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Meaning and definition

A multinational corporation/company is an organisation doing business in more


than one country. 'In other words it is an organisation or enterprise carrying on
business in not only the country where it is registered but also in several other
countries. It may also be termed as international corporation, global giant and
transnational corporation.
According to the United Nations a multinational corporation is "an enterprise
which owns or controls production or service facilities outside the country in
which it is based". In the words of W H Moreland, "Multinational Corporations
or Companies are those enterprises whose management, ownership and controls
are spread in more than one foreign country".
Thus a multinational company carries on business operations in two or more
countries. Its headquarters are located in one country (home country) but its
activities are spread over in other countries (host countries). MNC's may engage
in various activities like exporting, importing, manufacturing in different
countries. It may also lend its patents, licences and managerial services to firms
in host countries.
Characteristics of Multinational Companies (MNCs)
The distinctive features of multinational companies are as follows.
1. Large Size:
A multinational company is generally big in size. Some of the multinational
companies own and control assets worth billions of dollars. Their annual sales
turnover is more than the gross national product of many small countries.
2. Worldwide operations:
A multinational corporation carries on business in more than one country.
Multinational corporations such as Coco cola has branches in as many as seventy
countries around the world.
3. International management:
The management of multinational companies are international in character. It
operates on the basis of best possible alternative available any where in the
world. Its local subsidiaries are managed generally by the nationals of the host
country. For example the management of Hindustan Lever lies with Indians. The
parent company Unilever is in The United States of America.
4. Mobility of resources:

The operation of multinational company involves the mobility of capital,


technology, entrepreneurship and other factors of production across the
territories.
5. Integrated activities:
A multinational company is usually a complete organisation comprising
manufacturing, marketing, research and development and other facilities.
6. Several forms:
A multinational company may operate in host countries in several ways i.e.,
branches, subsidiaries, franchise, joint ventures. Turn key projects.
Aims
Multinational companies make investments in different countries with the
following aims.
(a) To take tax benefits in host countries;
(b) To exploit the natural resources of the host country;
(c) To take advantage of Government concessions in host country;
(d) To mitigate the impact of regulations in the home country;
(e) To reduce cost of production by making use of cheap labour and low
transportation expenses in the host country.
(f) To gain dominance in foreign markets;
(g) To expand activities vertically.

FEATURES OF MNC:
1.WORLD WIDE OPERATION
The multinational companies extend their operation to two or more
countries.They establish
parent office in one country and extend branches ,subsidiary and affiliation to
other countries.
2.CREATE MAXIMUM OPERATION
The multinational companies are extended to many countries.People can grasp
the opportunity
People can join the multinational companies according to their capabilities.
Manpower can be
well utilized in the multinational companies.

3.ADVANCED TECHNOLOGY
Multinational companies invest a huge amount of money on research and
development of latest
technology. Therefore transfer advanced technology to developing countries
through subsidiaries
and branches,
4.HIGH EFFICIENCY
Advanced technology are used are for multinational companies. So, manpower
can give well training
which increase efficiency of manpower. Due to this cause, the multinational
companies can provide
large volume of quality products at cheaper price.
5.Monopolistic Market
Generally, multinational companies supply large quantities of quality products
and services
in the international market.So they create a separate brand name and capture a
large area of
foreign market. Sometimes they even control a huge market through trade
marks and patent right.
6.Product/service organization
A multinational company is based on product/service which produces a mass
production of
varieties of goods and services. The company consists own trade mark,patent
right ,copy right and
technology for production and distribution of such goods in the international
market.
7.Ownership and control
The ownership of such company is shared by both parent company and branch
companies as per their capital
investment.However parent company manages and control the operation of its
branches and
subsidiary through trade mark, technology, and patent right.
IMPORTANCE OF MNC:
The establishment of multinational companies has been good boon all over the
world..Some of its
importance are as follow:
1.TRANSFER OF CAPITAL AND TECHNOLOGY
The multinational companies transfer investment ,advance technology to
developing countries through establishing branches

