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 (MNC)
1. What are the advantages and disadvantages of MNCs in the Home and Host Country?
Advantages of MNCs being present in the Host Country:
With the development of MNC in a host country, the country's investment level, employment level, and income level increases.
When it comes to technology, the host country's industry gets the latest technology from foreign countries through MNC's involvement.
The number of host country's businesses gets managed by experts that are working in MNCs.
Disadvantages to a Host Country for having MNCs:
MNCs may start to transfer technology, which has already become outdated in the home country.
MNCs don't work within the national autonomy. As a result, they have a specific threat of economic and political sovereignty for the host countries.
If the company goes with the geocentric approach, it may not create employment opportunities for the people of the home country.
2. How does a Multinational Company Form?
Many people have this misconception about a multinational company as a big business that is operating in dozens of countries. However, a company working only in three different countries is said to be a multinational company. To make a company multinational, you need to establish its parent corporation in the host country with its headquarters. The next two subsidiary corporations can be established in different countries, which allows a business with the host country. These two subsidiaries need to be owned by the parent corporation. Talking about India, after the financial liberation in 1991, the number of multinational companies in the country skyrocketed.
3. Why do MNCs thrive in countries such as India?
India is currently one of the most technologically adept developing countries of the world. The population of India reaps a huge pool of labor which is mostly underutilized if only national projects and jobs are considered. Expanding into Indian markets not only gives MNCs the much-needed cheap labor they are looking for, it also acts as a very lucrative market for the sale of their products. For example, Microsoft has expanded its business in India, recruiting top talents to work for them for much lower salary and benefits than what a resident of the USA would require. Microsoft also has established a firm market in India for its products.
4. Why do most MNCs target emerging markets?
MNCs focus on building activities in emerging parts of the world since this will help them single-handedly mold the workforce to work according to their requirements. This means they do not have to additionally spend any resources to impart a different kind of technical understanding to these workers, since they will be training them from scratch. Moreover, emerging markets are more likely to be receptive to MNCs than already established markets, where there will be more competition. As long as an organization can capture a stronghold in an emerging market, they can play a monopolistic role in demand and supply.
5. Why do people prefer to work at MNCs?
This is due to a variety of reasons. Firstly, working at any multinational organization will bring a certain level of upliftment in the job profile, since all the requirements are ultimately at a level that developed countries adhere to. Hence, the skills learnt from working at an MNC are much more advanced. Moreover, MNCs offer a range of benefits and a competitive salary structure, which domestic jobs may not always guarantee. Lastly, the chances at appraisals and promotions are always more lucrative at MNCs.
6. Are MNCs good for the branch country’s development?
Certainly, MNCs usher in a number of economic and financial implications that can be very beneficial for a developing country. For example, in India, MNCs coming in would mean a solution for the problem of unemployment, to a certain extent at least. Moreover, the kind of technical knowledge that would be brought in would benefit the job seeking population of the country. This would also mean a certain amount of foreign direct investment, since the labor market in India attracts many foreign investors.
7. Is it possible for MNCs to suffer losses?
While MNCs are mostly seen to be making enormous profits, in business, it is always possible for a party to incur losses. During the Covid-19 pandemic, many businesses suffered sizable losses for a number of reasons. While not all MNCs suffered losses, their profit margin had definitely seen a fall. The working of MNCs is dependent on a number of factors that affect the branch country. If there is economic recession, political turmoil or financial instability in the country, it is very likely to have an effect on the MNCs as well.