DEBATE- MULTINATIONAL CORPORATIONS

A multinational corporation (MNC) is one that has business operations in two or more
countries. These companies are often managed from, and have a central office in, their
home country with offices worldwide. There are different types of multinational
corporations based on their corporate structure.
How a Multinational Corporation Works
A multinational corporation is an enterprise whose business activities
occur in at least two countries. Some may consider any company with a
foreign branch to be a multinational corporation. Others may limit the
definition to only those companies that derive at least a quarter of their
revenue outside of their home country.
Multinational companies can make direct investments in foreign countries.
Many are based in developed nations. Advocates say they create highpaying jobs and technologically advanced goods in countries that
otherwise would not have access to such opportunities or goods.
However, critics of these enterprises believe multinational corporations
exert undue political influence over governments, exploit developing
nations, and create job losses in their own home countries.
The history of the multinational company is linked with the history of
colonialism. Many of the first multinational companies were commissioned
at by European monarchs to conduct international expeditions.
One of the first was The East India Company, established in 1600. This
British multinational enterprise took part in international trade and
exploration, and operated trading posts in India.1 Other early examples of
multinational companies include the Swedish Africa Company, founded in
1649, and the Hudson's Bay Company, founded in 1670.
Characteristics of a Multinational Corporation
Some of the characteristics common to various types of multinational
corporations include:












A worldwide business presence
Typically, large and powerful organizations
Business conducted in various languages
A complicated business model and structure
Direct investments in foreign countries
Jobs created in foreign countries, potentially with higher wages than
found locally
Seeks improved efficiencies, lower production costs, larger market
share
Has substantial expenses associated with navigating rules and
regulations of foreign countries
Pays taxes in countries in which it operates
Reports financial information according to International Financial
Reporting Standards (IFRS)
Sometimes accused of negative economic and/or environmental
impacts in foreign markets
Sometimes accused of negative economic impacts in home country
due to outsourcing jobs
4 Types of Multinational Corporations
Multinational corporations can be viewed as four main organizational
types.
A Decentralized Corporation
A decentralized corporation maintains a presence in its home country and
has autonomous offices and other facilities in locations around the world.
This type of multinational company has the capability to achieve more,
faster because it's decentralized. Each office manages the local business
itself, making its own decisions.
A Centralized Global Corporation
A centralized global corporation has a central headquarters in the home
country. Executive officers and management located there oversee the
global offices and operations as well as domestic operations. They, rather
than managers at local offices in foreign countries, make the key business
decisions. The offices typically must report to and obtain approval from
headquarters personnel for major activities.
An International Division Within a Corporation
An international division is that part of the multinational corporation that
has been made responsible for all international operations. This structure
facilitates business decision-making and general activities in local, foreign
markets. However, operating independently can pose problems when
overall corporate consensus and action is required. Maintaining and
presenting the carefully nurtured, enterprise-wide brand image established
by the multinational may also be a challenge.
A Transnational Corporation
A transnational corporation involves a parent-subsidiary structure whereby
the parent company oversees the operations of subsidiaries in foreign
countries as well as in the home country. Subsidiaries can make use of the
parent's assets, such as research and development data. Subsidiaries
may be different brands, as well. The parent usually maintains a
management role directing the operations of its subsidiaries, domestic and
foreign.
Advantages and Disadvantages of Multinational
Corporations
International operations present a variety of advantages and
disadvantages to multinational companies, consumers, and a workforce.
Advantages
Developing an international presence can open up new markets and sales
opportunities unavailable or not feasible when operating just domestically.
For example, a presence in a foreign country such as India can allow a
corporation to meet widespread Indian demand for particular products
without the transaction costs associated with long-distance shipping.
Corporations can establish operations in markets where their capital can
be used most efficiently and wages have less impact on the bottom line
than they did in the home country.
By producing the same quality of goods at lower costs, multinational
companies can reduce prices and increase the purchasing power of
consumers worldwide.
Multinational companies can also take advantage of lower tax rates
available in countries eager for their direct investments and the jobs that
they'll create. Note, however, that the European Union has a plan to
implement a minimum tax of 15% on corporate profits, to become effective
in 2023.6
Other benefits include a direct financial investment in foreign countries and
job growth in their local economies.
Disadvantages
A trade-off of globalization—the price of lower prices—is that domestic
jobs move overseas. This can increase unemployment in the home
country and make it difficult for longtime employees in outsourced
industries to find new jobs.
