Multinational Companies Essay

There are various definitions of a multinational enterprise. Broadly, a multinational enterprise or a multinational corporation (MNC) refers to a giant firm that owns the production of goods or services in many countries other than their home country. David E. Liliental, defines the MNCs as "corporations which have their home in one country but operate and live under the laws and customs of other countries as well." According to Franklin Root (1994), an MNC is a parent company that engages in foreign production through its affiliates located in several countries, exercises direct control over the policies of its affiliates and implements business strategies in production, marketing, finance and staffing that transcend national boundaries. Examples

MNCs have managerial head offices in home countries, while they conduct their business operations in a number of host countries.

2. Citizens of the company's home country own a large part of the assets of the parent company.

3. The majority of their board of Directors members are citizens of the home country.

4. The parent company is responsible for taking decisions on new investment as well as the local objectives.

5. MNCs are giant firms and exercise a great degree of economic dominance.

6. MNCs control production activity with large foreign direct investment in many developed and developing countries.

7. MNCs are oligopolistic in character and are sustained by modern technologies, product differentiation, management skill and advertising.

This combination of unequally distributed factor endowments combined with difficulties in using market-based arrangements has yielded more than 60,000 MNCs with over 800,000 affiliates abroad.

History, Evolution and objectives of MNEs

The MNCs originated earlier in the 20th century. The British East India Company, Hudson Bays corporation and the Royal Dutch are examples of early MNCs. The post World war II period had witnessed a shift away from colonialism and there emerged a new thrust for industrial and technological development and also the rise of USA as the largest industrial power. The first modern multinational corporation is the East India Company. During the last three decades, many small corporations have also become multinational. Such enterprises maintain that they create employment, create wealth and improve technology in countries.

The main objectives of MNCs are as follows:

1. To expand the business beyond the boundaries of the home country.

2. Minimize cost of production especially, labor cost.

3. Capture foreign market against international competitors.

4. Attain competitive advantage