Multinationals
Multinationals
Definition and Characteristics
- A multinational corporation (MNC) is a business that operates in two or more countries.
- They have a global presence, with production or service facilities in numerous nations.
- Multinationals are usually large-scale operations and can have a significant impact on the global economy.
- Their headquarters, where primary decision-making happens, is often located in one country (usually the country of origin), while operations are spread worldwide.
Advantages of Multinationals
- They benefit from economies of scale, as large-scale operations often result in cost reductions.
- Ability to penetrate new geographical markets leading to increased sales, revenue and profits.
- They can sidestep barriers to trade such as tariffs and quotas by setting up factories or offices in many different countries.
- They are able to diversify their risk by operating in various countries. Economic troubles in one country may be offset by strong performance in another.
Disadvantages of Multinationals
- Controlling and coordinating the activities of a multinational can be challenging due to differences in culture, language, and time zones.
- They may face resistance in host countries because of perceptions that they take profit generated in the host country back to their home country.
- They may also be viewed unfavorably if they are seen as exploiting workers or the environment in host countries.
- Differences in legislation and regulation can make operating in multiple countries complex.
Impact on Host Countries
- They can contribute to the economy of the host country by providing employment and contributing to GDP.
- The transfer of technology, skills and know-how can have long-term benefits for the host country.
- However, multinationals can also lead to negative consequences such as exploiting local resources, cultural erosion or the destruction of local industries through intense competition.
Ownership and Control
- Multinationals can be owned through a mix of private, institutional and public investment.
- Control of the multinational usually lies with the board of directors who are elected by the shareholders.
- The organization’s structure can range from a decentralized structure, in which substantial authority is delegated to the local level, to a centralized model where decisions are made at the headquarters and implemented globally.