Those opposed to multinational corporations point to the potential they
may have to develop a monopoly (for certain products). This can drive up
prices for consumers, stifle competition, and inhibit innovation.
Multinational corporations are also said to have a detrimental effect on the
environment because their operations may encourage land development
and the depletion of local and natural resources.
Multinational companies may also cause the downfall of small, local
businesses. Activists have also claimed that multinational companies
breach ethical standards. They accuse them of evading laws to advance
their business agendas.
What Makes a Corporation Multinational?
A multinational corporation is one that has business offices and operations
in two or more countries in the world. These companies are often
managed from a central office headquartered in the home country. Simply
exporting goods for sale abroad does not make a business a multinational
company.
Why Would a Business Want to Become a Multinational
Company?
Usually, the primary goal of a business is to increase profits and growth. If
it can grow a global customer base and increase its market share abroad,
it may believe that opening offices in foreign countries is worth the
expense and effort. Companies may also see a benefit in certain tax
structures or regulatory regimes found abroad.
What Are Some Risks That Multinational Corporations
Face?
Multinational corporations are exposed to risks related to the different
countries and regions in which they operate. These can include regulatory
or legal risks, political instability, crime and violence, cultural sensitivities,
as well as fluctuations in currency exchange rates. People in the home
country may also resent the outsourcing of jobs.
https://www.investopedia.com/terms/m/multinationalcorporation.asp
What is a Multinational Corporation (MNC)?
A multinational corporation (MNC) is a company that operates in its home
country, as well as in other countries around the world. It maintains
a central office located in one country, which coordinates the management
of all its other offices, such as administrative branches or factories.
It isn’t enough to call a company that exports its products to more than one
country a multinational company. They need to maintain actual business
operations in other countries and must make a foreign direct
investment there.
Characteristics of a Multinational Corporation
The following are the common characteristics of multinational corporations:
1. Very high assets and turnover
To become a multinational corporation, the business must be large and
must own a huge amount of assets, both physical and financial. The
company’s targets are high, and they are able to generate substantial
profits.
2. Network of branches
Multinational companies maintain production and marketing operations in
different countries. In each country, the business may oversee multiple
offices that function through several branches and subsidiaries.
3. Control
In relation to the previous point, the management of offices in other
countries is controlled by one head office located in the home country.
Therefore, the source of command is found in the home country.
4. Continued growth
Multinational corporations keep growing. Even as they operate in other
countries, they strive to grow their economic size by constantly upgrading
and by conducting mergers and acquisitions.
5. Sophisticated technology
When a company goes global, they need to make sure that their
investment will grow substantially. In order to achieve substantial growth,
they need to make use of capital-intensive technology, especially in their
production and marketing activities.
6. Right skills
Multinational companies aim to employ only the best managers, those who
are capable of handling large amounts of funds, using advanced
technology, managing workers, and running a huge business entity.
7. Forceful marketing and advertising
One of the most effective survival strategies of multinational corporations is
spending a great deal of money on marketing and advertising. This is how
they are able to sell every product or brand they make.
8. Good quality products
Because they use capital-intensive technology, they are able to produce
top-of-the-line products.
Reasons for Being a Multinational Corporation
There are various reasons why companies want to become multinational
corporations. Here are some of the most common motivations:
1. Access to lower production costs
Setting up production in other countries, especially in developing
economies, usually translates to spending significantly less on production
costs. Though outsourcing is a way of achieving the objective, setting up
manufacturing plants in other countries may be even more cost-efficient.
Due to their large size, MNCs can take advantage of economies of scale
and grow their global brand. The growth is done through strategic
manufacturing/service placement, which allows the corporation to take
advantage of undervalued services across the globe, more efficient and
inexpensive supply chains, and advanced technological/R&D capacity.
2. Proximity to target international markets
It is beneficial to set up business in countries where the target consumer
market of a company is located. Doing so helps reduce transport costs and
gives multinational corporations easier access to consumer feedback and
information, as well as to consumer intelligence.
International brand recognition makes the transition from different countries
and their respective markets easier and decreases per capita marketing
costs as the same brand vision can be applied worldwide.
3. Access to a larger talent pool
Multinational corporations are also known to hire only the best talent from
around the world, which allows management to provide the best technical
knowledge and innovative thinking to their product or service.
4. Avoidance of tariffs
When a company produces or manufactures its products in another country
where they also sell their products, they are exempt from import quotas and
tariffs.