and subsidiaries. Therefore developing countries like Nepal get benefited of


receiving Advanced technology and capital
investment through such companies.
2.Mass production
With help of advanced technology, the can produce quality goods and products
at cheaper price.Due to Job innovation and
specialization help to produce more consumption increase as production in
more unit reduce cost.
3.INCREASE IN EMPLOYMENT OPPORTUNITY:
A multinational company requires a large number of skilled as well as unskilled
employees to operate its activities.
Thus it provides employment opportunity to the people of host country as a
result economic standard of society is improved.
4.INCREASE IN GOVERNMENT REVENUE
A multinational company is a large scale business.It pays a large amount of
duties ,income tax, vat,etc to government.
Therefore Government revenue is increased due to operation of such companies.
5.RESEARCH AND DEVELOPMENT:
In complete world, it is need of Research and Development. To meet
international standard of its products and services ,a
multinational company conducts several research and development
activities.Constantly such programs are beneficial to society.
It helps to develop better equipments, quality products and advanced technology
in production.
6.GOOD INTERNATIONAL RELATION:
A multinational company recognizes the country in the international market. It
creates harmonious relation between parent company
and subsidiary countries. It recognizes exporting country to all over the world....

Rationale

The current financial crisis has spurred a heated debate on the need to rethink economic
globalization in light of its social and environmental impact, particularly on developing
countries, and has led to various proposals to strengthen the regulatory framework
within which international markets are (or should be) embedded. The external context
seems therefore highly propitious for the launching of an interdisciplinary master's
programme centred on the interrelated themes of social regulation, standard-setting and
sustainable
development.

The notion of sustainable development makes its official dbut in 1987 with the
Bruntland Report, in which it is defined as "development that meets the needs of the
present without compromising the ability of future generations to meet their own needs".
Originally conceived as environmental sustainability, the notion of sustainable
development has later broadened its scope of application. Today, various international
organizations such as the World Bank, the OECD and the ILO use the expression of
'socially and environmentally sustainable' development to designate a broad range of
activities affecting simultaneously a number of spheres. Both academic and policy
circles now agree that promoting sustainable development requires a systemic
perspective on the long-term consequences of today's policies for tomorrow's
environment,
society
and
economy.
An important step in the evolution of the sustainability concept has been the realization
that a sustainable development process needs a systematic involvement of all actors who
are likely to be affected by regulatory norms. In this respect, the shift from 'government'
to 'governance' is often invoked to refer to the decline of the classic command-andcontrol mode of regulation centred on the nation-state, and the ascendancy of a new
system in which social regulation is produced in participatory fashion by public and
private actors situated at various levels and collaborating with one another. Clear
examples of these trends can be found in the fields of environmental and labour
standards, which have seen the emergence and diffusion of multi-level and multi-layered
private-public partnerships composed of international organizations, multinational
enterprises, administrative branches of the national state, NGOs and various other types
of
civil
society
organizations.
In highly stylized terms the new regulatory regime operates as follows: in lieu of
detailed regulatory norms issued by a sovereign power there is a code of conduct issued
by either a multinational company or an international organization. Responsibility for
the more precise definition of the principles, as well as of the means to achieve them, is
devolved to local partnerships of private and public actors. These actors are involved
based on their interest in or familiarity with specific regulatory problems.
Standardization practices play an important role in the new regulatory architecture.
Actors often coordinate by voluntarily agreeing of a set of standards, which are then
monitored systematically through the collection of data on the performance of local
actors and the creation and diffusion of reports and indicators that track the actors
progress
towards
sustainability.
Standardization activities enable societal scrutiny and favour the circulation of
information about best practices. They have also contributed to give new strength the
time-old debate on the social responsibility of business. From an international
perspective, the International Organization for Standardization (ISO) has acquired a
preeminent
role
in
the
definition
of
standards.
Some landmarks in the development of the new regulatory architecture are the
following:

The Global Reporting Initiative (GRI) launched in 1997 by the UNEP in


collaboration with NGOs to promote and standardize sustainability reporting,
whereby organizations communicate their economic, environmental and social
performance to the public.
The Global Compact launched by Kofi Annan in 1999 in Davos to stimulate
respect of basic human and labour rights, as well as of environmental standards,
by multinational companies.
The launching by ISO, beginning in 2005, of a process aiming to produce
international guidelines on the social responsibility of organizations. These
guidelines cover issues of internal governance, labour relations and work
conditions, environmental impact, and social and territorial impact.

