MULTINATIONAL COMPANY

Introduction:-
A multinational company refers to a company that is
registered in more than one country or that has operation in more than one
country. Generally, any company or group that derives a quarter of its
revenue from operations outside of its home country is considered
a multinational corporation. MNCs extend their industrial and marketing
operations in several countries through a network of their branches or their
Majority Owned Foreign Affiliates (MOFAs). MNCs are also known as,
Transnational Company, Global Company, Multinational Enterprise (MNE),
International Corporation. The first multinational company was The Dutch
East India Company, founded on March 20, 1602.

Definitions:-
Different authors define the term MNC differently:

 As ILO Report says, “The essential nature of the multinational

enterprise lies in the fact that is managerial Headquarters are
located in one country ( home country ) while the enterprise carries
out operations in a number of other countries as well (host countries)”

 The United Nation defines MNCs as, “Enterprises which control

assets- factories , mines, sales offices and the like in two or more
countries.”

Characteristics:-
 Multinational company have well establish corporate brand that are
widely recognized. Ex:- Coca-Cola is the second best known
expression in the world after OK.

 Many of this multinationals produce global brands with similar

marketing mixes across the world e.g. with the same or similar
advertising, distribution and retailing techniques and promotion.

Objectives :-
  Minimize cost of production, especially labor cost,
 Make best use of technological advantages by setting up production
facilities abroad,
 Counter regulatory measures in the parent country,
 To expand the business beyond the boundaries of a home country,
 Capture lucrative foreign market against international competitors,
 Make diversification internationally effective so that a steady growth
of business could be achieved.

Reasons for growth:-

 Expansion of Market territory:- A large size firm seeks
more and more extension of its activities beyond the physical
boundaries of the country it works, when its operations expand
and international image builds up.
 Marketing Superiorities:- Firms go multinational when it
possesses up-to-date market information system, enjoys market
reputation, adopt more effective advertising and sales
promotion techniques.
 Financial Superiorities:- when a firm has easier access to
external capital markets and can maintain high level of fund
utilization by generating funds in one country and using them
in another, it tries to expand globally.
 Technological Superiorities:- Firms go global, when it gains
technological expertise.
 Product Innovation:- If the firm becomes successful in
innovating new products and services, it try to expand its
marketing area.

Categories :-
There are four categories of multinational corporations:
 A multinational, decentralized corporation with strong home country
presence,
 A global centralized corporation that acquires cost
advantage through centralized production wherever
cheaper resources are available,
 An international company that builds on the parents company’s
technology or R&D ,
  A transnational enterprise that combines the  three approaches. 

Type of Strategy for MNCs by Kasper et al :-

Kasper et al produces three distinctive type of strategy for MNCs:

Global MNCs: – MNCs which are focused on achieving high

levels of global integration, and where levels of local
responsiveness are relatively low.
Multi-domestic MNCs:– MNCs which are focused on
achieving high levels of local responsiveness, and where levels
of global integration are relatively low.
Transnational MNCs: – MNCs which attempt to achieve
high levels of global integration, while simultaneously
sustaining high levels of local responsiveness.

Models :-
There are many multinational models that have evolved over the years as
companies adapt to new opportunities in emerging markets. Below is a list
of five common models :-

Subsidiary Model :- Business subsidiaries are formed with other

considerations in mind beyond simple geography.
Geography Based Model :- This model has business divisions that
are based solely on geographical area and each geography is self-
contained with its own functional units.
Product Alignment model :- This model ignores geographic
boundaries and focuses the organization’s structure purely on
product or service portfolios.
Function Model :- In this model, functions such as sales,
marketing, finance, operations and human resources determine the
organizations of the multinational company.
Matrix Model :- This Model is an overlap between the functional
and divisional structures, and groups employees by both function
and product.

Advantages of Multinational Company :-

 Labor and raw material is cheaper,
  Spreads the risk of failure,
 Achieves greater economics of scales,
 Less vulnerable to trade barriers,
 Lower transportation cost .

Advantages of Multinational to the host country :-

 Create employment,
 New technology and techniques,
 Provide training,
 Valuable foreign exchange,
 Pay huge taxes to the government .

Criticism of Multinationals :-
 Enter countries that have low human rights or
environmental standards,
 Give rise to huge merged conglomerations that reduce
competition and free enterprise,
 Rise capital in host countries but export profits,
 Employees of MNCs sometimes get involved in
Corruption,
 Exploit countries for their natural resources,
 Work with local firms where employees work at low
wages for long hours in poor and unsafe condition
known as Sweat-shops,
 Work with those firms who use Child labor.
 Erode traditional cultures,
 Challenge national sovereignty .

