In the age of globalization, it is easy to be able to see that many brands are expanding globally. They’re not just selling their goods in various countries, but opening manufacturing facilities across different countries. For business purposes you’ll see the word Multinational Corporations, also known as MNCs. What do you mean by an MNC? Multinational Corporations are companies that have resources and assets across many countries. Examples of Multinational Corporations are Tata Group Companies, Microsoft, Accenture, Honda and many more. Today, we’re going to discuss Multinational Corporations in detail, as well as discuss their advantages and disadvantages.

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What Is a Multinational Corporation?

As previously mentioned As mentioned earlier, as mentioned earlier, a Multinational Corporation is a company which provides services to at least two countries. There are many MNCs offering products and services to developed nations, however, their sourcing comes in developing nations. They may operate production facilities in nations such as China, India and Vietnam to ensure that their labor costs are in check. There are also companies such as TCS that have their its headquarters located in India and provide services to nations across the world. There are three types for Multinational Corporations. These are –

• Regional MNCs Regional MNCs comprise businesses with their headquarters in their country of their origin. These firms have offices in different countries and they are under the control of the headquarters.
• Centralized MNCs Centralized Multinational corporations are units with their headquarters in the country of origin however, the production units are situated in various countries to keep production costs in check.
• Multinationals Multinationals In this instance, subsidiaries and affiliates are considered to be managed independently by the offices under the control of the headquarters.

Advantages of Multinational Corporation

We’ve shared some of the basic information about Multinational Corporations. We are now going to go and explore the advantages from Multinational Corporations.

1. Higher quality Products Multinational companies can gain access to better raw materials and skilled labor. When this happens it’s only natural that the goods to be of better quality. Therefore, you’ll find that many multinational companies have high-quality items and products. Multinational corporations also have greater branding.

2. Increased Customer base – The domestic market could be at a point of saturation at some point, and in this scenario, companies will need to look for new customers. The most effective way to accomplish that is to expand their operations to new markets. This allows companies to expand their market segment to provide their services.

3. Job Opportunities: Multinational Corporations provide employment opportunities wherever they travel. This is one reason why many governments are in favor of globalization and have policies that are business-friendly. This also means an increased and diverse human resource that can work in different areas of Multinational Corporations.

4. The company is growing at a high rate. If expansion is slow in the country of origin Then moving the company to new markets can aid in boosting the growth of the business. This is due to the rising market or less production or service costs. Profits can increase after recouping all capital expenses in the beginning years.

5. Lower Risk of Microeconomics A business that operates in a single country will be subject to higher macroeconomic and microeconomic risk. The risk can be decreased through diversification. Multinational Corporations Multinational Corporation has a lower risk of macroeconomic and microeconomic risks. It also increases the likelihood of surviving a recession or economic downturn.

6. Lower Cost of Production – Another major benefit for Multinational Corporations is that they can reduce the cost of their manufacturing process. A lot of companies based on product have manufacturing factories at China, India, Vietnam and Bangladesh to cut down on production costs. Additionally many IT firms are headquartered located in India in order to maintain the price of their services at a low level. They are able to benefit from the exchange rate of two currencies.

7. Encourages Competition In other words, if a country doesn’t have a lot of brands, it’s possible that a single brand could be monopolistic in the area. This is not good for customers. This is why Multinational Corporations come into the scene to promote competition. Multiple companies that offer the same product are advantageous for consumers. They are able to benefit from better price and quality when there is competition in the market.

8. Technology Exchange – Multinational Corporation can also benefit from superior technology in countries of the host. It’s generally an ideal situation between the two parties. For instance, a business that is establishing a manufacturing plant in China can benefit from its modern machines and manufacturing processes.

Disadvantages of Multinational Corporations

There are also some negatives of multinational corporations. Find them below.

1. High investment – The capital expense that is required to establish Multinational Corporations is quite high. It will be recouped over a time, however the initial investment will be very high. Therefore, if the company intends to expand to the next country, it must keep a cash reserve.

2. Local Regulations Local Regulations may be difficult to adhere to. In this case, Multinational Corporations need a local legal adviser to oversee compliance with the laws. If they do not, the company could find itself in violation of local laws.

3. Micro Multinational Companies – Today, in this age of the internet there are micro Multinational Corporations popping up. They are small companies that profit from the global workforce. The benefits of micro Multinational Corporations are not that great for the country.

4. Natural Resources Stressed In certain instances it has been discovered that multinational corporations can stress the natural resources of the country. This is a concern in the event that water quality is deteriorated or if there is huge pollution from manufacturing facilities. It could affect the quality of life of those currently living in these areas.

5. Threat to Domestic Industries Multinational Corporation also poses a problem for small-scale local industries. Production costs of Multinational Corporations can be much smaller, and local industries could not be able keep up with Multinational Corporations. This is another reason why Multinational Corporations may face local opposition in certain countries.

Final Verdict

There are definitely benefits to using the Multinational Corporation. The host country also benefits from the ability to generate forex reserves. The MNCs could be a major factor in the development of the country and can assist in improving the standard of life of the population. In the near future, you’ll be seeing increasing numbers of Multinational Corporations expanding their reach.