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