Type: Process Essays
Sample donated: Sheila Summers
Last updated: April 20, 2019
A multinational is a firm which has its headquarters in one country but with bases, manufacturing or assembly plants in others. A company would have a number of objectives which would drive them to expansion including:o Increased sales and revenueo A chance to sell in markets where incomes are growing most stronglyo Shareholder pressure to maintain profit growtho The opportunity to diversify into a range of markets so that heavy dependence on one or a few markets, which could decline, can be avoided. This reduces risk.
The process of globalisation has three distinguishable phases for the individual business:o Companies with a national focus look to expand their markets by selling abroad.o They develop bases in overseas markets from which they can service their sales activities.o They go on to develop sources of inputs based on the cost advantages of a wide variety of locations.Global companies have passed through each of these phases and have fully integrated operations. They then go on to expand through inorganic growth.Developing countries are often delighted to welcome multinational companies but there are two sides to the argument.Advocates of a free market system and ‘market forces’ argue that multinationals are subject to the same basic laws of supply and demand as any other business form.
A host economy gains many benefits from allowing multinationals to operate.==> Unemployment is reduced. Multinationals are major employers of labour and can help alleviate unemployment blackspots (e.
g. Nissan in the North East of England). In addition, ancillary firms such as component manufacturers and suppliers of canteen and cleaning services grow in the local area and provide additional employment.==> Other factors of production are employed more fully and are used more efficiently through the competition generated by the multinational.==> Advanced technology is introduced.
Examples in the UK include the work that Honda did with Rover, and technology-based multinationals such as Epson (printers), Sony (home entertainment), bringing in new ideas and expertise into our economy. Training in more advanced techniques and skills also develops in the local area.==> Modern work practices which highlight teamwork, shared goals, and employee participation in decision making.==> There is greater choice and higher income.
Consumers benefit from wider product choice and the economy gains through the multinational’s activities, both at home (employment rises, tax revenue is generated and greater expertise improves economic competitiveness), and by exporting (balance of payments benefits).The policies of a multinational will not always benefit the country in which it is based causing a series of tensions as a result of the economic power it wields.==; The multinational concentrates on its own interests rather than those of the host country:* It may decide at short notice to move production out of the country, causing unemployment and other economic problems to the areas affected, and hitting the host’s country’s balance of payments and level of economic growth.* It can adjust its costs between its various subsidiaries to gain maximum benefits from one country’s lower taxation requirements* It has the power to move it’s reserves between different countries, gaining financial advantage but causing currency fluctuations.
==; The multinational can also use its economic power in ways which are socially undesirable. Accusations of bribery, corruption and financial irregularity have been levelled against some multinationals, and exploitation of cheap labour and raw materials can take place with only limited concern for the environment or the long-term stability and growth for the countries affected.As I have discussed, the most obvious way to expand sales to is start selling abroad.
Some companies such as Coco Cola have been able to create global brands, which sell world wide. Their strategy is to develop an image that will appeal to everyone everywhere. Coke is perhaps an unusual product in that it can sell in large quantities even in countries wit low incomes. Many global brands are prestige products which sell mainly to people with well-above average incomes. Global brands, by their name are fully standardised. The coke selling in Thailand is the same as the coke selling in the USA.