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Multinational Company: concept, meaning, types, etc
MEANING OF MULTINATION COMPANY
An organization doing business in two or core countries is known as Multinational Company. Multinational Companies (MNCs) or Corporations are those enterprises whose manaagerment, ownership and control are spread in more than one country. They are large industrial organizations that maintain headquarters in the country but performs production, marketing, finance, and personnel functions in several countries. They view their scope of operation as global in nature. So they are also called 'supernational company' or 'transnational corporation'.
United Nations have defined multinational companies as those enterprises which own or control production or service facilities outside the country in which they are based.
According to Brook and Remmers: "A multinational company is any firm which performs its main operations either manufacture or the provision of service, in at least two countries".
Multinational companies set production units in several countries either under the direct ownership and control of the original company or by incorporating seperate companies in different countries. They are also called 'supernational company' or 'transnational corporation'. Their objective is to operate in a specialized field covering larage number of products to be sold in various countries. The multinationals do not consider the world market as foreign market because they have local establishments of production, selling and services in the foreing country.
There are many multinational companies in the world. United Nations recognized 650 companies or corporations as multinational companies whose selling were more than 300 million US dollars. The main reasons for their development are:
(1) Organizations' infinite life and legal recognition as a separate entity.
(2) Improved systems of communication and transportation.
(3) Concentration of capital funds in advanced countries.
(4) Rapid growth of markets in many countries, together with the maturing of markets in the home country.
(5) The creation of regional markets through free trade agreements.
Some of the well-known and popular multinational companies are as follows:
1. General Motor Corporation of USA
2. Ford Motor Corporation of USA
3. IBM Corporation of USA
4. Mercedes Benz Company of Germany
5. Sony Company of Japan
6. Hitachi Company of Japan
7. Nestle Company of Switzerland
8. Coca Cola Corporation of USA
9. Pepsi Cola Corporation of USA
10. Honda Company of Japan
In conclusion, we can say a company or corporate form of organization which has its head office in one country but has its business operations in a number of other countries is known as 'Multinational Company'. Specifically, multinational companies should consist of following elements:
(1) The company should be operating in many countries.
(2) In the host country research and production work should be conducted in order to increase the gross
domestic product of the country.
(3) Ownership must be multinational.
(4) Management must be in the hands of parents company.
CHARACTERISTICS OF MULTINATIONAL COMPANY
The following are the main characteristics of multinational companies:
1. Productive Organization: It is a productive organization. Multinational Company produces various types of goods and services not only in their own country but also in many other countries. It uses its own technology, trademark and patent right for manufacturing goods.
2. World-wide Operation: The world-wide operation is the next characteristics of multinationl company. The company extends its business worldwide through establishing branches or affiliating companies in various countries. Hence, its operation extends in more than one country.
3. Ownership and Control: The ownership of multinational company remains both in parent and host country according to the investment. However, the parent company controls the management and its operation of the branches or affiliated companies. It controls through capital investment, high technology, trademark and patent right, etc.
4. Transfer of Technology: Multinational companies are established with a huge capital and advanced technology. These companies transfer the advanced technology in developing countries by establishing branches or affiliations. Its production system is based on mass production and the cost of production will not be higher. Transfer of the advanced technology can benefit developing countries.
5. Marketing Superiority: Multinational company is a large organization with international name and fame. It has a good net work of distribution system and sells their products without any difficulties.
6. Higher Efficiency: Multinational company is operated with higher efficiency due to advanced technology. It has greater capability for research and development work. It utilized trained personnel and mass production system. Hence, it produces quality products with munimum cost of production.
ADVANTAGES AND DISADVANTAGES OF MULTINATIONAL COMPANY
Multinational Company has been helpful in transferring foreign investment and advanced technology from one country to another. The liberal trade and investment policies have facilitated multinational to invest in developing countries. The economic growth of the host country is feasible by the investment. The chief advantages of multinational company are as follows:
1. Industrialization: The economic development of country depends upon the industrialization of a country. The developing countries have low level of saving and investment. Hence, multinationals bring capital and technology to the developing countries and establish industries. They help in the industrialization process of a country. They tap the untapped natural resources.