Models of MNCs
The following are the different models of multinational corporations:
1. Centralized
In the centralized model, companies put up an executive headquarters in
their home country and then build various manufacturing plants and
production facilities in other countries. Its most important advantage is
being able to avoid tariffs and import quotas and take advantage of lower
production costs.
2. Regional
The regionalized model states that a company keeps its headquarters in
one country that supervises a collection of offices that are located in other
countries. Unlike the centralized model, the regionalized model includes
subsidiaries and affiliates that all report to the headquarters.
3. Multinational
In the multinational model, a parent company operates in the home country
and puts up subsidiaries in different countries. The difference is that the
subsidiaries and affiliates are more independent in their operations.
Advantages of Being a Multinational Corporation
There are many benefits of being a multinational corporation including:
1. Efficiency
In terms of efficiency, multinational companies are able to reach their target
markets more easily because they manufacture in the countries where the
target markets are. Also, they can easily access raw materials and cheaper
labor costs.
2. Development
In terms of development, multinational corporations pay better than
domestic companies, making them more attractive to the local labor force.
They are usually favored by the local government because of the
substantial amount of local taxes they pay, which helps boost the country’s
economy.
3. Employment
In terms of employment, multinational corporations hire local workers who
know the culture of their place and are thus able to give helpful insider
feedback on what the locals want.
4. Innovation
As multinational corporations employ both locals and foreign workers, they
are able to come up with products that are more creative and innovative.
Foreign Direct Investment
Foreign direct investments are prevalent within multinational corporations.
The investments occur when an investor or company from one country
makes an investment outside the country of operation.
Foreign investments most often occur when a foreign business is
established or bought outright. It can be distinguished from the purchase of
an international portfolio that only contains equities of the company, rather
than purchasing more direct control.
https://corporatefinanceinstitute.com/resources/management/multinationalcorporation/
Multinational Corporations:
Good or Bad?
30 May 2019 by Tejvan Pettinger
Readers Question: List and briefly describe the positive and negative attributes of
multinational corporations (MNCs).
Multinational corporations are large companies with operations in several countries across
the world. For example, Apple, Ford, Coca-Cola, Alphabet (Google) and Microsoft. Their
size and turnover can be greater than the total GDP of many developing economies.
Benefits of Multinational Corporations

Create wealth and jobs around the world. Inward investment by multinationals
creates much needed foreign currency for developing economies. They also create
jobs and help raise expectations of what is possible.






Their size and scale of operation enable them to benefit from economies of
scale enabling lower average costs and prices for consumers. This is particularly
important in industries with very high fixed costs, such as car manufacture and
airlines.
Large profits can be used for research & development. For example, oil exploration is
costly and risky; this could only be undertaken by a large firm with significant profit
and resources. It is similar for drug manufacturers who need to take risks in
developing new drugs.
Ensure minimum standards. The success of multinationals is often because
consumers like to buy goods and services where they can rely on minimum
standards. i.e. if you visit any country you know that the Starbucks coffee shop will
give something you are fairly familiar with. It may not be the best coffee in the
district, but it won’t be the worst. People like the security of knowing what to
expect.
Products which attain global dominance have a universal appeal. McDonald’s, CocaCola, Apple have attained their market share due to meeting consumer preferences.
Foreign investments. Multinationals engage in Foreign direct investment. This helps
create capital flows to poorer/developing economies. It also creates jobs. Although
wages may be low by the standards of the developed world – they are better jobs
than alternatives and gradually help to raise wages in the developing world.
Outsourcing of production by multinationals – enables lower prices; this increases
disposable incomes of households in the developed world and enables them to buy
more goods and services – creating new sources of employment to offset the lost
jobs from outsourcing manufacturing jobs.
Criticisms of Multinational Corporations


Companies are often interested in profit at the expense of the consumer.
Multinational companies often have monopoly power which enables them to make
an excess profit. For example, Shell made profits of £14bn last year.
Tax avoidance. Many multinationals set up companies in countries with the lowest
tax rate. They funnel profit through the countries with the lowest corporation tax
rates – e.g. Bermuda, Ireland, Luxemburg. For example: in 2011, Google had £2.5bn
of UK sales, but only paid £3.4 million UK tax. A tax rate of 00.1% despite having a
global-wide profit margin of 33%. (tax avoiding companies) This means the
multinationals are ‘free-riding on smaller companies who cannot attain the same
creative tax accounts.