Alternative operations :-
A Multinational company can organize its operations in different countries
either of the following five alternatives:-
 Branches :- Branches are straightforward way to expand to another
country. Businesses simply have to take some cash, get the pertinent
business licenses, hire a localization team, and set up a branch in a
foreign country.
 Subsidiaries :- Acquiring a local company for the purpose of vertical
or horizontal integration is fast and comparatively easy and can get
 the advantages of instant localization, name recognition and an
experienced team at the helm.
 Joint venture :- Companies can establish joint venture or partnership
with a foreign company in the same industry. Both companies set
aside capital, resources and technology in a new, shared company
which is separate from the main operations at both companies.
 Franchising :- It is the cheapest option, and the fastest way to build
an established presence in a foreign country with minimal risk.
 Turn key projects :- In this setup, businesses sells its technological
know-how to a foreign firm, which pays to build a modified copy of
the plant to their specifications, from scratch to the operational stage.
When the plant is completed, businesses hand over the keys to the
fully working plant to the foreign firm.

Business Strategy:-
 Product Implementation :- Multinational companies must include
a strong marketing campaign to sell their products in the host
country as part of their overall strategy.
 Strategic Outsourcing :- Multinationals must select the appropriate
country and the best vendor there as well before offering the product
directly to the foreign audience. Companies should evaluate the tax
laws, political and economic environment and any trade barriers
imposed by the company.
 Financial Risk Management :- Financial transactions overseas
incurs the appreciation or depreciation of foreign currency. These
currency rate fluctuations can have a significant impact on a
company’s bottom line. They can minimize currency exchange risk
by negotiating a forward exchange contract for all business
transactions.

Corporate Strategy:-
 Global Strategies :- Businesses will follow opportunity and expand
into world markets in order to maintain growth, especially in mature
product categories.
 Localizing Strategies :- Companies expect cultural heuristics to
differ from country to country. Competitor analysis is required to
successful navigation of the terrain of the region’s business
ecosystem. Supply-chain, resource costs, legal systems, labor laws
 and operational consideration related to product, pricing and
distribution systems have impact on Local strategy.

Growth of MNCs:-

The rapidity with the MNCs are growing is indicated by the

fact that while according to the world investment report 1997, there were
about 45,000 MNCs with 2,80,000 overseas affiliates; according to the
world investment report 2001, there were over 63,000 of them with about
8,22,000 overseas affiliates. China was host to about 3.64 lakh of the
affiliates (i.e., more than 44% of the total) compared to more than 1400 in
India. The developed countries have less than 12% of these affiliates .The
possess staggering resources as would be clear from the fact that the sales of
200 top corporations in1982 were equivalent of 24.2 per cent of the worlds
GDP and have risen to 28.3.

Multinational Company and Globalization:-

Since the end of the Cold War, globalization has led to an
unprecedented expansion of multinational companies. Multinationals have
become the biggest players in world trade , evidence shows that :
 The international economy, with a political and diplomatic sphere,
will be replaced by a multinational economy as these companies play
an increasingly decisive role in globalization changes. Statistics show
that the influence of multinationals is replacing that of States (over
two thirds of the 100 largest economic entities are now companies and
not States).
 The international economy, with a political and diplomatic sphere, is
being taken over by a multinational economy governed chiefly by
financial concerns (the adjective global was first used in global
finance).
Hence, The dominance of the multinational and global economy continues to
grow worldwide. 
Conclusion:-
In conclusion, MNCs play an important role in
developing the economics of developing countries by investing in these
countries, providing market and employment, increasing tax revenue and
economic activity, providing choice of multi goods etc. On other hand,
Multinationals bring about a ‘race to the top’ in countries with low labor
cost, weak environmental and social protection. So, to eradicate all the
demerits, Multinational Corporations, must be made aware of their
responsibility. In order to achieve this, an option that combines states’
guarantee of rights and flexible governance networks must be found.

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References

Multinational corporation - Wikipedia, the free encyclopedia.
 Dobb , Christopher M. (2013). Social Inequality and Social
Stratification in US Society. Upper Saddle River, NJ: Pearson
Education Inc..

 Pitelis , Christos; Roger Sugden (2000). The nature of the

transnational firm. Rout ledge. p. 72.

 Jagdish Bhagwati , In Defense of Globalization. Oxford: Oxford

University Press, 2004, esp. 122–195.

  Case study: The Relationship between the Structure/Strategy of

Multinational Corporations and Patterns of Knowledge Sharing
within them.

 Schermerhorn, John R. (2009). Exploring Management. John Wiley

and Sons. p. 387

 Presentation on: “A ppt on multinational corporation”By Saroj

Kumar Behera .

 Multinational corporation By Vicky Kumar.

 Globalization and multinational corporations: by Mireille Delmas-

Marty.

Group Members Contribution in Preparing The

Assignment
1) Mania Islam(ID-12303002)--- Helped Financially & Collecting Data,

2) Israt Jahan(ID-12303003) ----Helped Financially, Collecting Data &

Editing.

3) Md. Hasibul Islam (ID-12303022)----Helped Financially,

4) S.M. Afsana Arefin (ID-12303026) --- Helped Financially, Collecting

Data, Technically, Editing & proof reading,

5) Tanjina Yasmin (ID-12303040)---- Helped Financially, Typing &

Preparing The Assignment.

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