by Multinational Corporations or Multinational Companies are corporate organizations that operate in more than one country other than home country. Multinational Companies (MNCs) have their central head office in the home country and secondary offices, facilities, factories, industries, and other such assets in other countries.
These companies operate worldwide and hence also known as global enterprises. The activities are controlled and operated by the parent company worldwide. Products and services of MNCs are sold around various countries which require global management.
Features of a Multinational Company (MNC)
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High Turnover and Many Assets
MNCs operate on a global scale. Which means they have huge assets in almost all countries in which they operate. Their turnovers can also be incomprehensibly large. For example, Apple has a market capitalization of 1 trillion dollars. This is bigger than the entire economy of Saudi Arabia!
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Control
MNCs have unity of control. So while they have many branches in many countries, the main control will remain with the head office in its country of origin. The business operations in the host country have their own management and offices, but the ultimate control will still remain at the head office.
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Technological Advantages
As we saw earlier, an MNC has at its disposal huge amounts of wealth and investments. This allows them to use the best technology available to boost their products and their company. Most companies also invest huge money in their Research & Development Department to invent and discover new technological marvels.
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Management by Professionals
An MNC is run by very competent and capable individuals. They have suitable managers to take care of their business operations, technology, finances, expansion etc. And they are also able to attract the top talent to their corporations due to their resources and their reputations.
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Aggressive Marketing
MNCs can spend a lot of their money on marketing, advertising, and promotional activities. They target an international audience, so effective marketing becomes necessary. Aggressive marketing allows them to capture the market and sell their products globally.
Merits of MNCs
(i) Access to Consumers
Access to consumers is one of the primary advantages that the MNCs enjoy over companies with operations limited to smaller region. Increasing accessibility to wider geographical regions allows the MNCs to have a larger pool of potential customers and help them in expanding, growing at a faster pace as compared to others.
(ii) Accesses to Labor
MNCs enjoy access to cheap labor, which is a great advantage over other companies. A firm having operations spread across different geographical areas can have its production unit set up in countries with cheap labor. Some of the countries where cheap labor is available is China, India, Pakistan etc.
(iii) Taxes and Other Costs
Taxes are one of the areas where every MNC can take advantage. Many countries offer reduced taxes on exports and imports in order to increase their foreign exposure and international trade. Also countries impose lower excise and custom duty which results in high profit margin for MNCs. Thus taxes are one of the area of making money but it again depends on the country of operation.
(iv) Overall Development
The investment level, employment level, and income level of the country increases due to the operation of MNC’s. Level of industrial and economic development increases due to the growth of MNCs.
(v) Technology
The industry gets latest technology from foreign countries through MNCs which help them improve on their technological parameter.
(vi) R&D
MNCs help in improving the R&D for the economy.
(vii) Exports & Imports
MNC operations also help in improving the Balance of payment. This can be achieved by the increase in exports and decrease in the imports.
(viii) MNCs help in breaking protectionalism and also helps in curbing local monopolies, if at all it exists in the country.
Demerits of MNCs
(i) Laws
One of the major disadvantage is the strict and stringent laws applicable in the country. MNCs are subject to more laws and regulations than other companies. It is seen that certain countries do not allow companies to run its operations as it has been doing in other countries, which result in a conflict within the country and results in problems in the organization.
(ii) Intellectual Property
Multinational companies also face issues pertaining to the intellectual property that is not always applicable in case of purely domestic firms
(iii) Political Risks
As the operations of the MNCs is wide spread across national boundaries of several countries they may result in a threat to the economic and political sovereignty of host countries.
(iv) Loss to Local Businesses
MNCs products sometimes lead to the killing of the domestic company operations. The MNCs establishes their monopoly in the country where they operate thus killing the local businesses which exists in the country.
(v) Loss of Natural Resources
MNCs use natural resources of the home country in order to make huge profit which results in the depletion of the resources thus causing a loss of natural resources for the economy
(vi) Money flows
As MNCs operate in different countries a large sum of money flows to foreign countries as payment towards profit which results in less efficiency for the host country where the MNCs operations are based.
(vii) Transfer of capital
Transfer of capital takes place from the home country to the foreign ground which is unfavorable for the economy.
