Multinational Companies (MNCs)- Meaning, Nature, Importance & Objectives
Meaning of Multinational Companies (MNCs)
A multinational company is one which is incorporated in one country (called the home country); but whose operations extend beyond the home country and which carries on business in other countries (called the host countries) in addition to the home country. A multinational corporation is known by various names such as: global enterprise, international enterprise, world enterprise, transnational corporation etc. It must be emphasized that the headquarters of a multinational company are located in the home country.
Neil H. Jacoby defines a multinational company as follows:
“A multinational corporation owns and manages business in two or more countries.”
Some popular examples of multinationals are given below:
Characteristics of Multinational Corporations (MNCs)
Following are the salient features of MNCs:
Huge Assets and Turnover:
Because of operations on a global basis, MNCs have huge physical and financial assets. This also results in huge turnover (sales) of MNCs. In fact, in terms of assets and turnover, many MNCs are bigger than national economies of several countries.
International Operations through a Network of Branches:
MNCs have production and marketing operations in several countries; operating through a network of branches, subsidiaries and affiliates in host countries.
Unity of Control:
MNCs are characterized by unity of control. MNCs control business activities of their branches in foreign countries through head office located in the home country. Managements of branches operate within the policy framework of the parent corporation.
MNCs are powerful economic entities. They keep on adding to their economic power through constant mergers and acquisitions of companies, in host countries.
Advanced and Sophisticated Technology:
Generally, a MNC has at its command advanced and sophisticated technology. It employs capital intensive technology in manufacturing and marketing.
A MNC employs professionally trained managers to handle huge funds, advanced technology and international business operations.
Aggressive Advertising and Marketing:
MNCs spend huge sums of money on advertising and marketing to secure international business. This is, perhaps, the biggest strategy of success of MNCs. Because of this strategy, they are able to sell whatever products/services, they produce/generate.
Better Quality of Products:
A MNC has to compete on the world level. It, therefore, has to pay special attention to the quality of its products.
Nature of multinational corporation (MNC)
- A multinational corporation (MNC) has facilities and other assets in at least one country other than its home country.
- A multinational company generally has offices and/or factories in different countries and a centralized head office where they coordinate global management.
- A multinational corporation is a company that operates in its home country, as well as in other countries around the world. Thus, Multinational corporations participate in business in two or more countries.
- It maintains a central office. Lasting interest differentiates FDI from foreign portfolio investments, where investors passively hold securities from a foreign country.
- MNC can have a positive economic effect on the country where the business is taking place.
- Transnational business is considered diversifying the investment.
Objectives of Multinationals
There are a number of objectives to establishing international operations-
- Having a presence in a foreign country such as India allows corporation to meet Indian demand for its product without the transaction costs associated with long-distance shipping.
- Corporations tend to establish operations in markets where their capital is most efficient or wages are lowest. By producing the same quality of goods at lower costs, multinationals reduce prices and increase the purchasing power of consumers worldwide. Establishing operations in many different countries, a multinational is able to take advantage of tax variations by putting in its business officially in a nation where the tax rate is low even if its operations are conducted elsewhere. The other benefits include spurring job growth in the local economics, potential increases in the company’s tax revenues, and increased variety of goods.
- A trade-off of globalization-the price of lower prices, as it were- is that domestic jobs are susceptible to moving overseas. This suggests that it’s important for an economy to have a mobile or flexible labor force so that fluctuations in economic temperament aren’t the cause of long- term unemployment. In this respect, education and the cultivation of new skills that correspond to emerging technologies are integral to maintaining a flexible, adaptable workforce.
Importance of Multinational Corporation
A multinational corporation helps the technological growth of the country as well. They bring new innovations and technological advancements to the host country. They help modernize the industry in developing countries. MNCs also reduce the host countries dependence on imports. The establishment of multinational companies has been good boon all over the world. Some of its importance are as follow:
Transfer of Capital and Technology:
The multinational companies transfer investment, advance technology to developing countries through establishing branches and subsidiaries. Therefore developing countries like Nepal-get benefited of receiving Advanced technology and capital investment through such companies.
With help of advanced technology, the can produce quality goods and products at cheaper, price due to job innovation specialization help to produce more consumption increase as production in and more unit reduce cost.
Increase in Employment Opportunity :
A multinational company requires a large number of skilled as well as unskilled employees to operate its activities.
Thus it provides employment opportunity to the people of host country as a result economic standard of society is improved.
Increase in Government:
A multinational company is a large scale business. It pays a large amount of duties, income tax, vat, etc. to government. Therefore Government revenue is increased due to operation of such companies.
Research and Development:
In complete world, it is need of Research and Development. To meet international standard of its products and services, a multinational company conducts several research and development activities. Constantly such programs are beneficial to society. It helps to develop better equipments, quality products and advanced technology in production.
Good International Relation:
A multinational company recognizes the country in the international market. It creates harmonious relation between parent company and subsidiary countries. It recognizes exporting country to all over the world.
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