2. Quality and Mass Production: Multinational company is established with huge capital. It utilized mass production system through advanced technology. It is operated in international standard. Hence, it obtains trained and qualified manpower and utilized advanced technology by which qualitative products can be produced efficiently.
3. Lower Cost of Production: The lower cost of production is an important consequence of the mass production and marketing through multinational companies. The lower cost of production lhas benefited the developing countries.
4. Employment Opportunities: Multinational company provides employment opportunities to the people of host countries in their production and marketing activities. Production enhances the purchasing capacities of the people and increases their standard of living. People are satisfied with new products of international standard. Employment in other countries is also increased by way of expanded markets in foreign countries.
5. Increase in Government Revenue: The multinational companies produce and sell products in large scale. Consequently, they earn more profits and pay excise duty, income tax, sales tax, etc. Which increases the revenue of the government.
6. Increase in Export: Export of host country rises as per the multinational activities. It produces goods and services on the international standard. They are not produced only for local market but also are exported to other countries. So, it increases the export capacity.
7. Other Benefits: The multinationals help private companies enter in the international markets by way of providing international market expertise, foreing exchange and financial arrangements. The domestic businessman and entrepreneurs get an opportunity to learn some new business skills from them. The high degree of marketability, competitive spirits, and fast action contribute maximum to profitability. The domestic shareholders are also benefited by the higher rate of divided. The capital market of the host country is also improved by such activities and people at large are benefited.
Multinationals can damage the host country in various ways such as outflow of foreign exchange, economic exploitation, negative effects on local industries, social evils, etc. The main disadvantages are explained below:
1. Outflow of Foreign Exchange: In many cases multinational companies use the local capital for their industrial development. They do not bring much capital from their countries. They earn huge amount of dividend. This requires sending dividend with royalities, managerial and technical fees, etc. in the form of foreign exchange. By this foreign exchange reserve is decreased in the country. A shortage of foreign exchange is greater problem to the developing countries.
2. Negative Effects on Local Industries: Multinational companies have increased world competition. They enjoy international market, capital, technology and expertise. The competition from multinationals affects the local industries negatively. They can defeat any industries in the host country. Thus, they adversely affect the local industries and trade.
3. Economic Exploitation: Multinational companies are mainly interested in making profits. Labor, raw materials and scarce foreing exchanges are used for their self-benefits. Labor being cheap in developing countries are exploited to the maximum producers of raw materials do not get adequate return. Thus, the cost of production is lower and charges higher prices on its product. Hence, multinationals earn maximum profits by unfair exploitation of the resources.
4. Exploitation of Consumers: Multinational companies are monopolistic in nature and exploit the markes for their benefits. They use strong marketing and promotional techniques, product differentiation and other techniques to capture the market. They are in a position to increase prices and exploit the market. The consumers are suppressed with the higher prices. They exploit consumers at every front for their benefit.
5. Inequality in Employment: Employment is not increased in host country as per anticipation. It provides only minimum employment to local people in practice. Usually, multinationals appoint top level personnel from their own country and local employment at the lower level only. Hence, multinationals create inequality in employment.
6. Social Evil: Multinational companies produce goods mainly for rich markets for maximizing profits. The consumption patterns in developing countries are upset by luxurious production of multinationals. The gap between poor and rich increases, the latter purchases the product of multinationals, whereas the poor have no capacity to purchase them. The society experiences dissatisfaction and distortion. With heavy advertising expenditures, they publish antisocial and vulgar advertisements for sales promotion for earning profits.
NEED FOR MULTINATIONAL COMPANIES
Many developing countries invite foreign investors to their countries for economic development. They have increased their per capita income as a result of foreign investment. Production is increased by investment. For import substitutions and export oriented industries multinational companies are necessary. Multinationals have contributed significantly in the technological development of a country. Hence, at present its popularity is increasing. The country needs multinationals for the following reasons:
1. Economic Development: The developing countries like Nepal need multinational companies for the economic development of a country. Usually developing countries have low level of saving and investment. The shortage of capital has been compensated to a greater extent by the multinationals because they bring necessary capital and advanced technology. The production of a country is increased, which gives opportunity to save and reinvest in the country. Hence, the economic development of a country is accelerated by the funds brought by the multinational companies.
