Multi National Corporations (MNC)
As the name Multi National Companies (MNC) implies MNC is a firm that has a worldwide approach to production and its market or a firm which has its operations in more than one country. As an example, when a USA based firm sets up a subsidiary in United Kingdom it becomes a multi national company. In modern world all most all the business giants such as Microsoft, IBM, Nestle and Coca Cola are considered as multi national companies as they operate in more than one national market. and MNC are also called as multi national enterprise (MNE) or transnational company (TNE)
When the MNC is set up the original nation of the MNC/where the head quarters is based becomes the “home country” and the foriegn country in which the business operates becomes the “host country”. As an example, when a Sri Lankan company sets up a subsidiary in India Sri Lanka is the home country and India becomes the host country.
Evolution of a MNC can be elaborated using Vernon’s Product Life Cycle.
- First Phase: A business operation is started in the a country (Home country). As an example a company is set up in United Kingdom to manufacture clothes and to sell it local market.
- Expansion Phase: This is where the firms expands it operations to exporting goods which were manufactured locally. According to our example this can be a situation where the firm decides to exports its manufactured clothes to Canada.
- Maturity Phase: This is where the firm decides to set up subsidiary/franchised operations in foreign country. According to our example this can be a situation where the firm decides to set up a manufacturing plant in Canada to provide goods at a cheaper price.
In modern business world MNC are a very popular business mode and number of MNC has increased drastically due to resons such as:
- Globalization
- Firms are increasingly seeking to gain competitive advantage through foreign operations
- Laws and regulations applied for MNC made lower to facilitate MNC expansions.
- Incentives are provided by host countries to encourage foreign investments.
A firm can obtain many advantages by operating as MNC such as:
- Gain competitive advantage over other players.
- Access to labour at a cheaper rate.
- Access to the resources of the host country.
- Enjoy benefits such as tax reliefs and infrastructures provided by host country government.
- Increase their business good will.
- Produce goods at a cheaper rate than producing at home country.
- Cater to wide customer base.
There are many advantages of MNC to a Home country such as:
- Profits from foreign operations returns to the home country.
- Reputation of the country increases with foreign operations.
There are many advantages of MNC to a Host country such as:
- Investment in the country increases.
- Job opportunities for local employees are created.
- Technology from foregn country are brought to host country.
- Knowledge base of local people are increased trough training.
- Tax income on the profits made by MNC can be earned.
A firm may experience many disadvantages by operating as MNC such as:
- Loss of control over foreign operations.
- Knowledge outflow.
- Double taxation of profits at host country and home country.
- Cross cultural issues.
- Political and economic factors in host country may adversely affect the business.
There are many disadvantages of MNC to a Home country such as:
- Investment which could have been invested domestically flows out. (investment outflow)
- Knowledge and technology outflow.
- Political and economical interdependencies with host country increase.
There are many disadvantages of MNC to a Host country such as:
- Foreign culture and practices get embeded in local system.
- Local labour gets exploited.
- Discrimination of local employees can occur in career progressions.
- Political and economical interdependencies with home country increase.
- Sudden withdraw of invest by MNC may make people unemployed.
- Resources of host country may be exploited/erode by over consumption
Good article found it useful adding a practical example is recommended.