Concept of Multinational
The term’ multinational consists of two different words, ‘multi’ and ‘national’ The prefix ‘multi’ her means many while the word ‘national’ refers to nations or countries. Therefore, a multinational company may be defined as a company that operates in several countries. For example, Coca Cola corporation has its headquarters in the U.S.A. and it has branches/ subsidiaries in several countries. A multinational corporation is also known as a ‘transnational corporation,’ ‘global giant,’ ‘World enterprise or International enterprise’,
Definitions
There is no universally accepted definition of the term multinational corporation. Different authorities have defined the term differently.
- ” The essential nature of the multinational enterprises lies in the fact that its managerial headquarters are located in one country (home country) while the enterprise carries out operations in a number of other countries as well (host countries).” – ILO Report
- “MNCs may the defined as and enterprises which control assets- factories, mines, sales offices and the like in two or more countries.” – United Nations
- “A corporation incorporated in a foreign country or territory shall be deemed to be multinational corporation if such corporation: (a) is a subsidiary or a branch or has place of business in two or more countries or territories, (b) caries on business or otherwise operations in two or more countries or territories.” – Foreign Exchange Regulation Act, 1973(FERA)
- “Multinational corporations is one that (i) operates in many countries. (ii) carries out research, development, marketing and manufacturing in many countries (iii) has multinational management, (iv) has a multinational stock ownership,”- President of I.B.M.
Conclusion
In short, Multinational companies are the organizations or enterprises that manage production or offer service in more than one country.
Features of Multinational Corporations
Main features of multinational corporations are as under-
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Giant Size:
MNCs are predominantly large-sized and exercise a great degree of economic dominance. The assets and sales of MNCs run into billions of dollars and they also make supernormal profits.
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International Operations:
The control of such institutions rest is in the hands of a single institution but its interests and operation sprawl across national boundaries. It operates through the parent corporation located in the home country.
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Transfer of Resources:
A MNC facilitates the collective transfer of resources between countries. There is a package of transfer in the form of equipment, raw materials, finished products, labour, technical know- how and financial investment.
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Varies Activities:
MNCs perform varied functions. One of their functions is concerned with services. These corporations transfer capital and techniques regarding knowledge of sale of goods, foreign trade, packing etc. They provide research and development services. Other activities are related to production of petroleum etc.
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Oligopolistic Structure:
Through the process of merger and take-over, etc, in course of time and MNC acquires awesome power. This coupled with its giant size makes it oligopolistic in character.
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Spontaneous Evolution:
MNCs usually grow in a spontaneous and unconscious manner. There is no need of any pre planning. Many firms gradually assume international character. Several factors contribute to the spread and development of multinational corporation, viz., different rated for marketing products indifferent countries, favourable trade conditions etc.
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Sophisticated Technology:
Generally, a multinational corporation has at its command advanced technology so as to provide world class products and services. It employs capital intensive technology not only in manufacturing but in marketing and other areas of business too.
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Centralizes Control:
A multinational corporations has its headquarters in the home country. It exercises control over all branches and subsidiaries. The local managements of branches and subsidiaries operate within the policy framework of the parent corporation.
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Professional Management:
In order to integrate and manage world-wide operations a multinational corporation employs professional skills. It employs professionally trained managers to handle advanced technology, huge funds and international business operations.
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Other Features:
- A large part of the capital assets of the parent company is owned by the citizens of the company’s home country.
- The absolute majority of the members of the Board of Directors consists of the citizens of the home country.
- Decisions on new investments and the local objectives are taken by the parent company.
Multinational Corporate Structure:
Multinational corporations can be divide into three broad groups according to the configuration their production facilities.
- Vertically Integrated Multinational Corporations manage production establishment in certain country/countries to provide product that serve as inputs supplier to its production establishment in other country/countries (Example: Adidas)
- Horizontally Integrated Multinational Corporations manage production establishments located indifferent countries to produce the same or similar products. (Example: McDonalds)
- Diversifies Multinational Corporations manage production establishments located indifferent countries that are neither horizontally nor vertically integrated (Example: Microsoft)
Organization of Multinational Corporations
Subject to legal requirements, international agreements and commercial treaties, a multinational company can organics its operation in different countries by adopting either of the following five alternatives:
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Branches:
The simplest form of extending business operations is to set up several branches.
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Subsidiaries:
A multinational firm may also operate by setting up national affiliates as subsidiary companies. A subsidiary in a particular country is established under the laws of that country.
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Joint Venture Companies:
At times, MNCs enter into a contract or agreement with an indigenous firm or agency for the joint venture. Under this arrangement the MNC makes available machinery, capital goods and technological expertise to the indigenous firm.
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Franchise holders:
This is a special king of arrangement by which an affiliate firm produces of markets the produce of a multinational firm after obtaining a license from that firm.
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Turn-key Projects:
Under this organizational form, the multinational undertakes to complete the project from scratch to the operational stage. When the project is ready it is handed over to the host country.
Through these various methods of operations MNCs bring in their technology to the developing countries.
Reasons for Growth of Multinational Corporations
Reasons for the growth of multinational are manifold; the important ones are as follows
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Expansion of Market Territory:
As the operations of a large- sized firm expansion and as its international image builds up, it seeks more and more extension of its activities beyond the physical boundaries of the country in which it is incorporated.
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Financial Superiorities:
Another reason for the growth of multinational corporations is that they have financial superiorities as compare to other national companies like:
- An easier access to external capital market.
- International reputation,
- Utilization of high level of funds.
- Huge financial resources etc.
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Marketing Superiority:
MNCs enjoy better marketing facilities because of the following:
- Well reputed brands.
- International image.
- Reliable market information system.
- Good quality product due to technological advancement / superiority.
- Effective sales promotion programmes.
- Experience of launching new products in different countries.
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Technological Superiorities:
The main reason why MNCs have been encouraged by the underdeveloped countries to participate in their industrial development is because of the technological superiorities which these firms possess as compared to national companies. The underdeveloped countries regard transfer of technology from MNCs useful on account of the following reasons-
- Developing countries are unable to import raw materials, capital equipment, technology etc. on their own due to paucity of resources.
- The developing countries also lack in knowledge and facilities for marketing the products due to severe competition. Lack in exploiting mineral and natural resources of its own.
- Lack of industrialization and insufficient resources.
- Local manpower, material, capital, etc, cannot be optimally utilized by the developing countries on their own.
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Product Innovations:
MNCs have Research and Development Departments engaged in the task of developing new products and improving designs and quality of existing products. Therefore, their production and marketing opportunities are far greater as compared to national companies.
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International Image:
Due to the international image of MNCs. their products are accepted worldwide. They can easily collaborate with big industrial houses or Government of the nation, where they want to start their operations. Moreover, because of international image, these corporations are welcomed in all parts of the world.
Important links
- International Trading Environment & its Need
- Strategic Alliance- Meaning, Types, Merits, Demerits
- Foreign Trade- Meaning, Importance, Harmful Effects
- The European Union (EU)- Objectives, Organizational Structure
- SAARC- Objectives, Principles, Provisions, Organizations etc.
- Foreign Investment- FDI & FPI
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