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.