2. Extended Market: Multinational companies enjoy international market, huge capital, advanced technology and expertise. With the help of mass production, trade can be extended to many neighboring countries. This increases the export capacity of the country. Hence, it provides an opportunity to rectify the unfavourable balance of trade.
3. Utilization of Resources: Multinational companies exploit the untapped natural resources of the country. In developing countries necessary raw materials are availabel suffiiciently. They utilize such unutilized resources. The multinationals help use of surplus resources also, which would have been unutilized in absence of them.
4. Employment Opportunity: By establishment of multinational companies, people can get employment directly in them. With the increase in production and distribution of goods indirect employment opportunities also increases. Hence, they increase the employment opportunities in the host country.
5. Increase in Standard of Living: Multinational companies utilize mass production system to increase production. It increases productivity, wages, and production of high quality products with low cost of production. Hence, they increase production and purchasing power of the people and increase the standard of living.
6. Minimization of Transportation Cost: The transportation cost is higher when the far developed countries export their products. Hence, to minimize the transportation cost, bigger companies of developed countries establish multinational companies in host countries.
Host countries as well as investing countries are benefied by the activities of multinationals. They provide significant opportunities for international marketing. They enlarge international markets without the problems of tariff and non-tariff barriers.
GROWTH OF MULTINATIONAL COMPANIES IN NEPAL
Multinational Company is a new type of business organization and it has set up in recent times. They have contributed significantly in the economic development of the country. Today, no country can afford to live without multinationals.
The history of origin and development of multinational companies in Nepal is not very old. In Nepal, history of industrial development began with Indian Joint Venture. In fact, Indian industrialist with joint venture promoted and developed industries in Nepal. For example, Biratnagar Jute Mills (B.S. 1993), Birgunj Cotton Mills (B.S. 1993), Morang Cotton Mills (B.S 1999), Morang Sugar Mills (B.S. 2004), etc. The ownership of these companies remained in two national industrialists. They were established due to open border and open economic relationship. Hence, they are not considered as multinationals and multinational companies were developed very late in Nepal.
Hotel Soalee can be considered as the first multinational company of Nepal. In B.S 2026, famous Indian Oberoi group took over the management and its name became 'Hotel Soaltee Oberoi'. In B.S. 2041, 'Ever Ready Battery' of world famous Union Carbide Company and 'Coca-Cola', 'Fanta' were produced.
Specifically, the growth of multinational companies began from B.S. 2042 in Nepal. In B.S. 2042, HMG adoped Structural Adustment Program to liberalise economic policy with the cooperation of World Bank. Afer the implementation of this program the business of multinationals in Nepal have increased. At present, following companies are operation under Multinational companies in Nepal:
1. Banking Sector:
a) Nepal Arab Bank
b) Nepal Indosuez Bank
c) Nepal Grindlays Bank
d) Himalayan Bank Ltd
e) Nepal SBI Bank Ltd
f) Nepal Bangladesh Bank
g) Nepal Everest Bank
h) Bank of Kathmandu
2. Manufacturing Sector:
a) Ever Ready Battery
b) Lubricating Oil 'Gulf'
c) Wai Wai Instant Noodles
d) Asian Paints
e) Syringe Manufacturing
f) Surya Tobacco Company
g) Soap, detergent powder under Hindustan Lever Company
h) Hochest Co.
3. Soft and Hard Drinks Sector
a) Bottlers Nepal: Coca-Cola, Fanta and Sprite
b) Pepsicola Company
c) Kwality Ice-cream
d) Tuborg Beer
e) San Miguel Beer
f) Carlserg Beer
4. Electronic Sector
a) Sony Company
b) Sanyo Company
c) Samsung Company
d) Goldstar Company
e) National Panasonic
5. Hotel Sector
a) Hotel Soaltee Hoilday Inn
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