AMIT TRAVEL VLOG:

by Kumar Amit 

What is Multinational Company?

• A multinational corporation (MNC) is a company that operates in its home country, as well as in at least one country other than its home country. A multinational company generally maintains a centralized office located in one country, which coordinates the management of all its other offices.

• A multinational company does not mean a company that exports products to more than one country. It means to be an MNC the company needs to maintain actual business operations (offices, factories and everything) in other countries.

Characteristics of a Multinational Company -

The following are some common characteristics of multinational corporations:

  1. High Turnover and Many Assets

To be a multinational corporation, the business must be large and they own a lot of assets too both physically and financially. The company’s targets are very high, and also they are able to make substantial profits.

  2. Network of branches

Multinational companies conduct production and marketing activities in various countries.
In each country, the company can oversee multiple offices that operate through several branches and departments.

  3. Control

MNCs have unity of control. So even though they have many branches in different countries, the head office in the country of origin controls all the branches.The host country has its own management and offices to operate the business activities but the ultimate control remains at the head office only.

4. Technological Advantages

When an organization goes global, they need to be prepared for a substantial increase in investment. To raise enough, they need to use capital-intensive technology, especially in their production and marketing activities. Most organizations invest huge sums in their Research and Development departments to discover new technological marvels.

  5. Right skills

The goal of multinational companies is to hire only the best managers, who are able to handle large amounts of funds, use advanced technology, manage workers, and control a huge business entity.

  6. Aggressive Marketing

One of the most effective survival strategies of multinational corporations is to spend a lot of money on marketing and advertising activities. And in this way they are able to sell every product they make.

Advantages of Multinational Companies (MNCs) -

  1. Wider consumer base:

The primary advantage that the multinational corporations enjoy over other companies that limit their operations to smaller geographic areas is that they have a larger pool of potential customers globally. Accessibility over a wide geographical area allows MNCs to grow faster than others, keep a larger pool of potential customers and help them in expanding.

  2. Accesses to Labor:

Having cheap labor is a great advantage for MNCs. A firm operating across different geographical regions can set up its manufacturing units in countries with cheap labor.

  3. Taxes and Other Costs:

Taxes are one of the areas where MNCs can take advantages. Many countries offer tariff reductions on exports and imports to increase their foreign exposure and international trade which results in higher profit margins for MNCs.

  4. Economies of scale:

Many industries have high fixed costs. This means that companies that can grow in size will benefit from lower long-term average costs and greater efficiency.

5. Outsourcing:

The concept of outsourcing is related to specialization. In a high-labor cost economy a manufacturing company can outsource labor intensive production in countries with cheaper labor costs and enable cost reductions. 

  6. Overall Development:

As a result of conducting MNC activities, the level of investment, employment level and income level of the country increases. The level of economic and industrial development increases because of the growth of MNCs.

  7. Technology:

The industry receives the latest technology from foreign countries through MNCs which helps them to improve their technical parameters and discover new technological marvels.

  8. Employment of skilled labor:

A multinational is able to enjoy a larger pool for hiring the labor. The firm can hire specialists from around the world. Having a larger talent pool enables it to hire better managers or innovators, which can drive the growth of any organization.
Disadvantages of Multinational Companies (MNCs) -

  1. Uncertainty:

MNCs often scale their production facilities and can shut down operations in any situation of economic uncertainty. They practice hire and fire as per their requirements; thus, people employed in MNCs often lose their jobs. Due to such uncertainty, internal problems may arise in the country.

 2. Control:

Though MNCs follow the governments, but sometimes they behave slightly differently which may even go against the interest of the nation as a whole.

  3. Environmental costs:

Multinational corporations can outsource activities of the manufacturing process in developing economies with weak environmental laws, which can increase the cost of maintaining the environment for the country.

  4. Environmental Imbalance:

As a large portion of multinational companies are seeking out raw materials - oil, diamonds, rubber and precious metals - MNCs can create environmental imbalances by extracting natural resources and polluting the host countries' environment.

  5. Killing Domestic Producers:

Multinational companies can kill the domestic organizations while competing with the local firms in the host country's local market.

6. Profit Repatriation:

Although multinational corporations invest in developing economies, the profits are eventually sent back to the parent country, so the net capital inflows are lower than they show. MNCs can repatriate their profits to their country of origin, thereby depriving host countries of new investment opportunities.

  7. Skilled labor:

When undertaking new projects, MNCs may have to recruit skilled labor from other countries, not from the host country's labor market. This means that local workers do not receive the best jobs, which can influence unemployment in the host country.

Multinational Company Examples -

Examples of multinational companies are:

• Apple,
• Ford, 
• Coca-Cola,
• Alphabet (Google),
• Microsoft,
• IBM,
• Nestle,
• P&G,
• Pepsico,
• Dell,
• TATA Group,
• Infosys Technologies,
• Reliance Industries.