ISO has also produced, internal alia, two well-known families of standards: ISO 9000,
which deals with quality management (firm-client relationship, performance, client
satisfaction, applicable regulatory norms, etc.), and ISO 14000, which deals with
environmental management with a view to improving environmental performance.
In synthesis, the goal of the proposed master's programme is to bring together in a single
curriculum the three thematic pillars evoked above: sustainable development, social
regulation and standardization. This is done through a partnership between the
University of Geneva and the ISO, the world's largest developer and publisher of
international standards.

Role Of Multi National Companies


In India
abstract
Multinational corporations sell technology - both for production and for
consumption - on highly imperfect international markets to less developed
countries .
The buyers must concern themselves both with appropriateness and with price.
Despite some experience to the contrary, multinational firms may increasingly be
prepared to sell more labor-intensive technologies and more essential-intensive
products.
Political influences upon the governments of less developed countries make it
likely that the role of multinational corporations in the future sale of more
appropriate technologies will be concentrated in manufacturing for export. This is
what the multinational companies play an important role in developing countries
like India.

Introduction :
The MNCs play an important role in the economic development of underdeveloped
countries. What are multinational companies? These are enterprises or
organizations with services spread across more than one country on a global scale.
India is a home to a number of multinational companies since the countrys market
was liberalized in 1991. India houses majority of multinational companies hailing
from the United States. There are also multinational companies from other
countries. The multinational companies from the United States account to 37% of
turnover of first 20 firms that operate in India; the others come from European
Union and their Asia counterparts.
Multi National Corporations (MNCs) are huge industrial organizations which extend
their industrial and marketing operations through a network of their branches or their
majority owned Foreign Affiliates (MOFAs). MNCs are also known as Transactional
corporations (TNCs). Instead of aiming for maximization of their profits from one or
two products, the MNCs operate in a number of fields and from this point of view, their
business strategy extends over a number of products and over a number of countries.
(i) MNCs are playing a major role in the globalisation process.
(ii) More and more goods and services, investments and technology are moving
between countries.
(iii) Most regions of the world are in closer contact with each other than a few
decades back.
As the new Leviathans of our time,
multinational corporations are:
[P]ractically in every sphere of modern life, from policy making in regard to the
environment and international security; from problems of identity and community;
and from the future of work to the future of the nation state.
Gabel and Bruner (2003
Arguments for MNCs (The positive role):
The MNCs play an important role in the economic development of underdeveloped
countries.
1. Filling Savings Gap:
The first important contribution of MNCs is its role in filling the resource gap
between targeted or desired investment and domestically mobilized savings. For
example, to achieve a 7% growth rate of national output if the required rate of
saving is 21% but if the savings that can be domestically mobilised is only 16%
then there is a saving gap of 5%. If the country can fill this gap with foreign direct
investments from the MNCs, it will be in a better position to achieve its target rate
of economic growth.
2. Filling Trade Gap:
The second contribution relates to filling the foreign exchange or trade gap. An
inflow of foreign capital can reduce or even remove the deficit in the balance of
payments if the MNCs can generate a net positive flow of export earnings.
3. Filling Revenue Gap:

The third important role of MNCs is filling the gap between targeted governmental
tax revenues and locally raised taxes. By taxing MNC profits, LDC governments are
able to mobilize public financial resources for development projects.
4. Filling Management/Technological Gap:
Fourthly, Multinationals not only provide financial resources but they also supply a
package of needed resources including management experience, entrepreneurial
abilities, and technological skills. These can be transferred to their local counterparts by means of training programs and the process of learning by doing.
Moreover, MNCs bring with them the most sophisticated technological knowledge
about production processes while transferring modern machinery and equipment
to capital poor LDCs. Such transfers of knowledge, skills, and technology are
assumed to be both desirable and productive for the recipient country.
5. Other Beneficial Roles :
The MNCs also bring several other benefits to the host country.
(a) The domestic labour may benefit in the form of higher real wages.
(b) The consumers benefits by way of lower prices and better quality products.
(c) Investments by MNCs will also induce more domestic investment. For
example, ancillary units can be set up to feed the main industries of the MNCs
(d) MNCs expenditures on research and development(R&D), although limited is
bound to benefit the host country.
Apart from these there are indirect gains through the realization of external
economies.
Arguments Against MNCs (The negative role):
There are several arguments against MNCs which are discuss below.
1. Although MNCs provide capital, they may lower domestic savings and
investment rates by stifling competition through exclusive production
agreements with the host governments. MNCs often fail to reinvest much of their
profits and also they may inhibit the expansion of indigenous firms.
2. Although the initial impact of MNC investment is to in

