MNCs are the temples of globalization, connecting nations into a single chain of a globalized economy.
Multinational companies are organizations that operate in more than one country and have subsidiaries or branches in many countries to manage the business. You must have heard of leading players such as Apple, Reliance, Unilever, TATA, Microsoft, Amazon, etc. These billion-dollar MNCs rule their respective fields and offer products or services to millions of people across the globe.
MNCs play a significant role in globalization by bringing a positive economic impact to the operational countries, generating millions of jobs, transfer of advanced technologies, cultural integrity, and lots more. They are the force behind making our world – a truly global village.
Let us dig deeper to learn about the meaning of a multinational company, its types, and its features. We will also discuss some advantages and disadvantages of MNCs. So, let’s start:
What is Multinational Company?
A Multinational Corporation (MNC) is a corporate firm that runs business operations in its home country and owns its branches abroad. Companies that pilot the international expansion of their business fall under this category figuratively. These corporations set up their headquarters in one country (typically their home countries) to coordinate all global management.
There are particular criteria that a company has to meet before declaring itself as an MNC. A company that exports its products internationally does not qualify in this category as per the fundamentally defined MNC meaning. A corporate organization that generates roughly 25-30% of its revenue from its overseas ventures, makes foreign direct investments in other countries and conducts business operations there are known as MNCs.
However, the fundamental requirement to establish an MNC is to make a direct investment in a foreign country and start a part of business operations there. International companies like Apple, Alphabet, Amazon, Johnson and Johnson, BATA, MasterCard, VISA, and Meta are some of the leading multinational corporations in the world. All these MNCs have a business presence in 100+ countries.
Types of MNCs
Now that we know what a multinational company is, it is vital to understand the different models that define these vast corporations. Depending upon the nature of industry and expansion, we can divide MNCs into four different categories.
Centralized Global Corporation
A centralized global corporation is a multinational company model wherein the headquarter is situated in the home country. The chief members and executives oversee all global operations and serve as the decision-makers of both domestic and international offices.
Decentralized Corporation
A decentralized corporation regulates autonomous facilities and offices in other countries while maintaining a strong presence in the home country. This model is one of the most successful types of MNCs in the world as every office manages the local business individually.
International Division
International division is an MNC model where the parent company establishes a separate international office to manage all its global operations. While this structure helps businesses to reach out to a broader audience, it imposes numerous challenges in maintaining a tenacious brand image.
Transnational Enterprise
In transnational Enterprise, there exists a parent-subsidiary relationship between all global branches. In this type of multinational corporation, the parent company guides all subsidiaries and provides resources, but does not control its branches directly. This structure is a well-balanced combination of all other MNC models.
Features of MNC
If we consider an example of a multinational company, we will discover some business characteristics that are common to all. Let us identify the standard features that define an MNC business.
Globalization
MNCs promote globalization by making foreign direct investments and starting business operations in other countries. These companies function through subsidiaries, franchises, factories, and operational offices in different locations.
Geographically Customized Operations
Most MNCs focus on offering geographically customized operations by utilizing the land, labor force, resources, and raw materials of the host country.
Vast Asset Buildup & Turnover
The primary goal of MNCs is to build assets in different parts of the world, especially in developing countries where governments promote them. These businesses also draw huge annual turnover by conducting cost-effective productions. Amazon is an ideal multinational company example.
Enhanced Skill Development
MNCs provide skill development programs to meet their workforce requirements by introducing new technologies and tools. Many leading firms, like Honeywell, Accenture, etc., also train local talents to promote a healthy brand image.
Focus on Tech Upgrades
Technology upgrades go hand in hand with the growth of an MNC. These corporations focus on using the latest technologies to keep up with the tight market competition and retain their dominance in the industry.
Advantages and Disadvantages
The structure of an MNC comes with advantages and disadvantages for both the firm and the country. With great power comes sumptuous control and domination, some things that do not go well together! Let’s discuss the pros and cons of MNCs.
Advantages of Multinational Corporations
Some of the prominent advantages of MNC companies are:
- An MNC brings an inflow of capital and investments to developing countries. It tries to improve its productive capacities overseas by building factories, facilitating enhanced training centers, and offering new technologies.
- It creates vast employment opportunities for local nationals with its expansion in different countries. MNCs provide comparatively higher wages, incentives, and perquisites to their employees, which creates a snowball effect by uplifting the standard of living.
- It reduces dependencies on government-funded aid by empowering local manufacturers and producers with direct investments.
- It provides high-quality products at lower costs of production by operating in favorable geographical conditions. These companies set up manufacturing plants in various countries for cost-efficient production.
- MNCs help diversify local markets and economies by offering a wide range of goods and services. It reduces the heavy reliance on primary products.
- MNCs improve the local infrastructure of developing countries to facilitate their production needs. Most companies establish better technology, communication, and transport facilities, roads, bridges, etc., around their operational centers.
Disadvantages of Multinational Corporations
It is not possible to define a multinational company without mentioning the disadvantages it ushers into the world.
- All MNCs give rise to huge environmental costs by creating potential harm to water supplies, local soils, and air.
- They leverage the need for specific skill sets in laborers and cause exploitation by offering comparatively lower wages.
- MNCs are least concerned about the host countries’ priorities. They often build legal monopolies in the market that potentially casts out numerous local enterprises.
Conclusion
Every MNC plays a crucial role in stimulating the economic growth of a country. Governments of developing countries aim to attract and encourage leading MNCs to bring new technologies and employment opportunities for their people. Companies also benefit from different schemes and government subsidiaries to expand their operations.
The spillover effects of leading MNCs to domestic and small-scale firms boosts market conditions. So, the correlation between Foreign Direct Investments and MNC companies is one of the primary reasons why these corporations hold a powerful position globally.
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