Multinational Corporation (MNC) or Transnational Corporation (TNC) is a corporation or enterprise that manage production or delivers services in more than one country.
Definition of Multinational Corporation
” An enterprise which allocates company resources without regards to national frontiers, but is nationally based in terms of ownership and top management”.
“An enterprise which own or control production or service facilities outside the country in which they are based”.
Among the various other benchmarks sometimes it used to define ‘multi-nationality’ is that the company must:
- Produce abroad as well as in the headquarters country.
- Operate in a certain minimum number of nations.
- Derive some minimum percentage of its income from foreign operations
- Have a certain minimum ratio of foreign to total number of employees, or of foreign total value of assets.
- Possess a management team with geocentric orientations.
- Directly control foreign investments.
- Horizontally Integrated Multinational Corporations: They manages production establishments located in different countries to produce the same or similar products. Ex: Mc Donal’d
- Vertically Integrated Multinational Corporations: They manage production establishment in certain country/countries to production products that serve as input to its production establishments in other country/countries. Ex: Adidas or Nike.
- Diversified Multinational Corporations: They manage production establishments located in different countries that are neither horizontally nor vertically nor straight nor non-straight integrated. Ex: Microsoft.
Barriers for MNC
There are basically three types of barriers to MNC that are used by the countries, and they are as follows:
- Tariff Barriers: This is barrier is in the form of duties, taxes, quotas etc. Because of this barrier, imports decrease and price of imported products increase which results in the fall in the demand giving boost to domestic products.
- Non-tariff Barrier: Usually this type of barrier is imposed by a country on imports so that the quantity of imported items is restricted. Due to this, the availability of the imported item is restricted in the domestic market and the price too very high.
- Voluntary Constraint: This is a type of international trade barrier wherein a country voluntarily restricts or stops imports from coming in. This is usually used to limit the competition that domestic industries will face with the coming in of imported goods.
Objectives of MNC
The fundamental objective of an MNC is to earn profit and this might clash with the host government’s objective of achieving better quality of life for its citizens. Such conflicts need to be resolved by the MNC using their own initiative.
Following are the financial goals of MNC and their subsidiaries:
- Manufacture in those countries where it finds the greatest competitive advantage.
- Buy sell anywhere in the world to take advantage of the most favorable price to the company.
- Achieve greater sales.
- Hold risks within reasonable limits in relation to profits.
- Maximization of shareholders wealth.
- Maximize the return on equity.
- Maintain control of important decisions.
- Encounter fewer barriers in host countries.
- Technical improvement in production.
Reasons for the growth of MNC
- Factor mobility.
- Economic reforms.
- Opening up of command economics
- Growth Urge.
- Market potential.
- Risk Minimizing
- Development in Communication Technology.