prove the foreign exchange position of the recipient nation, its long-run impact may
reduce foreign exchange earnings on both current and capital accounts. The
current account may deteriorate as a result of substantial importation of intermediate and capital goods while the capital account may worsen because of the
overseas repatriation of profits, interest, royalties, etc.
3. While MNCs do contribute to public revenue in the form of corporate taxes, their
contribution is considerably less than it should be as a result of liberal tax
concessions, excessive investment allowances, subsidies and tariff protection
provided by the host government.
4. The management, entrepreneurial skills, technology, and overseas contacts
provided by the MNCs may have little impact on developing local skills and
resources. In fact, the development of these local skills may be inhibited by the
MNCs by stifling the growth of indigenous entrepreneurship as a result of the
MNCs dominance of local markets.
5. MNCs impact on development is very uneven. In many situations MNCs activities
reinforce dualistic economic structures and widens income inequalities. They
tend to promote the interests of some few modern-sector workers only. They
also divert resources away from the production of consumer goods by producing
luxurious goods demanded by the local elites.
6. MNCs typically produce inappropriate products and stimulate inappropriate
consumption patterns through advertising and their monopolistic market power.
Production is done with capital-intensive technique which is not useful for
labour surplus economies. This would aggravate the unemployment problem in
the host country.
7. The behaviour pattern of MNCs reveals that they do not engage in R & D
activities in underdeveloped countries. However, these LDCs have to bear the
bulk of their costs.
8. MNCs often use their economic power to influence government policies in
directions unfavourable to development. The host government has to provide
them special economic and political concessions in the form of excessive protection, lower tax, subsidized inputs, cheap provision of factory sites. As a result, the
private profits of MNCs may exceed social benefits.
9. Multinationals may damage the host countries by suppressing domestic
entrepreneurship through their superior knowledge, worldwide contacts, and
advertising skills. They drive out local competitors and inhibit the emergence of
small-scale enterprises.
There are now 40,000 TNCs whose tentacles straddle the international economy
through some 2,50,000 overseas affiliates. They possess staggering resources as
would be clear from the fact that the sales of 200 top corporations in 1982 were
equivalent of 24.2 per cent of the worlds GDP and had risen to 28.3 per cent of the
worlds GDP in 1998.
This shows that 200 top MNCs control over a quarter of the worlds economic
activity. In fact, the combined sales of these 200 MNCs estimated at $ 7.1 trillion in
1998 surpassed the combined economies of 182 countries. If we subtract the GDP
of the big nine economies ---the United States of America, Japan, Germany, France,

Italy, the United Kingdom, Brazil, Canada and China ---from the worlds GDP, the
GDP of the remaining 182 countries of the world stood at $ 6.9 trillion in 1998
which was less than the sales of the 200 top MNCs.
An idea of the giant size of these MNCs can also be had from the revelation made in
a study conducted by the Washington based Institute of Policy Studies (IPS) that of
the 100 largest economies in the world, 51 are corporations; only 49 are countries.
The above data show the massive control exercised by the MNCs on the world
economy. In fact, because of their huge capital resources, latest technology and
worldwide goodwill, MNCs are in position to sell whatever product they choose to
manufacture in different countries. The fact is that people in underdeveloped
countries are crazy for the products of these corporations and prefer their
products to the products produced indigenously.
Reasons for the growth of MNCs :
Reasons for the growth of multi nationals are manifold, the important ones being as
follows :
1) Expansion of market territory.
2) As the operations of a large size firm expand and as its international image
builds up, it seeks more and more extension of its activities beyond the physical
boundaries of the country in which it is incorporated.
3) Marketing superiorities: A multinational firm enjoys a number of marketing
superiorities over the national firms:
A) It possesses a more reliable and up to date market information system.
B) It enjoys market reputation and faces less difficulty in selling in production.
C) It adopts more effective advertising and sales promotion technique use and .
D) It has efficient warehousing facilities due to lower inventory requirements.
4) Financial superiorities: A multinational firm enjoys the following financial
superiorities over the national firm :
A) It has huge financial resources with which it can easily turn on circumstances
in its favour.
B) It maintains a high level of funds utilization by generating funds in one
country and using them in another.
C) It has easier access to external capital markets.
D) because of its international reputation it is able to rise more international
resources even investors and banks of the host country are eager to invest in it.
Technological superiorities:
The main reason why MNCs have been encouraged by the underdeveloped
countries to participate in their industrial development is on account of the
technological superiorities which these firms possess as compared to national
companies. The under developed countries regard transfer of technology from
MNCs useful on account of the following reason: 1) Industrialization represents the
most important way out of under development and the resources of these
countries are insufficient to sustain the industrial progress on their own; 2) Local
manpower, materials, Local capital equipment etc have to be optimally exploited
and these countries are unable to accomplish these; 3) Depending totally on local
companies would required heavy imports of raw materials, capital equipment,

