10: The importance and growth of multinational companies 

How have multinationals developed:

Economies of scale:

• Many companies have developed into MNCs because larger companies enjoy lower costs. 
• They can then exploit economies of scale as they sell to global markets and produce more, meaning they have lower costs. 
• MNCs are powerful and can put pressure on suppliers to lower prices. 
• MNCs have access to cheap global resources: labour, capital and commodities.

Marketing:

• Some firms become MNCs by relying on effective marketing.
• They protect brands with patents and use heavy advertising and innovative marketing to attract customers globally.

Technical and financial superiority: 

• MNCs develop into large businesses and enjoy superiority using advanced technologies and a huge bank of knowledge. 
• They can afford to invest heavily in research and development. 
• They can also afford specialised and talented employees and take risks, hence exploring business ventures.

Benefits to a business of becoming a MNC:

MNCs enjoy higher revenues and lower costs. 

• Larger customer base: MNCs access wider markets and boost sales revenue, increase profit and win market share by selling globally. 
• Lower costs: MNCs enjoy lower costs and rates by exploiting economies of scale.
• Higher profile: encourages existing customers and attracts new ones. 
• Avoiding trade barriers
• Lower taxes: MNCs can base head offices in countries with low tax rates. Minimised tax = higher dividends.

Benefits of multinationals to the economy :

• Increased income and employment: overseas operations leads to increased income in a particular country and new jobs in developing countries. Extra output and employment increases economic growth. 
• Increase in tax revenue: profit by MNCs are taxed by the host nation which increases government tax revenue.
• Increased exports: MNC output is regarded as output for the country and helps increase foreign currency reserves in that country.
• Transfer of technology: MNCs help foreign suppliers with technical help and modernise production facilities.
• Improved quality of human capital: MNCs provide training and work experience for works which may otherwise be unavailable.    
• Enterprise development: arrival of MNCs has encouraged more people to set up businesses in less developed countries.

Drawbacks of multinationals to the economy :

• Environmental damage
• Exploitation of less developed countries: low wages, child labour, poor working conditions, minimal taxes, reliance on producing primary products
• Repatriation of profits: profit is often returned to the country where a MNC is based and the host country loses it
• Lack of accountability: may evade the law especially in developing countries and where the government is weak.

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