Multinational Corporations (MNC) – MNC`s are huge business organizations which extend their business operations beyond the country of its origin. They are multi-product and multi-process enterprises who extend their business activities in various countries through a large network of industries and marketing operations.
A MNC can be simply defined as a company which owns or controls production facilities in more than one country which has been acquired through foreign direct investment.
Characteristics of Multinational Corporations (MNC)
- It has production facilities in a foreign country
- It should realize at least 25% of its total sales from its overseas operations
- It has a geocentric and integrative approach in conducting its business operations
- It has an efficient system of communication between headquarters and subsidiaries
Need for Multinational Corporations (MNC)
Companies expand their business operations overseas due to the following reasons –
- To Avoid Tariff and Non-Tariff barriers
- To minimize transportation and distribution costs
- To exploit opportunities present in the host country
- To secure scarce raw materials and resources
- To help in economic growth and development of the host country
Concepts related to Multinational Corporations (MNC)
Transnational Corporation – It is an enterprise which consists of a parent company and its foreign affiliates where the parent company acquires control over assets of its affiliates through major equity holdings.
Foreign Affiliates – It is a company in which an investor who belongs to another country holds more than 10% equity shares of the company.
Subsidiary – It is a company in the host country in which another company directly owns more than 50% of its equity and has full control over management.
Associate – It is a company in the host country in which a foreign investor holds more than 10% but less than 50% equity shares.
Branch – A company is said to be a branch of another company –
- When it is not a permanent office or Headquarters of the mother company
- When its land, equipment and machinery is directly owned by the mother company
- When its management control and decision making lies in the hand of the parent company
Advantages/Benefits of Multinational Corporations (MNC)
- It results in Economic growth and development of the host country
- It raises the standard of living of the people by offering high quality and huge variety of products
- MNC`s bring advance technology and modern technical, research and managerial skills to the host country which aids in its development
- It accelerates industrial growth and increases the rate of investment in the host country
- It promotes exports and reduces imports
- MNC`s facilitate efficient utilization of resources in the host country
- MNC`s raise competition in the domestic market thereby breaking monopolies and support the development of the domestic industries directly or indirectly
- It promotes Bilateral Trade relations and cooperation among different countries
Disadvantages/Demerits of Multi-National Corporations (MNC)
- A MNC may develop monopoly in the host country
- MNC may work against national interest
- They may provide out-dated technology
- May influence and manipulate domestic policies according to their selfish interests
- May have an adverse effect on culture and lifestyle of the people of the country
- May have adverse effects on domestic markets