Multinational Corporations
(MNC)
Dr. Soha Ferra
PART I
Defining Multinational Corporations
MNC is an enterprise operating in several
countries but managed from one (home)
country.
Generally, any company or group that derives
a quarter of its revenue from operations
outside of its home country is considered a
multinational corporation.
Dr. Soha Ferra
PART I
Categories of Multinational Corporations
There are four categories of multinational
corporations:
(1) a multinational, decentralized corporation with
strong home country presence,
(2) a global, centralized corporation that acquires
cost advantage through centralized production
wherever cheaper resources are available,
Dr. Soha Ferra
PART I
Categories of Multinational Corporations
There are four categories of multinational corporations
(continued ):
(3) an international company that builds on the parent
corporation's technology or R&D, or
(4) a transnational enterprise that combines the previous
three approaches.
According to UN data, some 35,000 companies have direct
investment in foreign countries, and the largest 100 of them
control about 40 percent of world trade.
Dr. Soha Ferra
PART I
Basic Definition of a Multinational
Corporation
A corporation with operations in two or more
countries.
An entity managed from one home country and in
business in several countries. A company or group is
considered a multinational corporation if deriving
25% of revenue from out-of-home-country
operations.
Dr. Soha Ferra
PART I
The Concept of a Multinational Corporation
The concept of multinational company is the
outcome of the development of the mutual
cooperation among friendly nations, development
of new technology, mass production and the
development of global economy. Generally, a
company that performs its business in two or more
countries is a multinational company.
Dr. Soha Ferra
PART I
The Concept of a Multinational Corporation
Multinational companies are incorporated in a
country but they perform their business in many
countries of the world. Especially, they perform
business operations throughout the world through
their branches, subsidiaries or agents. The business
activities are managed and controlled by the head
office of the company which is situated in the
mother country.
Dr. Soha Ferra
PART I
The Involvement of a Multinational Corporation
Multinational companies involve in mass scale
production and distribution of specific products.
They involve in mass production by taking the scope
of distribution at the international level. The equity
capital of the subsidiaries or branches is contributed
by both the people of the host company and the
parent company.
Dr. Soha Ferra
PART I
The Involvement of a Multinational Corporation
(continued)
However, management and control of the branches
is done according to the system of the parent
company.
Therefore, we may conclude that a multinational
company is corporation which performs business at
the international level under its ownership,
management and control.
Dr. Soha Ferra
PART I
The Present Role of a Multinational Corporation
At present, multinational companies are being taken
as an important aspect which helps eliminate the
trade barriers among friendly nations. The
development of the free market economy concept
at the international level helps large scale
manufacturing to enter the international market
without much hassles. Therefore, many
multinational companies are established in the
world especially in developing countries.
Dr. Soha Ferra
PART I
The Foundations of Global Economy
The world body brings global economy into, one foundation
to some extent. This contributes more to promoting
business activity of multinational companies throughout
the world without any administrative barriers. The United
Nations recognizes around 650 companies or corporation
as multinational companies in the world, whose
transactions were above a certain level specified by the
UN.
Dr. Soha Ferra
PART I
The Foundations of Global Economy
Some of multinational corporations are:
•IBM corporation, United States of America (USA)
•General Electric, United States of America (USA)
•Mercedes Benz car company, Germany
•Coca Cola Company, United States of America (USA)
•Pepsi Cola Company, United States of America (USA)
•Nestle Company, Switzerland
•Hitachi, Japan
•Dunlop, United Kingdom (U))
•Ford Motor Corporation, United States of America (USA)
•Panasonic Corporation, Japan
Dr. Soha Ferra
PART I
The 7 Characteristics of a Multinational Corporation
1. Large scale operation:
Large scale operation is the most important feature of a
multinational company. It performs large scale business
operation by investing a huge capital. And it also performs
activities in large scale, like production, distribution,
organization, employees and promotional activities. The
large scale production minimizes per unit cost and helps to
face competition in the market.
Dr. Soha Ferra
PART I
The 7 Characteristics of a Multinational Corporation
2. Advanced Technology:
Advancement in modern science and technology is one of the major
features of a multinational company. Multinational companies
establish research and development departments for the research
and invention of new technology in production, distribution and for
promotion of business activities. Monopoly in new scientific
technology is one of the main reasons for the development of some
multinational companies. Such multinational companies can get easy
entry in developing countries. They also transfer new technology in to
developing countries through their branches and subsidiaries which
are helpful for industrialization.
Dr. Soha Ferra
PART I
The 7 Characteristics of a Multinational Corporation
3. International Operations:
One of the important features of a multinational
company is its operation in two or more countries.