Cash reserves – Apple has cash reserves of $216bn, 93% of which is overseas. This
represents deadweight welfare loss. It is not being used for investment
Their market dominance makes it difficult for local small firms to thrive. For example,
it is argued that big supermarkets are squeezing the margins of local corner shops
leading to less diversity.
In developing economies, big multinationals can use their economies of scale to
push local firms out of business.
In the pursuit of profit, multinational companies often contribute to pollution and
use of non-renewable resources which is putting the environment under threat. For
example, some MNCs have been criticised of outsourcing pollution and
environmental degradation to developing economies where pollution standards are
lower.
‘Sweat-shop labour’ MNCs have been criticised for using ‘slave labour’ – workers
who are paid a pittance by Western standards.
Outsourcing to cheaper labour-cost economies has caused loss of jobs in the
developed world. This is an issue in the US where many multinationals have
outsourced production around the world.
Evaluation

Some criticisms of MNCs may be due to other issues. For example, the fact MNCs
pollute is perhaps a failure of government regulation. Also, small firms can pollute
just as much.
 MNCs may pay low wages by western standards but, this is arguably better than the
alternatives of not having a job at all. Also, some multinationals have responded to
concerns over standards of working conditions and have sought to improve them.
What do you think of Multinational companies? – leave comment below.
Categorieseconomics
Why is capitalism the dominant economic system?
Does government debt lead to lower economic growth?
34 thoughts on “Multinational Corporations: Good or Bad?”
Comment navigation
← Older Comments
1. National Debt Line
20 April 2021 at 4:33 am
This post is very simple to read and appreciate without leaving any
details out. Great work!
Reply
2. Joram
25 January 2023 at 7:25 am
MNCs are good though they have a aim of taking the benefit of
undeveloped countries to better themselves ,,from my point of
view,,since even if employment is created we are enticed not to work
appropriately to develop our own indigenous local company
https://www.economicshelp.org/blog/538/economics/multinationalcorporations-good-or-bad/
LEGALLY ACCOUNTABLE FOR HUMAN
RIGHTS?
Multinational corporations (MNCs) dominate IndustriALL Global Union’s industrial,
energy and mining sectors. But they employ only 6 per cent of the workers who make
their products. We hold MNCs accountable for union rights and living wages
throughout their supply chains.
In January, the ITUC published its Scandal report, exposing that 50
leading multinational corporations employ only 6 per cent of the workers
who manufacture their products directly. Suppliers and subcontractors
employ the remaining 94 per cent, or 116 million-strong hidden
workforce.
As a rule, wages and conditions of these workers are worse, and most
union rights violations happen in the supply chain. But as the UN guiding
principles on business and human rights confirm, an MNC has a due
diligence responsibility over its supply chain.
This is what IndustriALL is trying to cement with its global framework
agreements (GFA), which cover already over ten million workers in 47
corporations and their suppliers. This is what the Accord on Fire and
Building Safety in Bangladesh is about, working on safer factories for
more than two million garment workers.
Supply chain responsibility is the basis for our cooperation with the ACT
garment brands, to guarantee freedom of association and living wages
through building industry level collective bargaining structures. Setting
higher wages across the entire industry prevents individual factories and
brands from negotiating lower prices based on lower wages.
Another sector where brands do not manufacture their products
themselves, is the electronics industry. Brand image is vulnerable just like
the garment industry. That is why IndustriALL targeted Apple in its
successful campaign against union busting by NXP Semiconductors in the
Philippines – and Apple reacted.
Our GFA with Swedish retail giant H&M proved instrumental in solving
conflicts in Myanmar and Pakistan. Thanks to active intervention by
IndustriALL and H&M, a Chinese supplier finally recognized our
affiliated union in Myanmar, while 88 dismissed workers were reinstated
at Pakistan.
Exploitation and violations of workers’ rights by suppliers and their
subcontractors are a hot topic. “Decent work in the global supply chains”
will therefore be the main discussion at ILO’s International Labour
Conference in June.
IndustriALL and other global unions want to have a Convention on Global
Supply Chains to clarify the roles and responsibilities of governments in
home and host countries, and the buyers and suppliers. It should establish
legal accountability and provide guidance for developing policy and
legislation to ensure respect for workers’ rights in supply chains.
Governments do not need to wait for a Convention. The French parliament
is debating a law on due diligence obligations for companies. Other
countries give buyers responsibilities, for instance, in the case of nonpayment of wages or social security contributions.
