Multinationals

What is a multinational company?

• A multinational company (MNC) is a business that has operations in more than one country

• Note that a business does not become an MNC simply because it sells its goods and services overseas. The key to being an MNC is that the business has business operations in two or more countries.

What are key reasons for the rapid growth of multinational company?

• Global brands expanding into emerging economies

• The search for economies of scale, to reduce unit costs by concentrating production on a few key international locations

• The need to supplement mature demand in existing, developed economies

• The need to operate in many countries to avoid protectionism

• More external growth (takeovers, mergers) that have created multinational groups

What influences do multinational companies have?

• Buying: Unit Costs, Prices and exchange rates, quality, promptness and reliability of delivery, After Sales Service

• Selling and Producing: Financial and Management resources, competitive advantage: market knowledge, technology, product range/portfolio.

• Cost structures, reliability of partners, knowledge of foreign markets.

• Meeting customer needs: Understanding the local market

• Consider the external environment and the competitive environment

What are the benefits of multinational companies to countries in which they operate?

• MNCs provide significant employment and training to the labour force

• Transfer of skills and expertise, helping to develop the quality of the host labour force

• MNCs add to the host country's GDP through their spending, for example, with local suppliers and through capital investment

• Competition from MNCs acts as an incentive for domestic firms in the host country to improve their competitiveness, perhaps by raising quality and/or efficiency

• MNCs extend consumer and business choices in the host country

• Profitable MNCs are a source of significant tax revenues for the host economy (for example on profits earned as well as payroll and sales-related taxes

What are drawbacks of multinational companies to countries in which they operate?

• Domestic businesses may not be able to compete with MNCs and some will fail

• MNCs may not feel that they need to meet the host country's expectations for acting ethically and/or in a socially responsible way

• MNCs may be accused of imposing their culture on the host country, perhaps at the expense of the richness of local culture.

• Profits earned by MNCs may be sent back to the MNC's base country rather than reinvested in the host economy.

• MNCs may make use of transfer pricing and other tax avoidance measures to significantly reduce the profits on which they pay tax to the government in the host country

What are examples of multinational companies?

• Apple: A well-known MNC

• Amazon: An MNC that operates divisions in many countries

• Coca-Cola: A well-known MNC

• ExxonMobil: A well-known MNC

• Google: A well-known MNC

• McDonald's: An MNC that adapts to local cultures, such as replacing pork with fish in Indonesia

• Microsoft: An MNC that operates divisions in many countries

• Nestle: A well-known MNC

• Proctor & Gamble: An MNC

• Samsung: A well-known MNC

• Starbucks: A US-based coffee chain with a global presence

• Toyota: A well-known MNC

• Volkswagen: An MNC that operates divisions in many countries

What are features of transnational companies?

• Global reach: Operate in multiple countries beyond their home country, with a significant presence in various global markets. 

• Decentralised structure: Unlike traditional multinational corporations, TNCs often have a decentralized management structure with decision-making power distributed across different subsidiaries in different countries. 

• Location flexibility: TNCs strategically locate different parts of their operations (research, manufacturing, assembly) in countries with the most favourable conditions for each activity, like low labour costs or access to skilled labour. 

• Global branding: Utilise consistent branding and marketing strategies across different markets to create a recognizable image worldwide. 

• Research and development focus: Often invest heavily in research and development activities, frequently located in countries with advanced technological capabilities. 

What are benefits of transnational companies?

• Economic growth: TNCs can boost a country's economy by investing capital, creating jobs, and generating export revenue through their operations in different locations around the world. 

• Employment opportunities: By setting up factories or offices in a new country, TNCs can provide employment opportunities for local populations, potentially raising living standards. 

• Infrastructure development: TNCs may invest in local infrastructure like roads, ports, and communication networks to facilitate their operations, which can benefit the wider community. 

• Technology transfer: TNCs often bring advanced technology and expertise to a country, which can lead to knowledge transfer and local innovation. 

• Access to global markets: By establishing operations in different countries, TNCs can provide local businesses with access to international markets and trade opportunities. 

• Skill development: TNCs can contribute to workforce development by providing training and education to local employees, and raising skill levels within the country. 

What are drawbacks of transnational companies?

• Labour exploitation: TNCs may set up operations in countries with low labour standards, leading to low wages, long working hours, and unsafe working conditions for employees. 

• Environmental damage: To minimize costs, TNCs may engage in practices that harm the environment, like using polluting production methods or exploiting natural resources without proper sustainability measures. 

• Tax avoidance: TNCs can utilise complex financial structures to minimize their tax liabilities in the countries where they operate, depriving governments of much-needed revenue 

• Political influence: Due to their large economic presence, TNCs can exert significant influence on government policies, potentially impacting regulations and benefiting their interests 

• Job displacement: When a TNC moves its operations to a different country, it can lead to job losses in the original location 

• Cultural homogenisation: The dominance of TNCs can lead to the erosion of local cultures and traditions 

• Unequal distribution of benefits: While TNCs may bring investment and jobs to a country, a significant portion of the profits often flow back to the company's home country, leaving limited economic benefits for the host nation 

What are examples of transnational companies?

• McDonald's: As of August 2020, McDonald's had over 36,000 restaurants in more than 100 countries 

• Volkswagen: Volkswagen has manufacturing facilities in more than 31 countries and sells vehicles in over 150 countries 

• Apple: Apple is a TNC that operates in multiple countries around the world 

• Nike: Nike is a TNC that has become synonymous with globalisation 

• Amazon: Amazon is a TNC that has become synonymous with globalisation