It performs production and distribution activities at
the international level through its branches or
subsidiaries. Examples companies are coca cola,
IBM, National Panasonic, Toyota, Pepsi Cola etc.
Dr. Soha Ferra
PART I
The 7 Characteristics of a Multinational Corporation
4. Efficient Management:
Efficient management is one of the main reasons for the
successful operation of a multinational company. It hires
efficient and skilled manpower. It has the capacity to hire
professional by paying high remuneration. It also blends
technology and manpower to give better management. It is
thus essential for their successful operation.
Dr. Soha Ferra
PART I
The 7 Characteristics of a Multinational Corporation
5. Ownership & Control:
The ownership of multinational companies remains both
with the parent company and the subsidiary company.
However, major shares of the subsidiary companies
established in various countries are contributed by the
parent company. Therefore, the parent company plays a
major role in the management and control of the subsidiary
companies.
Dr. Soha Ferra
PART I
The 7 Characteristics of a Multinational Corporation
6. Productive Organization:
Multinational companies are known as productive
organizations. They produce goods and services of a
specific nature both in the parent company and the
subsidiary companies in various countries. This is done to
spread their products at the international level. The parent
company uses its own technology, brand, trademark and
method of production.
Dr. Soha Ferra
PART I
The 7 Characteristics of a Multinational Corporation
7. Monopolistic Market:
The product specialization and efficient management
system of multinational companies contribute to
developing their monopoly power even in a competitive
market. The use of latest technology, own trade mark,
goodwill, along with better distribution system and
promotional network are the main components of
multinational companies.
Dr. Soha Ferra
Investment Motives
There are a variety of motives for international
investments. They include the following:
1. To circumvent the tariff walls. For example,
getting behind the EEC's common external tariff was
certainly a major consideration for US companies
during the last many years. Recently, there has been a
spurt of such investments in the EEC by companies
from Japan and some other countries.
2. To reduce the production costs by making use of the
cheap labour and other factors in the home countries
and by avoiding/reducing transport costs.
Dr. Soha Ferra
Investment Motives
3. To gain dominance in the foreign market and to
effectively fight competition.
4. To adjust to the government regulation in the host
country. For example, some countries prefer foreign
investment and domestic production out of it to
import of goods.
5. To mitigate the impact of home country regulations,
like anti-trust regulations, regulations against
industries causing ecological problem, etc.
6. To exploit the natural resources of the host
countries.
7. To enjoy the benefits of tax-havens
Dr. Soha Ferra
Merits of MNCs
1.MNCs help increase the investment level and thereby the
income and employment in the host country
2.The transnational corporations have become vehicles
for the transfer technology, especially to the developing
countries.
3. They also kindle a managerial revolution in the host
countries through professional management and the
employment of highly sophisticated man-agement
techniques.
4. The MNCs enable the host countries to increase their
exports and decrease their import requirements.
5. They work to equalise the cost of factors of production
Dr. Soha Ferra
around the world.
Merits of MNCs
6. MNCs provide an efficient means of integrating national
economies.
7. The enormous resources of the multinational enterprises
enable them to have very efficient research and development
systems. Thus, they make a commendable countribution to
inventions and innovations.
8. MNCs also stimulate domestic enterprise because to support
their own operations, the MNCs may encourage and assist
domestic suppliers.
9. MNCs help increase competition and break domestic
monopolies
Dr. Soha Ferra
De-merits of MNCs
1. MNC's technology is designed for world-wide profit
maximisation, not the development needs of poor
countries, in particular employment needs and relative
factor scarcities in these countries. In general, it is
asserted, the imported technologies are not adapted
to(a) the consumption needs,(b) the size of domestic
markets,(c) resource availabilities, and(d) stage of
development of many of the LDCs.
2. 2. Through their power and flexibility, MNCs can evade
or undeline national economic autonomy and control,
and their activities may be inimical to the national
interests of particular countries.
Dr. Soha Ferra
De-merits of MNCs
3. MNCs can have unfavourable effect on the balance of
payments of a country. For instance. the Coca-Cola until
1978. had remitted abroad nearly Rs.6 crores on an initial
investment of Rs 6.6 lakh in India.
4.MNCs may destroy competition andacquire monopoly powe
rs.
5. The tremendous power of the global corporation poses
the ,risk that they may threaten the sovereignty of the nations
in which they do business.
6. MNCs retard growth of employment in the home country.
7. The transnational corporations cause fast depletion of
some of the non-renewable natural resources in the host
country.
8. The transfer pricing enables MNCs to avoid taxes by
Dr. Soha Ferra