restricted output

• Developing all workers to the fullest extent possible for their own and their
company’s highest prosperity

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Techniques of Scientific Management

• Time Study

– Fair Day’s Work = Standard Time + Working Hours

• Motion Study

• Standardization

• Differential Piece Wage Plan

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Criticism

WORKER’S VIEWPOINT EMPLOYER’S VIEWPOINT

• Unemployment
• Expensive
• Weakening of trade union
• Time consuming
• Monotony

• Over speeding

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Administrative Management
Henri Fayol (1841 – 1925)

• Father of modern operational management theory

• Worked in French mining and metallurgical company

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14 Principles

1. Division of labour – Divided & Subdivided and allotted to various persons according to their
expertise in a particular area.
2. Authority and Responsibility
3. Discipline – Sincerity, Obedience, Diligence, Correct attitude
4. Unity of Command – receive order from one superior
5. Unity of direction – similar activities should be grouped
6. Subordination of Individual’s interest to the common goal
7. Remuneration – Fair and equitable

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14 Principles
8. Centralization & Decentralization– balance between concentration and dispersal of authority
9. Scalar Chain – Chain of authority from top to bottom

10. Order – ‘A place for everything and everything in its place’

11. Equity – Sense of fair play and justice
12. Stability of tenure of personnel – too much of turnover of staff/job rotation interfere the stability
13. Initiative – Subordinate initiatives

14. Esprit de crops – Team spirit should be fostered and administrated

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Recent Contributors of Management

• Peter F.Orucker (1974) – writer on many general management topics

• W.Edward Deming – Introduce QC in Japan

• Laurence Peter – People get promoted to a level where they are incompetent, and no further
promotion is possible
• William ouchi (1981) – Discussed selected Japanese managerial practices adapted in the US
environment

• Thomas peters and Robert Waterman – Identified Characteristics of companies they considered
excellent

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Patterns of Management Analysis

A Management Theory Jungle?
APPROACHES TO MANAGEMENT

Characteristics Limitations Illustration

EMPIRICAL OR CASE APPROACH

Studies experience Situations are all

through cases. Identifies different. No attempt
successes and failures to identify principles

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Patterns of Management Analysis

A Management Theory Jungle?
APPROACHES TO MANAGEMENT

Characteristics Limitations Illustration

MANAGERIAL ROLES APPROACH
10 roles were identified
1. Figure head role
Some activities are
2. Leader role not managerial. Some
3. Liason role
4. Recipient role activities were left
5. Disseminator role
6. Spoken person role out (e.g. Appraising
7. The entrepreneurial role
8. The disturbance handler role
Managers)
9. Resource allocator role
10. Negotiator role
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Patterns of Management Analysis

A Management Theory Jungle?
APPROACHES TO MANAGEMENT

Characteristics Limitations Illustration

CONTINGENCY OR SITUATIONAL APPROACH
Management practice There is no best way to
depends on do things. Difficulty in
Circumstances determining all the
relevant contingency
factors and showing their
relationships

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Patterns of Management Analysis

A Management Theory Jungle?
APPROACHES TO MANAGEMENT

Characteristics Limitations Illustration

MATHEMATICAL OR MANAGEMENT SCIENCE APPROACH
Management is seen as Many aspects of
the mathematical managing cannot be
process, concepts, modeled
symbols & models

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Patterns of Management Analysis

A Management Theory Jungle?
APPROACHES TO MANAGEMENT

Characteristics Limitations Illustration

DECISION THEORY APPROACH
Decision making as a There is more to
spring board to study managing than
all enterprise decision making. The
activities focus is at the same
time too narrow and
too wide
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Patterns of Management Analysis

A Management Theory Jungle?
APPROACHES TO MANAGEMENT

Characteristics Limitations Illustration

REENGINEERING APPROACH
Fundamental rethinking Neglect external
Process analysis environment ignoring
Radical redesign customer needs
Dramatic results. neglect human needs.
Ignores total
Management systems
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Patterns of Management Analysis

A Management Theory Jungle?
APPROACHES TO MANAGEMENT

Characteristics Limitations Illustration

SYSTEMS APPROACH
Systems have It is a new
boundaries but approach to
they also interact Management
with external
environment
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Patterns of Management Analysis

