Multinational Corporations (MNCs)
In modern times large corporations have become major carriers of
foreign capital and technical know how. They are known by various
terms such as Multinational Corporations, Transitional Corporations,
International Corporations and Global Corporations etc.
In early days USA was the center of most of MNCs. But now Japanese and European MNCs are also emerging. The first MNC came to India in 1921. Singer sewing machines of USA came to England in 1862-63.
Definition of MNC
There is no universally accepted definition of the term MNC. MNC can
be defined as a company which has a direct investment base in several
countries, which generally derives from 20% to 50% or more of its net
profits from foreign operations and whose management makes a policy
decision based on the alternatives available anywhere in the world. A
firm becomes MNC on the basis of its size, performance, structure and
behavior. They are usually organized around a national headquarter
from which international control is exercised.
The term MNC differ from International Corporation. International Corporation is a company with manufacturing investment or service operation in at least one country, while MNCs have direct investment in several countries and considerable share is in foreign countries. The transnational corporations (TNCs) are incorporated or unincorporated enterprises comprising parent enterprises and its affiliates. TNC is a multinational company in which both ownership and control are so dispersed internationally. There is no principal domicile and no one central source of power. The term global corporation is also often used to mean more or less the same thing as TNC. However there is a view that global corporation is one which considers the entire world as single market in which globally standardized products are sold.
A company can be called as a MNC if it fulfill the following criteria:
- Corporation/Company's local subsidiaries are managed by nationals.
- Corporation/Company has a multinational central management.
- Company/Corporation maintain complete industrial organizations, including research and development and manufacturing facilities in several countries.
- Corporation/Company has a multinational stock ownership.
- Corporation/Company operates in many countries at different levels of economic development.
The managing headquarters of MNCs are located in one country i.e. home country while enterprise carries out operations in a number of other countries i.e. host country.
Giving below some of the reasons that motivates a company to go for international investments.
- To reduce the impact of tariffs
- To gain a greater share in a foreign market or to combat competition
- To exploit natural resources of the host country
- To enjoy benefits of tax exemptions.
- To reduce the cost of production by using cheap labor and material cost and transport cost.
- To reduce the impact of strict trade and industry rules and regulations of home country like pollution laws.