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)

  • 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

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