machinery and technical knowledge whereas MNCs bring these on their own; and
4) The underdeveloped countries have to face stiff competition for selling their
products in international markets. Unless their goods meet international standards
and quality specifications, they cannot sell. MNCs help them in producing such
goods.
Product Innovations :
MNCs have Research and Development Departments engaged in the task of
developing new products and superior designs of existing products. Therefore their
production opportunities are far greater as compared to national companies.
A Critical Appraisal Of MNC Operations On Indian Economy
The operations of MNCs open up the possibilities of interference in the industrial
(and other) activities of the recipient country and are thus resented by the
nationalist thinkers. Their arguments against the operations of MNCs can be
summed up as follows:
Payment of dividends and royalty: A large sum of money follows out of the
country in terms of payments of dividends, profits, royalties, technical fees and
interest to the foreign investors.
Distortion of economic structure : MNCs can inflict heavy damage on the host
countries in various forms (such as suppression of domestic entrepreneurship
extension of oligopolistic practices such as unnecessary product differentiation,
heavy advertising or excessive profit taking ) supplying the economy with
unsuitable technology and unsuitable products, worsening of income distribution
by distorting

the production structure of need the requirements of high-income elites,


etc.
Political Interference: Because of their immense financial and technical
power, the MNCs have gained the necessary strength to influence the
decision making processes in underdeveloped countries. Though they do
help in transferring technology to underdeveloped countries, it has been
often found that models and patterns to industrial development and
technologies transfer are not in harmony with the interests of the host
countries. The governments of underdeveloped countries have also felt
threatened by the direct and indirect interference of MNCs in their
internal affairs. The autonomy and sovereignty of the host countries is in
danger. Because of these reasons, the governments of various countries
have sought to restrict the activities of MNCs in their economies through
a battery of administrative controls and legal provisions.
Technology Transfer not necessarily conducive to development : As far as
transfer to technology to underdeveloped countries in concerned, the
behaviour pattern of MNCs reveals that they do not engage in R & D
activities within the underdeveloped countries. Their R & D efforts are
concentrated in laboratories in the home country or in other industrialised
countries. Though R & D activities continue to be centralised in the parent
country, the host countries have to bear the bulk of their costs since the affiliates of the MNCs in these countries remit payments on this account
generally in relation to their sales volume. Such payments by the affiliates
are generally over and above those remitted in the form of royalties and
technical fees to the present firm. The satisfaction expressed on technology
transfer is partly misconceived also on account of the fact that MNCs which
generally command a semi-monopolistic position in their product lines do
not transfer their first line or the most advanced technology until foreign
firms compel to do so. In many cases, the technology transferred is of a
capital-intensive nature which is not useful from the point of view of a
labour surplus economy.
There is no distinction between an MNCs & a domestic company in India
policy regarding MNCs is the same as for Foreign Private Capital in indie.
Large & dominant MNCs along with Indian Companies are covered under
MRTP Act. MNCs are specifically covered under Foreign Exchange
Management Act (FEMA). Now, we study the operation of MNCs in India:
1.) Profit Maximisation.
2.) International Network of marketing.
3.) Diversification Policy.
4.) Concentration in Consumer goods.
5.) Location of central control offices.
6.) Techniques to achieve Public Acceptability.

7.) Existence of Modern & Sophisticated Technology.


