Becoming a multinational

Becoming a Multinational

Definition:

Becoming a multinational involves a business expanding its operations to operate in more than one country. This strategic move allows the company to access new markets, potentially leading to an increase in sales and market share.

Multi-national Corporations (MNCs):

Subsidiaries:

Many large Public Limited Companies (PLCs) evolved into multi-national corporations. MNCs have branches, known as subsidiaries, in multiple countries. These subsidiaries can serve various purposes, including sales outlets and production facilities.

Example: British MNCs like BP and ICI have subsidiaries in multiple countries, extending their global reach.

• Expanding internationally helps MNCs increase their market share by tapping into new customer bases.
• MNCs may establish operations in countries with cheaper premises and labour, reducing production costs.
• They may seek to avoid or minimize tax payments through strategic international structures.
• Governments often provide grants and incentives to attract MNCs, encouraging economic development.
• Setting up production facilities in various countries can save on transportation costs, enhance supply chain efficiency, and reduce trade barriers.
• MNCs can sell their products globally without relying on other companies to distribute them in certain regions, under licensing agreements.

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Becoming a multinational

Disadvantages of MNCs for Host Countries:

• MNCs can wield significant power and influence over the governments of host countries, potentially using this leverage to shape policies or threaten to withdraw operations.
• Accusations of exploiting cheap labour in low-wage countries can arise, leading to ethical concerns.
• MNCs may deplete non-renewable resources in host countries, impacting the environment.
• Local firms may struggle to compete with MNCs, leading to business closures and job losses.
• Profits generated in host countries often flow back to the parent company's headquarters, reducing the local economy's benefit.
• Major functions and decision-making tend to remain at the MNC's headquarters, allowing for relatively easy subsidiary closures during difficulties, which can result in significant job losses.

Examples of Multinationals:

Prominent examples of multinational corporations include Nike, Coca-Cola, Wal-Mart, AOL, Toshiba, Honda, and BMW.

Summary:

In summary, becoming a multinational involves expanding business operations across borders to access new markets and achieve growth. MNCs establish subsidiaries in various countries, driven by factors like market share growth, cost advantages, tax optimization, government incentives, and global reach. However, MNCs can also face challenges, including ethical concerns, resource depletion, and the potential impact on local businesses and economies.