A Management Theory Jungle?
APPROACHES TO MANAGEMENT

Characteristics Limitations Illustration

SOCIO TECHNICAL SYSTEMS APPROACH
Technical system has Emphasis only on
great effect on blue collar and
social system lower level office
work

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Patterns of Management Analysis

A Management Theory Jungle?
APPROACHES TO MANAGEMENT

Characteristics Limitations Illustration

COOPERATIVE SOCIAL SYSTEMS APPROACH
Concerned with Too broad a field
interpersonal and for the study of
group behavioral Management
aspects leading to a
system of
Co-operation
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Patterns of Management Analysis

A Management Theory Jungle?
APPROACHES TO MANAGEMENT

Characteristics Limitations Illustration

GROUP BEHAVIOR APPROACH
Emphasis on Often not
behavior of people integrated with
in groups. Based management
on sociology and concepts,
social psychology Principles, theory
and techniques
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Patterns of Management Analysis

A Management Theory Jungle?
APPROACHES TO MANAGEMENT

Characteristics Limitations Illustration

INTERPERSONAL BEHAVIOR APPROACH
Focus on interpersonal Ignores planning,
behavior, human Organizing and
relations, leadership Controlling.
and motivation. Based Psychological
on individual training is not enough
psychology to be an effective
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manager
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Patterns of Management Analysis

A Management Theory Jungle?
APPROACHES TO MANAGEMENT

Characteristics Limitations Illustration

McKINSEY’S FRAME WORK APPROACH
7 SKILLS The terms used are
1. Systems not precise and topics
2. Style
are not discussed in
3. Staff
4. Shared Values depth
5. Skills
6. Strategy
7. Structure
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The Systems Approach to The Management

Process
• A model of process or operational management that indicates how the various inputs are
transformed through the managerial functions of planning, organizing, staffing, leading,
and controlling.

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The Systems Model of

Management

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Inputs and Claimants

• The inputs from the external environment

may include people, capital, managerial
skills, as well as technical knowledge and
skills.

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The Managerial Transformation Process

• The task of managers is to transform the inputs, in an effective
and efficient manner, into outputs.

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The Communication System

• Communication integrates the managerial functions. It is through
communication that one determines whether events and performance
conform to plans. It is communication that makes managing possible.

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External Variables
Effective managers regularly scan the external

environment.

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Outputs
Products, services, profits, satisfaction, integration of the foals of

claimants to the enterprise.

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Reenergizing the System

In the systems model of the management process, some of the

outputs become inputs again.

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Types of Organization
(Business Organization)

Business Organization

Proprietorship Partnership Corporation

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Individual Proprietorship
• Single person owns the capital
• He has taken the decision, uses his own skill , Knowledge and
experience
• All profits belong to him
• He bear all the losses
• His decision is final in employment, purchase production and sale
• Small establishments 🡪Started easily
🡪Closed down easily

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Individual Proprietorship
• The area of operation is limited, the owner can
develop cordial relationship with workers,
supplier of inputs and buyers.
• Capital base is small and narrow
• Small business promotes fair distribution of
income and wealth.

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Partnership

• Formed by a simple contract

• Each party of the contract becomes the general agent of the business
• Sharing their duties responsibility on one hand & profit / losses on the other hand
• Minimum two persons
• In the absence of any agreement to the contrary , all partners have equal right to participate the
business
• Written agreement is signed by all partners and stamped it becomes partnership deed
• Registered firms enjoy many benefits
• Unregistered firms cannot sue other partners of the firm.

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ADVANTAGES OF
Partnership
• Raising Additional Finance
• Specialized experiences of various partners

• Bankers provide easy credit

• Liability is unlimited

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DISADVANTAGES of
Partnership

• Partners become responsible for acts of each & every other

• It suffers uncertain continuity, lesser public confidence, restricted

right to transfer of capital and responsibility of partner even after his
retirement from the firm.