8.) Business but not social Justice.
9.) MNCs & Process of planned Economic Development in India.
10.) Cultural Explosion.
Control Over Multinational Corporations :
Theresponsibilityof controlling the activities of multinational corporation
in India rests on different government agencies. These agencies are :
1) the ministryof Company Affairs,
2) the reserve Bank of India ,
3) the ministry of Industrial Development, and
4) the Ministry of finance. However, these agencies do not work in close
cooperation with each other.
CONCLUSION As a result, there is no coordination in their functioning. Each case is
discussed on its own merits by the authorities. There are no objectives
criteria for approving applications and the procedure resorted to by the
various ministries is lengthy and cumbersome.
As a result of a study by Michael Kidron entitled Foreign Investment in
India published in 1965 (and the follow up discussion in which many
economist participated) and the appearance of the Industrial Licensing
policy Inquiry Committee Report in 1968, the belief got strengthened that
imports of foreign technology were overpriced and were designed to
perpetrate dependence. As a consequence, the government policy was progressively tightened in the following
1) some industries were not allowed to import technology at all, the
underlying principles of the policy being that
a) no inessential article should be produced with fresh imports of
technology (this gave the exiting domestic and foreign producers automatic
protection against fresh imports of technology)and
b) where domestic capacity was adequate no technology should be
imported;
2)Among industries where technology imports were allowed , the
maximum rate of royalty was laid down;
3)Insomedesigned industries, foreign investment was allowed in principle,
but sanction in individual cases was a matter of administrative decision;
4) The normal permissible period of agreements was reduced from ten
years to five, and renewals were generally frowned upon;
5)Exports and other marketing restriction were generally not allowed , and
often an obligation to export a certain proportion of the output was insisted
upon;

6) A clause was often inserted in the agreements granting permission to the


importer to sub-license the technology;
7) The CSIR was allowed to look at applications for approval of technology
imports , and if it expressed willingness to supply the technology, approval
was withheld or at least delayed.
The most effective curb on the activities of foreign companies , especially
MNCs, was supposed to come with the passing of the Foreign Exchange
Regulation Act (FERA) in 1973 to which we now turn.
The topic of economic development has never been easy. The labour
standards issueis particularly divergent, conflicting, and contradictory
between theory and reality. It is notthe target of this essay to provide any
policy suggestions since enough has already beendone (see Singh and
Zammit 2003, Elliote and Freeman 2003, ILO 1998, 2000). Rather,

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capital across borders, but not labour (Rodrik 1997). | 2 (Gereffi,
Humphrey, and Sturgeon 2001).Supply chain refers to the linkages
between sequential stages of production | 3 See Chang (2002) (UNCTAD

2007). FDI is a firms acquisition abroad of physical assets such as plants


and equipment, with operating control residing in the | parent firm outside
the country where the acquisition occurs 4 | 4 The History Channel, Lost
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Corporations and Patterns of Knowledge Sharing within them. Oxford
University

BENEFITS AND CHALLENGES OF MULTINATIONAL COMPANIES


(MNCS)
Multinational fellowships (Mncs) are not without benefits, which may be
to the government, the economy, and the citizen or even to itself. Cole
(1996) stated that the size of multinational club is enormous; many of
them have total sales well in excess of the Gnd of many of the worlds
nations. Cole also stated that World Bank statistics of comparison in the
middle of multinational fellowships and national Gnps shows, for
example, that large oil firms such as Exxon and Shell are large in
economic terms that nations such as South Africa, Australia and
Argentina are substantially greater than nations such as Greece, Bulgaria
and Egypt.

Other large multinational fellowships contain normal Motors, British


Petroleum, Ford and International enterprise motor (Ibm). Some of the
benefits of multinational fellowships are:

1. There is normally huge capital speculation in major economic


activities
2. The country enjoys varieties of products, services and facilities,
brought to their door steps
3. There is creation of more jobs for the populace
4. The nations pool of skills are best utilized and put to use effectively
and efficiently
5. There is advancement in technology as these fellowships bring in
state-of-the-art-technology for their businesses
6. The demand for training and retraining and advancement in the
peoples instruction becomes really necessary. This will in turn help
advance the cheaper of the nation
7. The living thorough of the citizen is boosted
8. Friendliness in the middle of and among nations in trade i.e. It
advance international relation
9. The equilibrium of payments of nations in trade are improved on
In the words of Cole (1996), he stated that the sheer size (and wealth)
of multinationals means that they can have a primary effect on host
country. To Cole, most of the effects are beneficial and contain some of
the above or all. The Electronic Library of Scientific Literature (1996)
explained the benefits of Mncs under a principles known as The
principles of Externalities. The principles considers the benefits of Mncs
from the point of view of those who maintain the point of Foreign Direct
speculation (Fdi) as part of the motor primary for growth. In the offering
of Davies (1989), he gave some theories on the benefits/advantages of
multinational. Davies (1989:260) tagged this Economic Theory and the
multinational where he took a broad and primary look at the benefits of
Mncs.
More benefits came along with these peoples theories and some are:

