Unit 1.6: Multinational Corporations

Multinational Company (MNC)

 an organization that operates in two or more countries 

• Head offices tend to remind in the home country 

  • Can also be referred to as Transnational corporations: Some believe that the head office for these are regionally based

Host country

Any nation that allows multinational companies to set up in their country

Globalization

How trade and technology have made the world into a more connected and interdependent place

Glocalisation

• describes a product or service that is developed and distributed globally but is also adjusted to accommodate the user or consumer in a local market

  • The word is made up of “globalization” and “localization”

Advantages of MNCs:

1. Increased Customer base

2. Cheaper production costs - Inexpensive labor from some countries

3. Economies of scale: 

4. Brand Development and Value - Recognition globally

5. Avoiding Protectionist policies:

6. Able to spread risks - One places bad business condition won’t affect the others 

Protectionist policies

Measures imposed by a country to reduce the competitiveness of imports such as tariffs (import taxes), quotas or restrictive trade practices

Positive Impact on Host Country

1. Job creation

2. Higher national Income

3. Knowledge and technology transfer

4. Increased Competition

   • Leads to greater efficiency gains to the benefit of domestic customers

Efficiency gains

working with lower costs with the goal of making greater profit.

Gross Domestic Product (GDP)

The value of a country’s annual output or national income

Negative Impact on Host Country

1. Job Losses

   • Can threaten local businesses that may now go out and make employees unemployed

2. Repatriation of Profits: THe profit is sent home and not distributed in the local economy 

3. Vulnerability - Not bound to the location

4. Social Responsibility

   • anti globalization groups

5. Competitive Pressures: 

   • Local business have to keep lowering prices to stay competitive but they don’t have the money or the resources to do so

Strategy to a complete merger/takeover for MNCs:

• Brand Acquisition: By buying one of the brands in the target company 

• a firm's acquisition of an existing brand offered in the market by another firm