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JOINT STOCK COMPANIES

• Corporation has been defined as an artificial person
• Recognized by law, it is a legal entity
• Distinctive name, a common seal
• Common capital
• Transferable shares of fixed value, limited liability
• Share holders may come & go, but company goes
• Share holders cannot participate the working of a company
• Board of directors, assisted by professional Mangers
• Memorandum of Association is prepared
• Classified as Pvt Ltd & Public Ltd
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PUBLIC LIMITED COMPANY

• Membership is open to all
• Minimum no is 7, but there is no ceiling
• To collect capital, through the selling of shares

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ADVANTAGES of PUBLIC LIMITED

COMPANY
• Liability is limited as per the face value of shares

• Easily raise the capital from public and lending institutions

• Avail the services of experts

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DRAWBACKS of PUBLIC LIMITED

COMPANY
• Long drawn process

• More legal formalities

• Larger amount of initial expenditure
• Ownership is diverted from control

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Pvt. Ltd Company

• A Private Limited Company is a legal business entity formed by a group of individuals

or shareholders.
• It offers limited liability protection to its owners and restricts the transferability of
shares to a predetermined group.
• This structure is often preferred for its benefits but is not without its drawbacks.
• Registered by 2 or more persons
• But limits to 200
• EXAMPLE : Flipkart, ola, makemytrip

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ADVANTAGES of PRIVATE LIMITED

COMPANY
• Separate Legal Entity
• Higher Borrowing Capacity
• Easy Transfer of Shares

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DRAWBACKS of PRIVATE LIMITED

COMPANY
• The limited ability to share transfers.
• The number of shareholders must not exceed the regulation.
• It is not possible to issue a prospectus to the public.
• Shares can not be quotes.

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FORMATION
• Group of persons conceive an idea of a successful business, called promoters
• Registration to Registrar of companies with name and fee, accompanied by
Memorandum of Association (MOA) & Article of Association (AOA)
• MOA defines objectives, powers of the company, the name clause, situation clause,
objective clause, capital clause and liability clause
• AOA 🡪 Rules & Regulations governing internal management (Power & duties of
directors and other officers, borrowing powers, power to hold meetings etc)
• After the meeting of directors, Chairman, Bankers, auditors, brokers etc are
appointed
• Then they raise the capital from general public
• Then registrar issues commencement certificate
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CO - OPERATIVES

• Voluntary association of eleven or more members

• They are in same locality carrying on business not for profit
• It is based self help through mutual aid
• The membership is open to all
• Value of the share is kept low
• In India we have credit cooperatives, marketing cooperatives,
housing cooperatives etc.
• In rural India, cooperatives are controlled by rural rich

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PUBLIC SECTOR UNDERTAKINGS

• Government departmental organizations

• Public Corporations

• Mixed ownership Corporations

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Government Department Organization

• Postal & Telegraphs, railways,highways, defence industries etc.

• They are financed by appropriations from the treasury
• It is subject to budget accounting and audit controls
• Civil servants are the in charge of such enterprises
• It cannot be sued without the consent of the government
• They ensure maximum degree of control
• Transactions are approved by appropriate agencies

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DRAWBACKS of
Government Department Organization

• Absence of flexibility in its operations

• Immediate decisions depending on the business environment cannot

be made
• Delay, red tapism, inadequate services etc are in this organizations

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PUBLIC CORPORATIONS
• It is wholly owned by the state
• Greater freedom in making contracts, acquiring & disposing of property than government
departments
• They obtain funds from treasury, public and revenues from sale of goods and services
• They are not subject to budget accounting & audit loss
• Employees are recruited and remunerated under the terms and conditions of the
corporation
• It enjoy the freedom of govt. regulation & control
• High degree of operating & financial flexibility
• Expansion programmes can be finance without delays by the use of revenues or borrowed
funds
• Ex: Industrial Financial Corporation of India, LIC, UTI & RBI
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MIXED ENTERPRISES
• Capital owned by the Govt. & Pvt. share holders
• Directors are nominated by both of them
• It can enter into contract and acquire property in their own name
• Own legal entity
• They can be sued and they can sue
• Exempted from budget accounting
• Permission from GOI is necessary

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MIXED ENTERPRISES

► If foreign Participation
• If no foreign participation,
State – 25%
state Govt. or SIDC – 26%
Indian entrepreneurs – 20%
Private Individual - 25%
Lending Institutions - 49% Foreign Investor – 20% &
Investing public – 35%

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GLOBALIZATION
• It means internationalization of trade, Particularly financial product
transactions and the integration of economic and capital markets
throughout the world
– Trade exists freely among the countries
– World economy becomes a single market or single economy
– In globalization, there is no restriction of quota, license, tariff and other administrative
barriers for trade
• Trade can be of products and factors
– Trade of product means goods, commodities and services
– Trade of factors means transfer of technology, finance and labour
– Currencies of the country should be freely exchangeable
– Uniformity of laws and rules

