MNCs and globalisation
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Globalisation describes an ongoing process by which regional economies, societies and cultures have become integrated through a globe-spanning network of communication and trade.
A multinational company (MNC) is an organisation that operates in two or more countries. Transnational corportation also mean the same.
MNCs include Apple, Coca-Cola, Exxon, HSBC, Microsoft, Nike, Samsung, Toyota, Walmart etc. which all excel within their industries in term of sales, profits, assets and market value.
The rise of MNCs and the ever growing importance of international trade have intensified globalisation. Business may strive to become an MNC for several reasons, including the following:
An increased customer base allows businesses to increase their sales turnover by expanding internationally. For example, many businesses such as HSBC, KFC, Starbucks, Lamborghini and Walmart) have expanded into China to benefit from the huge customer base. International brand recognition can also be enhanced by using global marketing strategies.
Many MNCs expand overseas to benefit from cheaper production costs, especially inexpensive labour. For example, the relatively high cost of labour in Germany, partly due to the imposition of minimum wage legislation, has meant that businesses such as Adidas, BMW and Volkswagen have production facilities overseas with cheaper labour.
As production levels increase, MNCs are able to benefit from EoS. MNCs might also want to locate overseas to benefit from the host country's infrastructure, such as roads, telecommunication and port networks. The host country may offer better quantity and quality of land in terms of the amount of space and/or the cost of land. There could also be financial incentives from the host country's government that help to reduce production costs whilst allowing the MNC to expand.
By producing within a particular country, MNCs can usually avoid any protectionist policies that the country might impose. This is why many Japanese motor vehicle manufacturers, including Toyota, Honda and Nissan, have set up factories in the European Union and North America.
MNCs are able to spread risks. Unfavourable market conditions in one country or region might not damage the overall business if it can spread risks internationally. Natural disasters such as tsunamis, terrorist attacks such as 9/11 and diseases such as swine flu and mad cow disease have affected different areas of the world. Over-specialisation in any one of these regions could have led to a serious dent in profits for these businesses.
The impact of MNCs on the host countries
A host country is any nation that allows an MNC to set up in its country. In addition to the reasons for the growth of MNCs, they have varying impacts on host countries, some of which are beneficial whilst others are detrimental.
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