by A multinational company is one which is incorporated in one country (called the home country); but whose operations extend beyond the home country and which carries on business in other countries (called the host countries) in addition to the home country.
It must be emphasized that the headquarters of a multinational company are located in the home country.
Features of Multinational Corporations (MNCs)
Following are the salient features of MNCs:
- Huge Assets and Turnover
Because of operations on a global basis, MNCs have huge physical and financial assets. This also results in huge turnover (sales) of MNCs. In fact, in terms of assets and turnover, many MNCs are bigger than national economies of several countries.
- International Operations Through a Network of Branches
MNCs have production and marketing operations in several countries; operating through a network of branches, subsidiaries and affiliates in host countries.
- Unity of Control
MNCs are characterized by unity of control. MNCs control business activities of their branches in foreign countries through head office located in the home country. Managements of branches operate within the policy framework of the parent corporation.
- Mighty Economic Power
MNCs are powerful economic entities. They keep on adding to their economic power through constant mergers and acquisitions of companies, in host countries.
- Advanced and Sophisticated Technology
Generally, a MNC has at its command advanced and sophisticated technology. It employs capital intensive technology in manufacturing and marketing.
- Professional Management
A MNC employs professionally trained managers to handle huge funds, advanced technology and international business operations.
- Aggressive Advertising and Marketing
MNCs spend huge sums of money on advertising and marketing to secure international business. This is, perhaps, the biggest strategy of success of MNCs. Because of this strategy, they are able to sell whatever products/services, they produce/generate.
- Better Quality of Products
A MNC has to compete on the world level. It, therefore, has to pay special attention to the quality of its products.
Advantages of MNCs
- Employment Generation
MNCs create large scale employment opportunities in host countries. This is a big advantage of MNCs for countries; where there is a lot of unemployment.
- Automatic Inflow of Foreign Capital
MNCs bring in much needed capital for the rapid development of developing countries. In fact, with the entry of MNCs, inflow of foreign capital is automatic. As a result of the entry of MNCs, India e.g. has attracted foreign investment with several million dollars.
- Proper Use of Idle Resources
Because of their advanced technical knowledge, MNCs are in a position to properly utilize idle physical and human resources of the host country. This results in an increase in the National Income of the host country.
- Improvement in Balance of Payment Position
MNCs help the host countries to increase their exports. As such, they help the host country to improve upon its Balance of Payment position.
- Technical Development
MNCs carry the advantages of technical development 10 host countries. In fact, MNCs are a vehicle for transference of technical development from one country to another. Because of MNCs poor host countries also begin to develop technically.
- Managerial Development
MNCs employ latest management techniques. People employed by MNCs do a lot of research in management. In a way, they help to professionalize management along latest lines of management theory and practice. This leads to managerial development in host countries.
- End of Local Monopolies
The entry of MNCs leads to competition in the host countries. Local monopolies of host countries either start improving their products or reduce their prices. Thus MNCs put an end to exploitative practices of local monopolists. As a matter of fact, MNCs compel domestic companies to improve their efficiency and quality.
In India, many Indian companies acquired ISO-9000 quality certificates, due to fear of competition posed by MNCs.
- Improvement in Standard of Living
By providing super quality products and services, MNCs help to improve the standard of living of people of host countries.
- Promotion of international brotherhood and culture
MNCs integrate economies of various nations with the world economy. Through their international dealings, MNCs promote international brotherhood and culture; and pave way for world peace and prosperity.
MNCs as a Source of Technology
Throughout the history technological changes and transfer leading to mechanization and industrialization have led to economical change, innovation, increasing in the knowledge and skills as well as, from the industrial point of view, productivity. Also the transfer of technology by multinational corporations (MNCs) would help developing countries to have sustainable development as well as both preserve the environment and improve the quality of life for present and future generatio. It has played an important role in shaping the society (UNIDO/WBSCD, 2002) and the development of the countries. Technological transfer involves a two-way relationship of sending and receiving technology between and among firms, industries and governments. However, the transfer of technology to a developing country depends on many factors including government, its economy, market, research and development as well as infrastructure of the country.
The transfer of technologies by the MNCs to the developing countries brings in economic changes as well as fosters productivity growth. Though invention and creation processes remains the province of the developed countries. However productive knowledge as well as follow-on innovation occurs in developing countries. These processes effectively are the drivers for sustainable growth and change in developing countries.
Technology is at the core of competition and development. The transfer of technology by multinationals enhances a country’s technological capabilities by providing product or process innovations or both. With manufacturing of new products and services as well as improving the quality of the existing ones it could lead to industrial up gradation of a developing country technical ability. Innovation could also lead to the establishment of more competitive industries that could in turn generate revenues for the host (developing) countries. For example, country like China attracts foreign direct investment (FDI) due to cheap mass production which was gradually established due to its innovation capabilities. Being fully aware of the threats, China took steps towards innovation. Innovation is considered the focal instrument of economic growth in both developed and developing countries. Developing countries can maintain its economic growth through its own innovation capabilities.
Constant growth could be there with the creation of new products that expands the knowledge of the technology and products and in turn lowers cost of innovation. The transfer of knowledge and skills is considered necessary for the adoption of new technologies in a developing country. For an MNC there is a growing dependence on the knowledge and skills for a profitable utilization of the product. Therefore a firm may invest in the dispersion of productive knowledge and skills to its employees, to the local suppliers of the inputs needed in its production process and to the local customers who may have to be taught the new technology of using the firm’s products effectively. The direct, in particular, impact is on the labour in the host country. The transfer of the knowledge and skills to local suppliers and labours make up a base for technology spillovers. This spillover in turn upgrades the existing knowledge and skills so as to ensure that the host country enjoys the true potential of the transferred technology. A highly skilled and knowledge based economy is a dominant feature in the 21st century so as to increase a developing country’s growth and competitiveness.
Apart from innovation and growth of knowledge and skills transfer of technology from multinationals to a developing country brings in technical changes in production equipments, production methods and final products that have economic benefits. An increase in the scale of production is possible due to the improved technology as well as due to increase in the knowledge and better skills of the labour. Technological inputs can directly improve productivity by being used in production processes.
Technology transfer by the multinationals makes a difference in nurturing a sustainable development in the developing countries. Technology cooperation is recognized as one of the key instrument in the context of sustainable development. Sustainable development could lead to the origination of new solutions to the socio-economic needs of the developing countries. Sustainable development is all about progress, economic growth, efficient use of resources as well as helping an economy to come out of poverty and environmental degradation. MNCs offer developing countries mutually beneficial environmentally clean and economical technologies. Some MNCs are pioneering eco-efficient, process-oriented low polluting technologies which are transferred to the developing countries. For example, British Petroleum are providing solar energy and upgrading the basic facilities in the remote parts of Philippines. With the help of this technology it is providing the remote parts with energy related infrastructure such as lighting facilities, school equipments, water pumps and many more. Also the company is providing knowledge about the technology through training and community development programs so that the local community members can manage the technology. The contribution of environment friendly technologies is associated to sustainable development. This in turn ensures that the quality of life and long-term benefits for the present as well as future generations improves.
