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INTERNATIONAL BUSINESS

Multinational Corporations
Prof Bharat Nadkarni

International Business

Multinational Corporations
Multinational Corporations are huge industrial organisations
having a wide network of branches and subsidiaries spread
over a number of countries. The two main characteristics of
MNCs are their large size and the fact that their worldwide
activities are centrally controlled by the parent companies.
Such a company may enter into joint venture with a company
in another country. There may be agreement among
companies of different countries in respect of division of
production, market, etc. These companies are to be found in
almost all the advanced countries with the USA perhaps the
biggest amongst them. Their operations extend beyond their
own countries and cover not only the advanced countries but
also the less developed countries.

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Advantages of MNCs to the Host Country


1. They bring about increase in the national income and
per capita income of the host country.
2. They bring about increase in the level of investment,
employment and income in the host country.
3. They fill up savings gap in the economy by transferring
surplus saving of one country to the deficient savings in
some other countries of the world.
4. They help the host country to solve the problem of trade
deficit through export promotion and import substitution.
5. They fill up technological gap by transfering technology
from technically advanced country to technologically
backward country.
6. They create employment opportunities in manufacturing
as well as allied service sectors.

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7.

They break protectionalism, create competition among


domestic companies and thus enhance their
competitiveness.
8. The marketing skills of the MNCs are impressive
particularly in providing marketing infrastructure.
9. They help rapid industrialisation and improve general
standard of living in the host country.
Advantages of MNCs to the Home Country
1. They create opportunities for domestic firms to market
their products throughout the world.
2. They create employment opportunities for the people of
home country, both at home and abroad.
3. They earn valuable foreign exchange for the country and
therefore, strengthen the balance of payments condition
of the home country.

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Disadvantages of MNCs to the Home / Host Country


1. Although the initial impact of MNC investment is to
improve the foreign exchange position of the recipient
nation, its long-run impact may reduce foreign exchange
earnings on both current and capital accounts. The
current account may deteriorate as a result of
substantial importation of intermediate and capital goods
while the capital account may worsen because of the
overseas repatriation of profits, interest, royalties, etc.
2. While MNCs do contribute to public revenue in the form
of corporate taxes, their contribution is considerably less
than it should be as a result of liberal tax concessions,
excessive investment allowances, subsidies and tariff
protection provided by the host country government.
3. The management, entrepreneurial skills, technology,
and overseas contacts provided by the MNCs may have

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4.

5.

little impact on developing local skills and resources. In


fact, the development of these local skills may be
inhibited by the MNCs by stifling the growth of
indigenous entrepreneurship as a result of the MNCs
dominance of local markets.
MNCs impact on development is very uneven. In many
situations MNC activities reinforce dualistic economic
structures and widen income inequalities. They tend to
promote the interests of some few modern-sector
workers only. They also divert resources away from the
production of consumer goods by producing luxurious
goods demanded by the local elites.
MNCs typically produce non-essential products and
stimulate inappropriate consumption patterns through
advertising and their monopolistic market power.
Production is done with capital-intensive technique

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6.

7.

which is not useful for labour surplus economies. This


would aggravate the unemployment problem in the host
country.
MNCs often use their economic power to influence
government policies in directions unfavourable to
development. The host government has to provide them
special economic and political concessions in the form of
excessive protection, lower tax, subsidised inputs, and
cheap provision of factory sites. As a result, the private
profits of MNCs may exceed social benefits.
MNCs may damage the host countries by suppressing
domestic entrepreneurship through their superior
knowledge, worldwide contacts, and advertising skills.
They tend to drive out local competitors and inhibit the
emergence of small-scale enterprises.

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8.

9.

They exploit the economy of the host nation by paying


low wages to workers, by exporting scarce natural
resources or by adversely interfering with the
development of local businesses.
Workers in major industrialised nations argue that
building a plant abroad takes away jobs at home. Ex.
Jobs going away in USA are called Banglored

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20 Best Global Brands


The following table gives top 20 global brands as published
in the Bloomberg Business Week in November 2010.
Rank

Owner

Brand Value
(in $ million)

Country of Origin

Coca-Cola

68734

United States

IBM

60211

United States

Microsoft

56647

United States

GE

47777

United States

Nokia

34864

Finland

McDonalds

32275

United States

Google

31980

United States

Toyota

31330

Japan

Intel

30636

United States

10

Disney

28447

United States

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Rank

Owner

Brand Value
(in $ million)

Country of Origin

11

Hewlett-Packard

24096

United States

12

Mercedes-Benz

23867

Germany

13

Gillette

22841

United States

14

Cisco

22030

United States

15

BMW

21671

Germany

16

Louis Vuitton

21120

France

17

Marlboro

19010

United States

18

Honda

17803

Japan

19

Samsung

17518

South Korea

20

Apple

15443

United States

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