Multinational Corporations – MNC

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)

  1. It has production facilities in a foreign country

  2. It should realize at least 25% of its total sales from its overseas operations

  3. It has a geocentric and integrative approach in conducting its business operations

  4. 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 –

  1. To Avoid Tariff and Non-Tariff barriers

  2. To minimize transportation and distribution costs

  3. To exploit opportunities present in the host country

  4. To secure scarce raw materials and resources

  5. 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 –

  1. When it is not a permanent office or Headquarters of the mother company

  2. When its land, equipment and machinery is directly owned by the mother company

  3. When its management control and decision making lies in the hand of the parent company

Advantages/Benefits of Multinational Corporations (MNC)

  1. It results in Economic growth and development of the host country

  2. It raises the standard of living of the people by offering high quality and huge variety of products

  3. MNC`s bring advance technology and modern technical, research and managerial skills to the host country which aids in its development

  4. It accelerates industrial growth and increases the rate of investment in the host country

  5. It promotes exports and reduces imports

  6. MNC`s facilitate efficient utilization of resources in the host country

  7. MNC`s raise competition in the domestic market thereby breaking monopolies and support the development of the domestic industries directly or indirectly

  8. It promotes Bilateral Trade relations and cooperation among different countries

Disadvantages/Demerits of Multi-National Corporations (MNC)

  1. A MNC may develop monopoly in the host country

  2. MNC may work against national interest

  3. They may provide out-dated technology

  4. May influence and manipulate domestic policies according to their selfish interests

  5. May have an adverse effect on culture and lifestyle of the people of the country

  6. May have adverse effects on domestic markets

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