What Is A Multinational Corporation?
A multinational corporation, or MNC, refers to any organization or business which has an international presence spread over many different countries. It doesn't necessarily indicate that the company has over a thousand employees. It simply means that the company has established its business worldwide.
MNCs became popular after globalization got a hold over world economics. Business owners realized the underutilized potential that was the labor force in other countries of the world, particularly the ones in Asia and Africa. One of the easiest ways to access that labor pool and mold it into a profit-making enterprise was expanding the business to other parts of the world.
It may sound like having operations in multiple countries around the world is a very expensive venture, but in reality, this is very cost-effective. This is because setting up offices in countries with a good labor force and low cost of production will automatically generate a greater net profit.
What Are Some Popular MNCs?
Some of the biggest names in business are all MNCs with a head office in their country of origin and numerous branches in other parts of the world. Google is one of the most popular MNCs today, and every engineer’s dream. Similarly, other MNCs include Twitter, IBM, HP, PepsiCo, Microsoft, Sony and so on.
Importance of Multinational Companies.
We have written down some importance of MNC for a home country and how it helps improve the GDP of a nation:
First, when a multinational company forms in a country, it improves the balance of payments as investors from different countries will start to put their money in the home host country's market. The investment will work as a direct flow of capital from the international market.
Also, the profits of multinational companies depend on the tax laws of the country in most cases. As a result, it will be a good source of revenue for the domestic government.
When the company becomes multinational, it will create products for both national and international markets. The local population will gain a much wider choice of goods/ services at a lower price point than the imported substitutes.
When a company becomes multinational, it is a proud moment for the company owners, investors and the country. The presence and development of multinational companies showcase advancements in the industry front and help the host country build its reputation.
On the other hand, a bigger number of MNC companies list open gates for other large corporations to set up their subsidiaries in the host country.
What Are The Features Of MNCs?
Some of the most commonly observed features of all MNCs include:
Sister Branches Present Internationally:
Most MNCs have roots in one country and then expand to other parts of the world in search for cheap labor and low cost of production. For example, Google will be more likely to pay an employee from the USA a greater salary than one who resides in India. This considers the overall cost of living in different parts of the world. However, the employees in both the USA and India are likely to offer very similar services.
Impressive Turnover Rates:
In order to expand business to different parts of the world, the company needs to have enough capital to begin with. Only then will it see an increase in revenues and higher turnovers.
Aggressive Advertising:
Another characteristic seen across all MNCs is the way they network their business. This is done to attract more and more people to join their organization. This advertising also helps them build trust and loyalty with consumers, who are likely to be swayed by impressive advertising into consuming their products.
FAQs on Multinational Corporations (MNCs): Features and Advantages
1. What is a Multinational Corporation (MNC) and what are its main features?
A Multinational Corporation (MNC) is a large corporate organisation that owns or controls the production of goods or services in at least one country other than its home country. The key features that define an MNC are:
Large Scale Operations: MNCs have huge assets and generate significant sales revenue, often operating on a global scale.
Centralised Control: They have a headquarters in their home country which controls the policies and procedures for all branches and subsidiaries worldwide.
Advanced Technology: MNCs possess and transfer sophisticated technology and production techniques, giving them a competitive edge.
International Operations: They manage production and marketing operations across multiple countries to tap into global markets and resources.
2. What are the primary advantages an MNC brings to a host country's economy?
Multinational Corporations offer several significant advantages to the host countries they operate in. The most important ones include:
Employment Generation: By setting up production units, MNCs create large-scale employment opportunities, helping to reduce unemployment.
Inflow of Foreign Capital: They bring in much-needed foreign investment, which helps improve the host country's balance of payments position.
Transfer of Technology: MNCs introduce modern technology and management techniques, which can be adopted by local industries.
Development of Ancillary Industries: The growth of MNCs stimulates the development of local small-scale industries that supply them with raw materials and components.
Increased Competition: Their presence breaks local monopolies and encourages domestic producers to improve their efficiency and product quality.
3. Can you provide some examples of well-known Multinational Corporations operating in India?
Yes, many well-known MNCs have a strong presence in the Indian market. Some prominent examples include Microsoft (USA), which is a leader in software and technology; Coca-Cola (USA) in the beverage industry; Unilever (UK/Netherlands), which owns many brands in the consumer goods sector like Hindustan Unilever Ltd.; and Samsung (South Korea), a major player in electronics and home appliances. These companies operate globally but have tailored their products and services for the Indian consumer.
4. How is a business typically structured to become a Multinational Corporation?
A business becomes an MNC by expanding its operations beyond its home country's borders. The typical structure involves a parent company located in the home country, which holds the primary control and decision-making authority. This parent company then establishes a network in other countries (host countries) through various modes, such as opening subsidiaries (which are separate legal entities), setting up branches (which are extensions of the parent company), or entering into joint ventures with local companies.
5. Why do Multinational Corporations often target emerging economies for expansion?
MNCs strategically target emerging economies for several compelling reasons. A primary driver is access to new and untapped markets with a large consumer base. Additionally, these economies often offer significant cost advantages, such as lower-cost labour and cheaper raw materials, which helps in maximising profits. By entering these markets early, MNCs can establish a strong brand presence with less competition compared to the saturated markets in developed countries, allowing them to shape market trends and consumer preferences.
6. How do MNCs impact the economic development and sovereignty of a host nation?
The impact of MNCs is a double-edged sword. On one hand, they significantly boost economic development through foreign direct investment (FDI), infrastructure development, and technology transfer. On the other hand, their immense economic power can pose a threat to the national sovereignty of the host country. They can influence government policies to favour their interests, disregard the welfare of the local population, and create a dependency that makes the host economy vulnerable to their decisions.
7. From an employee's viewpoint, what makes working in an MNC more attractive than a domestic company?
Employees often prefer working in MNCs due to a combination of factors. MNCs generally offer more competitive salary packages and comprehensive benefits compared to many domestic firms. They provide structured career paths with opportunities for global exposure and professional growth through advanced training programs. Furthermore, working for a globally recognised brand can enhance an individual's professional profile and provide a more dynamic and culturally diverse work environment.
8. Are large Multinational Corporations immune to business risks and financial losses?
No, despite their vast resources, MNCs are not immune to risks and can suffer significant losses. They face a unique set of challenges, including political instability in host countries, adverse fluctuations in foreign exchange rates, and different legal systems. Global economic downturns, changes in international trade policies, or disruptions like a pandemic can severely impact their supply chains and sales, proving that even the largest corporations are vulnerable to market forces and geopolitical events.