1. There is primary injection into the local cheaper in respect to


investment
2. Best utilization of the countrys natural resources
3. They help in strengthening domestic competition
4. They are good source of technological expertise
5. Expansion of store in the host country
Problems/Challenges Facing Multinational Companies
There is no enterprise without problems it is facing. Either an club is big
or small, there will really be some sort of problems or negative
factor/influence militating against its survival or continuity. Weihrich and
Koontz (1994) states that the doing of multinational fellowships needs to
be weighed against the environmental challenges and most of the
challenges being faced by multinational fellowships are:
1. There is normally acute shortage of manpower citizen with lack of
managerial and technical skills
2. The challenge of unfriendly enterprise environment
3. There is normally the question of conflicting interest among the three
parties the government, the Mnc and the normal public
4. There may be huge cost of labour in the host country, at least to get
the expatriate managers from home country or somewhere else
Conclusively, the above mentioned authors have given all round and
broad note on the benefits of Mncs to the host country where they
operate and as well highlighted the derivable benefits to the Mncs
themselves from the host country. Likewise, in spite of the challenges
and the problems being faced by these Mncs, they still continue to
survival and waxing stronger.

What is political risk and what can a multinational company do to minimize


exposure?

For multinational companies, political risk refers to the risk that a host country will make
political decisions that will prove to have adverse effects on the multinational's profits and/or
goals. Adverse political actions can range from very detrimental, such as widespread destruction
due to revolution, to those of a more financial nature, such as the creation of laws that prevent
the movement of capital.
In general, there are two types of political risk, macro risk and micro risk. Macro risk refers to
adverse actions that will affect all foreign firms, such as expropriation or insurrection, whereas
micro risk refers to adverse actions that will only affect a certain industrial sector or business,
such as corruption and prejudicial actions against companies from foreign countries. All in all,
regardless of the type of political risk that a multinational corporation faces, companies usually
will end up losing a lot of money if they are unprepared for these adverse situations. For
example, after Fidel Castro's government took control of Cuba in 1959, hundreds of millions of
dollars worth of American-owned assets and companies were expropriated. Unfortunately,
most, if not all, of these American companies had no recourse for getting any of that money
back.
So how can multinational companies minimize political risk? There are a couple of measures
that can be taken even before an investment is made. The simplest solution is to conduct a little
research on the riskiness of a country, either by paying for reports from consultants that
specialize in making these assessments or doing a little bit of research yourself, using the many
free sources available on the internet (such as the U.S. Department of State's background
notes). Then you will have the informed option to not set up operations in countries that are
considered to be political risk hot spots.
While that strategy can be effective for some companies, sometimes the prospect of entering a
riskier country is so lucrative that it is worth taking a calculated risk. In those cases, companies
can sometimes negotiate terms of compensation with the host country, so that there would be
a legal basis for recourse in the event that something happens to disrupt the company's
operations. However, the problem with this solution is that the legal system in the host country
may not be as developed and foreigners rarely win cases against a host country. Even worse, a
revolution could spawn a new government that does not honor the actions of the previous
government.
If you do go ahead and enter a country that is considered at risk, one of the better solutions is to
purchase political risk insurance. Multinational companies can go to one of the many
organizations that specialize in selling political risk insurance and purchase a policy that would
compensate them if an adverse event occurred. Because premium rates depend on the country,
the industry, the number of risks insured and other factors, the cost of doing business in one

country may vary considerably compared to another.


However, be warned: buying political risk insurance does not guarantee that a company will
receive compensation immediately after an adverse event. Certain conditions, such as trying
other channels for recourse and the degree to which the business was affected, must be met.
Ultimately, a company may have to wait months before any compensation is received.