Corporate structures have changed. Laws and bargaining structures have to
follow to ensure union rights and living wages throughout global supply
chains.
https://www.industriall-union.org/multinationals-are-responsible-for-their-supply-chains
Companies have an enormous impact on people’s lives and the
communities in which they operate. Sometimes the impact is positive – jobs
are created, new technology improves lives and investment in the
community translates into real benefits for those who live there.
But Amnesty has exposed countless instances when corporations exploit
weak and poorly enforced domestic regulation with devastating effect on
people and communities.
There are few effective mechanisms at national or international level to
prevent corporate human rights abuses or to hold companies to account.
Amnesty is working to change this.
In Bodo Creek in Ogoniland, Nigeria, two oil spills (August/December 2008)
destroyed thousands of livelihoods. Oil poured from faults in the Trans-
Niger Pipeline for weeks, covering the area in a thick slick of oil. Amnesty
and our partner, the Centre for Environment, Human Rights and
Development, worked with the community to get the oil company
responsible – Shell – to clean up its mess and pay proper compensation.
Finally in December 2014, the Bodo community won a long-awaited victory
when Shell paid out an unprecedented £55million in compensation after
legal action in the UK.
“We are thankful to all that have contributed in one way or another to the
conclusion of this case such as the various NGOs, especially Amnesty
International, who have come to our aid.” said Chief Sylvester Kogbara,
Chair of the Bodo Council of Chiefs and Elders.
THE PROBLEM
States have a responsibility to protect human rights. However, many are
failing to do this, especially when it comes to company operations –
whether because of lack of capacity, dependence on the company as an
investor or outright corruption.
Injustice incorporated
Companies operating across borders are often involved in severe abuses,
such as forced labour or forcibly relocating communities from their lands.
Unsurprisingly, abuses are particularly stark in the extractive sector, with
companies racing against each other to mine scarce and valuable
resources. Traditional livelihoods are destroyed as land is contaminated
and water supplies polluted such as in Ogoniland, Nigeria. The impact can
be particularly severe for Indigenous Peoples because their way of life
and their identity is often closely related to their land.
Affected communities are frequently denied access to information about the
impact of company operations. Meaning they are excluded from
participating in decisions that affect their lives.
Although it is now widely accepted that corporations have a responsibility to
respect human rights, too many times profits are built on the back of human
rights abuses. Despite laws in many countries that allow companies to be
prosecuted, governments rarely even investigate corporate wrongdoing.
When communities’ attempt to get justice they are thwarted by ineffective
legal systems, a lack of access to information, corruption and powerful
state-corporate alliances. Worryingly, when the poor cannot secure justice,
companies learn that they can exploit poverty without consequences.
WHAT AMNESTY IS CALLING FOR
• Prevention: all companies should be required by law to take steps to
identify, prevent and address human rights abuses (known as due
diligence).
• Accountability: companies must be held to account for abuses they
commit.
• Remedy: people whose rights have been abused by companies must be
able to access justice and effective remedy.
• Protect rights beyond borders: companies operate across borders, so
the law must also operate across borders to protect people’s rights.
THE ISSUE IN DETAIL
The accountability gap
Companies have lobbied governments to create international investment,
trade and tax laws that protect corporate interests. But the same
companies frequently argue against any development in international law
and standards to protect human rights in the context of business
operations.
Companies are taking advantage of weak regulatory systems, especially in
developing countries, and it is often the poorest people who are most at
risk of exploitation. Governments are obliged to protect people from human
rights abuses, this includes abuses committed by companies. All
companies must be regulated to prevent the pursuit of profit at the expense
of human rights.
Bhopal’s 30 year fight for justice
It was once known as the City of Lakes. But Bhopal has since gone down
in history as the site of one of the world’s worst industrial disasters.
In 1984, a toxic gas leak in the central Indian city left more than 20,000
people dead and poisoned more than half a million. Thirty years later, that
tragedy has turned into a human rights horror, with survivors and activists
leading a relentless fight for justice.
The players in this battle have taken on mythical overtones — David and
Goliath come to mind. On the one side are thousands of people who
somehow survived the gas leak and are searching for truth, justice and
compensation; on the other, the multinational corporations Union Carbide
and Dow, along with the US and Indian governments who have effectively
protected them.
The story of what happened in Bhopal, and the struggle that has endured
for three decades, is best told by the people closest to it: the survivors
and their supporters.
https://www.amnesty.org/en/what-we-do/corporateaccountability/#:~:text=Although%20it%20is%20now%20widely%20accepted%20that%20co
rporations,be%20prosecuted%2C%20governments%20rarely%20even%20investigate%20cor
porate%20wrongdoing.