Multinational Corporations

Hi people, today we would be looking to answer two questions in relation to international marketing. The questions are:

1) What do you understand by Multinational Corporations?

2) What are the effects of Multinational Corporations on a host country.

A multinational company (MNC) is one that owns production, distribution and other units in foreign countries and plans the utilization of its resources on a global scale. It invests internationally in the acquisition of raw materials and subsidiaries supplying input components and selling through its permanent establishment abroad. International businesses have a home nation and do business in foreign countries. MNCs conversely are not reliant on a single home base. They need not be large corporations; rather they are firms of any size that recognize the benefits of operating on the global level.

MNCs can reduce their sourcing and distribution costs compared to national businesses, can avoid tariffs, quotas and other trade barriers faced by exporters and are able periodically to shift operations from high-cost to low-cost countries. The focus of the business has shifted from contract supply arrangements with local businesses towards direct investment in physical plant.

MNCs can penetrate markets throughout the world from supply points in several different countries, supplemented perhaps by exports from the parent firm plus ad-hoc licensing and contract manufacture agreements. Their managements plan, organize and control company operations on a worldwide scale, with national markets being regarded as little more than segments of a broader regional customer base. Further characteristics of MNC activity are:

1. Operations are located wherever is appropriate to enable goods to be sold in the company’s most important markets.
2. Technologies are developed on whichever countries have the necessary skills, research infrastructures and facilities.
3. Finished goods, raw materials, component parts, know-how and managerial personnel are freely exchanged among operating units

Every multinational corporation has it’s headquarter in one country or another, and has a majority of shareholders from a particular nation and the norms and cultures of the headquarters country are bound to pervade the entire organization. Yet the adoption of a world view by headquarters executives is essential for successful international operations.

Practical manifestations of global perspectives could include:

Everyone concerned with management regarding foreign operations as at least the same level of importance as domestic selling.

Allocation of top jobs to foreign nationals

Genuine attempts to integrate activities on a worldwide basis

Rewarding successful foreign subsidiaries more highly than domestic country units in appropriate circumstances

Joint strategic decision making by headquarters staff and managers of subsidiary units.

Integration of the marketing function at the multinational level means that product and branding decisions are taken having regard to the facilities and opportunities available in various countries, including the costs of storage and transport, trade restrictions, availability of ancilliary services and so on. This creates many possibilities for economies of scale in marketing operations and the spreading of costs over multiple markets.

Effects of Multinationals on host country

Multinationals can have both positive and negative effects on an host country. Some positive effects of multinationals on a host country include:

1. Creation of jobs: Multinationals usually set up operations in foreign countries, and they bring with them capital and business into the host country. To run the business, they need human capital, and because of this reason, they employ able hands in the host nation, thereby creating jobs in the host countries
2. Improve technologies: Multinationals also bring with them technological innovations to the host country. It can be imported or produced within the host country.
3. Revenue for the Government: Multinationals are taxed like every other business, and in so doing, they bring extra revenue for the government of the host country

Negative effects of multinationals on host countries include:

1. Political influence: Multinationals usually lobby, to try and change political decisions that would negatively affect their business. This undue political influence put indigenous countries at a disadvantage because they do not have the financial prowess to lobby their way through like the multinational companies do.

1. Exploitation of workers: Multinational companies have the habit of exploiting workers in foreign countries and underpaying them compared to what they pay workers in their home country.

Recommended Readings 

Schewe, Charles D., and Alexander Hiam, The Portable MBA in Marketing

Gary Armstrong., and Philip Kotler, Marketing an Introduction

Philip Kotler., and Kevin Lane keller, Marketing Management (14^th Edition)