Horizontally Integrated Multinational – In this type a multinational involves itself in the production of essentially the same product but in different countries. The main object here is for the corporation to continue to grow by the means of expansion into many different types of new markets.
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(2) Vertically Integrated Multinational – Here the multinational commences various stages of production in other different countries. The essential motive behind this growth strategy is for the corporations to be able to obtain or have more control over the costs and to reduce the uncertainty of the business environment.
(3) Conglomerate Multinational – In this strategy the multinationals produce a different range of products in different countries. By this diversification process, conglomerate multinationals looks to spread risks, and maximize returns by careful buying of assets overseas.
Characteristic of Multinational Corporations
Giant Size – Multinational Corporations are gigantic in size. They also make super normal profits.
International Operation – Even the institution may hold the key to control, it’s interests and areas of operations encompass many other nations.
Oligopolistic Structure – Due to mergers & takeovers, a multinational corporation has assumed a lot of power. Along with this, its size makes it oligopolistic.
Spontaneous Evolution – The growth of a multinational corporation has been spontaneous & unconscious manner.
Collective Transfer of Resources – A multinational corporation facilitates multilateral transfer of resources.
Advantages & Disadvantages
(1) Efficiency: One of the pros of a multinational corporation is efficiency. Multinational corporations in order to reach new markets goes global, it takes the benefit of cheaper labor from less developed countries and this also ensures the corporations a closer proximity to near sources of raw materials. A firm becomes competitive by the access of these things. The production becomes cheaper and they are able to reach many new consumers. It ends up getting cheap prices at home, increased competitiveness which results in more domestic hiring.
(2) Development: Multinational corporations pay better than domestic firms. They teach new skills to the workforce, provide the much needed money to the domestic population and an added benefit is that they corporations pay local taxes, in essence helping to boost the local economy. The developing countries benefits from multinational corporations to a great extent. In the developing world the workforce learn how to work on advanced equipment and learn various other business plans and models. This results in increase of productivity and the ability of third world workers which gives economies benefit.
(1) Domestic Tension: If a domestic firm moves its production to other countries to a great extent, this will result in thousands of people in the domestic country will lose their jobs. There is no way to ensure that this loss of jobs will be compensated for and so the currently workers may need to find work in other areas to earn their living.
(2) Dependency: Multinational Corporations dominate local governments who need the multinational corporations more than vice versa. The local governments lower the tax rate and the wages to be paid in order to attract the investment needed. In this investment only a small portion of minority of educated labor is benefited. Since Multinational Corporation firms can always cancel their deals and move their production elsewhere the local government remains intact in their dealings with them. As a result, the local economy becomes distorted and dependent on the Multinational Corporation. This Dependency gives rise to distortion as they control the financial health of the economy and government locally. Democracy is destroyed and inequality institutionalized.
The hiring of local workers can ensure that the corporation adapts more easily to the local culture and people.
Hiring local help ensures that the corporation essentially has an insider in the market that can provide beneficial feedback.
The integration of many different cultures may lead to increased creativity and this in essence could result in better creations or products. As it is said, more minds are always better than one.
Using local people as the company’s workforce may be difficult at first to establish and maintain at first because the corporation needs to learn the new culture and adapt to it.
Problems with communication such as a language barrier can be problematic for the development of business.
The corporation will undeniably run into competition with the local corporations involved with similar work and this may hinder growth.
Some problems may occur when exchanging the currency.
The corporation will have to adapt to the new laws and regulations in place in the new country.
Role of Multinational Corporations in Developing Countries
There have been significant contributions to the development of world economy largely by the Multinational Corporations. They have acted as a growth engine in many host countries. Their importance in developing countries is as follows:
Multinational Corporations help in the promotion of exports of the host country.
The Multinational Corporations’ growth has a positive impact on the business culture in the host country.
They contribute towards the increasing development process of the country by the transfer of technology, financial management.
Multinational Corporations are basically termed as agents of rapid growth & modernisation.
The dependence on imports is reduced as multinational corporations contribute in producing certain required goods in the host country.
Multinational Corporations due to their wide network of productive activity equalise the cost of production in the global market.
Multinational Corporations help generate income & and employment in a developing host country.
The growth process in the host country is increased through industrialisation and allied activities by multinational corporations.
Through positive attitude and work efforts for the establishment of social welfare institutions multinational corporations help improve health facilities in their host countries.
The multinational corporations help integrate the national and international markets. Their growth has great influence on the industrial, social & economic environment.
To summarize, multinational corporations seek profit maximisation by the use of different type of resources and strategies, globalisation being the main focus of their business, helps them become a main force behind the expansion of world economy at large.
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Multinational Corporations – Significance in today’s world
Today the multinational corporations have a revolutionary effect on the economic system all over the world. This is due to the growth of international transactions of the multinationals, which has great effect on the traditional forms of international trade & capital flows for economies at large. In the world economy they form a powerful force. The multinational firms have exercised enormous power in the field of international trade and finance. They accounted for just one-eighth of all international trade in early 70’s.
Naming a few Multinational Corporations
2. Hindustan Computers Ltd.
6. Aditya Birla Group
7. Asian Paints