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Benefits of Globalization
1. Improves efficiency – > Glob. leads to specialization in production
2. Improve factor income –>the factor mobility is free (factor incomes among the
trading countries will get equalized)
3. Improves finance –> need for growth and industrialization of country
4. Gain from migrations
* For developed countries migration fulfills the need of manpower in the form of
skilled person
* For developing countries migration solves the problem of unemployment

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International Management /Managing Globally

– It is the process of Planning, Organizing, leading and controlling in
organizations engaged in international Business
– Now a days Managers engage in international business are like to face
competition from international organizations or to deal with them either
suppliers or customers

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Multinational Corporations (MNC)

• It is an organization that is engaged in production or services through its own association in
several countries, manages and control the overall activities from a global perspective
• They are large in size and are engaged in substantial amount of business throughout the
world
• MNC is a business that has its head quarters (domicile) in one country but which operates
in many
• The BOD (Board of Directors) might comprise a two tier system
– Strategic board which determines global policy
– One or more national boards responsible for implementing this policy in
particular countries

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Major Differences between MNC & one country

Firm
• Market segment is more for MNC
• Recruitment, training, appraisal and promotion procedures must be drafted on international scale
• Greater amount of diversification
– Choice of national market for final products
– Location of production facilities
– Sources of raw materials
– Buy and import (products) from rest of the world
• MNC can afford more risk than domestic rivals. A loss in one country can be offset against profits
elsewhere.

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Categories of MNC

Horizontally Integrated Multinational

MNC Seeks to produce the same product in different countries. The primary objective is to
achieve growth by expanding into new markets
Vertically Integrated Multinational
MNC Undertakes the various stages of production in different countries for a core business.
Ex: Oil companies like shell and Exxon (ESSO)
Conglomerate Multinational
MNC will produce a range of different products in different countries

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Type of International Management

• Ethocentric - International Management are home country oriented. Here, Managers assume
that practices that work in home country must necessarily work elsewhere

• Polycentric - International Management are host country oriented

• Regiocentric - International Management are region oriented. Managers believe that the
company problems related to that region are generally best solved by individuals from the
region.
• Geocentric - International Management are world oriented. Here Managers believe that
global view is needed in both the head quarters of the company and its various subsidiaries
that the best individuals regardless of host or home country, should be utilized to solve
company problems anywhere in the world.
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Entry to International Business

1. Exporting : It is the process of making a product in the home country

and sending it overseas. It requires very small capital.
2. Licensing : It is an agreement in which one organization gives limited
rights to another to use certain assets (expertise, patents, copyrights or
eqpt.) for an agreed upon fee or royalty
– Licensing allows to use assets within specific territory and for a
specific period

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Entry to International Business

3. Establishing Strategic alliances: A joint venture is an agreement involving

two or more organizations that arrange to produce a product or service
through a jointly owned enterprises
4.Operating wholly owned subsidiaries: A wholly owned subsidiary is an
operation on foreign soil that is totally owned and controlled by a
company with headquarter outside the host country.

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MNC STRATEGIES

• MNC must give weightage to two important factors.

i. The need to make optimum economic decisions on global basis.
ii. Responsive to host country differences
MNC opt for any of the four strategy
a. Worldwide integration / globalization strategy
b. National responsiveness strategy
c. Region responsiveness strategy
d. Multifocal strategy

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Challenges of Management in Global Scenario

a) Language Barriers – Less in developed country

- More in developing countries (Africa or Latin America)
b) Selling and Marketing in Foreign Markets
Selling at home might fail overseas because of wide social
and cultural differences.
Ex: McDonald’s, Cocacola

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Challenges of Management in Global Scenario

c) Attitudes of host governments

Govt. insisting on part ownership in the subsidiary of tight rules and
regulations governing the MNC’s behavior or harsh tax regimes
d) Communication and Co-ordination between subsidiaries
For expanding global business, lines of communication become longer
and more complex.

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Advantages of MNC Investment

• Employment
• The Balance of Payment

• Technology Transfer

• Taxation
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Disadvantages of MNC Investment

• Uncertainty
• Control

• Transfer Pricing
• The Environment

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