Multinational corporation MNCs Definition A multinational corporation MNC

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Multinational corporation (MNCs)

Multinational corporation (MNCs)

Definition : A multinational corporation (MNC) or multinational enterprise is an organization that owns

Definition : A multinational corporation (MNC) or multinational enterprise is an organization that owns or controls production of goods or services in one or more countries other than their home country. It can also be referred as an international corporation. A multinational corporation is usually a large corporation which produces or sells goods or services in various countries. Importing and exporting goods and services Making significant investments in a foreign country Buying and selling licenses in foreign markets Engaging in contract manufacturing—permitting a local manufacturer in a foreign country to produce their products

Role of Multinational Corporations in the Indian Economy: Prior to 1991 Multinational companies did

Role of Multinational Corporations in the Indian Economy: Prior to 1991 Multinational companies did not play much role in the Indian economy. In the pre-reform period the Indian economy was dominated by public enterprises. To prevent concentration of economic power industrial policy 1956 did not allow the private firms to grow in size beyond a point. By definition multinational companies were quite big and operate in several countries. 1. Promotion of Foreign Investment: In the recent years, external assistance to developing countries has been declining. This is because the donor developed countries have not been willing to part with a larger proportion of their GDP as assistance to developing countries. MNCs can bridge the gap between the requirements of foreign capital for increasing foreign investment in India. 2. Non-Debt Creating Capital inflows: In pre-reform period in India when foreign direct investment by MNCs was discouraged, we relied heavily on external commercial borrowing (ECB) which was of debt-creating capital inflows. This raised the burden of external debt and debt service payments reached the alarming figure of 35 per cent of our current account receipts.

3. Technology Transfer: Another important role of multinational corporations is that they transfer high

3. Technology Transfer: Another important role of multinational corporations is that they transfer high sophisticated technology to developing countries which are essential for raising productivity of working class and enable us to start new productive ventures requiring high technology. 4. Promotion of Exports: With extensive links all over the world and producing products efficiently and therefore with lower costs multinationals can play a significant role in promoting exports of a country in which they invest. For example, the rapid expansion in China’s exports in recent years is due to the large investment made by multinationals in various fields of Chinese industry. 5. Investment in Infrastructure: With a large command over financial resources and their superior ability to raise resources both globally and inside India it is said that multinational corporations could invest in infrastructure such as power projects, modernization of airports and posts, telecommunication.

Characteristics of Multinational Company Large scale operation in the most important feature of a

Characteristics of Multinational Company Large scale operation in the most important feature of a multinational company. It performs large scale business operation by investing a huge capital. And it also performs activities in large scale, like production, distribution, organization, employees and promotional activities. The large scale production minimizes per unit cost and helps to face competition in the market. Advanced Technology Advancement in modern science and technology is one of the major features of a multinational company. Multinational companies establish research and development departments for the research and invention of new technology in production, distribution and for promotion of business activities. Monopoly is new scientific technology is one of the main reasons for the development of some multinational companies. Such multinational companies can get easy entry in developing countries. They also transfer new technology in to developing countries through their branches and subsidiaries which are helpful for industrialization International operations One of the important features of a multinational company is its operation in two or more countries. It performs production and distribution activities at the international level through its branches or subsidiaries. Examples companies are coca cola, IBM, National Panasonic, Toyota, Pepsi Cola etc.

Efficient management is one of the main reasons for the successful operation of a

Efficient management is one of the main reasons for the successful operation of a multinational company. It hires efficient and skilled manpower. It has the capacity to hire professional by paying high remuneration. It also blends technology and manpower to give better management. It is thus essential for their successful operation. Ownership and control The ownership of multinational companies remains both with the parent company and the subsidiary company. However, major shares of the subsidiary companies established in various countries are contributed by the parent company. Therefore, the parent company plays a major role in the management and control of the subsidiary companies. Productive organization Multinational companies are known as productive organizations. They produce goods and services of a specific nature both in the parent company and the subsidiary companies in various countries. This is done to spread their products at the international level. The parent company uses its own technology, brand, trademark and method of production. Monopolistic market The product specialization and efficient management system of multinational companies contribute to developing their monopoly power even in a competitive market. The use of latest technology, own trade mark, goodwill, along with better distribution system and promotional network are the main components of multinational companies.

the main features of MNCs: - Location – MNCs have their headquarters in home

the main features of MNCs: - Location – MNCs have their headquarters in home countries and have their operational division spread across foreign countries to minimize the cost. Capital Assets – Major portion of the capital assets of the parent company is owned by the citizens of the company’s home country. Board of Directors – Majority of the members of the Board of Directors are citizens of the home country. MNCs are large-sized corporation and exercise a great degree of economic dominance.

Advantages of MNC's for the host country MNC's help the host country in the

Advantages of MNC's for the host country MNC's help the host country in the following ways 1. The investment level, employment level, and income level of the host country increases due to the operation of MNC's. 2. The industries of host country get latest technology from foreign countries through MNC's. 3. The host country's business also gets management expertise from MNC's. 4. The domestic traders and market intermediaries of the host country gets increased business from the operation of MNC's. 5. MNC's break protectionalism, curb local monopolies, create competition among domestic companies and thus enhance their competitiveness. 6. Domestic industries can make use of R and D outcomes of MNC's. 7. The host country can reduce imports and increase exports due to goods produced by MNC's in the host country. This helps to improve balance of payment.

Advantages of MNC's for the home country MNC's home country has the following advantages.

Advantages of MNC's for the home country MNC's home country has the following advantages. 1. MNC's create opportunities for marketing the products produced in the home country throughout the world. 2. They create employment opportunities to the people of home country both at home and abroad. 3. It gives a boost to the industrial activities of home country. 4. MNC's help to maintain favourable balance of payment of the home country in the long run. 5. Home country can also get the benefit of foreign culture brought by MNC's.

Disadvantages of MNC's for the host country 1. MNC's may transfer technology which has

Disadvantages of MNC's for the host country 1. MNC's may transfer technology which has become outdated in the home country. 2. As MNC's do not operate within the national autonomy, they may pose a threat to the economic and political sovereignty of host countries. 3. MNC's may kill the domestic industry by monopolizing the host country's market. 4. In order to make profit, MNC's may use natural resources of the home country indiscriminately and cause depletion of the resources. 5. A large sums of money flows to foreign countries in terms of payments towards profits, dividends and royalty. Disadvantages of MNC's for the home country 1. MNC's transfer the capital from the home country to various host countries causing unfavorable balance of payment. 2. MNC's may not create employment opportunities to the people of home country if it adopts geocentric approach.

Advantages of Access MNCs to Consumers – Access to consumers is one of the

Advantages of Access MNCs 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. 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. 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. 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. Technology – The industry gets latest technology from foreign countries through MNCs which help them improve on their technological parameter. R&D – MNCs help in improving the R&D for the economy. 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.

Disadvantages of MNCs for the Host Laws – One of the major disadvantage is

Disadvantages of MNCs for the Host Laws – One of the major disadvantage is the strict and stringent laws applicable in Country 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. Intellectual Property – Multinational companies also face issues pertaining to the intellectual property that is not always applicable in case of purely domestic firms 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. 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. 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 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. Transfer of capital takes place from the home country to the foreign ground which is unfavorable for the economy.