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Multinational Corporations

A multinational corporation is a
company that operates in its
home country, as well as in
other countries around the
world. It maintains a central
office located in one country,
which coordinates the
management of all other
offices such as administrative
branches or factories.
Characteristics of a
Multinational
Corporation
1. Very high assets and
turnover
To become a multinational
corporation, the business must be
large and must own a huge amount
of assets, both physical and
financial. The company’s targets are
so high that they are also able to
make substantial profits.
2. Network of branches
Multinational companies
keep production and
marketing operations in
different countries. In each
country, the business
oversees more than one
office that functions through
several branches and
subsidiaries.
3. Control
In relation to the previous
point, the management of the
offices in other countries is
controlled by one head office
located in the home country.
Therefore, the source of
command is found in the
home country.
4. Continued growth
Multinational corporations keep
growing. Even as they operate in
other countries, they strive to
grow their economic size by
constantly upgrading and even
doing mergers and acquisitions.
5. Sophisticated
technology
In order to achieve
substantial growth, they need
to make use of
capital-intensive technology,
especially in their production
and marketing.
6. Right skills
Multinational companies
employ only the best
managers who are capable of
handling huge funds, using
advanced technology,
managing workers, and
running a huge business
entity.
7. Forceful marketing and
advertising
One of the most effective survival
strategies of multinational
corporations is spending a huge
amount of money on marketing
and advertising. It is how they are
able to sell every product or
brand they make.
8. Good quality products

Because they use


capital-intensive technology,
they are able to produce
top-of-the-line products.
Reasons for Being a
Multinational
Corporation
1. Access to lower production
costs
It is a very common reason for
companies to go global because
if they set up production in
other countries, especially in
developing economies, they
spend less on production costs.
2. Proximity to target
international markets
It is beneficial to set up business in
countries where the target market
of a company is. It helps reduce
transport costs, and it gives
multinational corporations easier
access to consumer feedback and
information, as well as to consumer
intelligence.
3. Avoidance of tariffs
When a company
produces or manufactures
its products in another
country where they sell
them, they are exempted
from import quotas and
tariffs.
Advocates of multinationals say they create high-paying
jobs and technologically advanced goods in countries that
otherwise would not have access to such opportunities or
goods. On the other hand, critics say multinationals have
undue political influence over governments, exploit
developing nations, and create job losses in their own
home countries.
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Advantages of Multinational
Corporations
Multinational corporations provide an inflow of capital.

Headquarters in the developed world


Reliance on mature markets
Investments
Inflow of capital
Multinational corporations reduce government aid
dependencies in the developing world.

Some nations rely on foreign aid for more than 40% of their annual
budget.

Creating new assets in the developing world allows multinationals to


begin improving the amount of trade which occurs in the developing
world.
Multinational corporations allow countries to purchase imports.
Overall lack of resource
access.

○ Eg . United States vs a
● Better goods Somalia
● More
opportunities Capital inflows help
● Raise the countries have more access
standard of to the import/export market.
living
Multinational corporations provide local employment.

Jobs created by foreign affiliates are good because they pay higher wages , especially in emerging
markets

Foreign affiliates are more productive, they earn higher profits and therefore pay higher wages.

Foreign affiliates pay more because their parent company has higher global profits.

Employment in a foreign affiliate may also be more rewarding for the worker if it offers more
opportunities for training and professional development.
Multinational corporations improve the local
infrastructure.
Roads, bridges, and technology access are three of the largest barriers taken down
when multinationals become active in a developing country.

Education investments to improve labor skills, along with public transportation


development and other unique needs that some nations may require.
Multinational corporations diversify local economies.

Many communities, developing countries, and economies all


rely on primary products for subsistence.

More variety, creating diversity in local production levels.

Reduces reliance on commodities which often have volatile


prices because their supply and demand levels waiver so
often.
Multinational companies create consistent consumer experiences.
Multinationals work from a centralized Consumers trust
structure, which means there is a basic these businesses
expectation that every asset will look because they
and perform as every other one does. understand what the
value proposition is
for them before they
ever walk through
the doors
The average multinational
corporation spends between
5% to 10% of its annual
budget on innovative
research.
Many of the companies with
the most intensive research
and development intensity are
the multinationals who are on
the Fortune Global 500.
Multinational corporations encourage more innovation.
In 2002, 700 firms, 98 Multinational
percent of which were corporations are
multinational
creators of knowledge.
corporations, accounted
for 46 percent of the
world’s total R&D
expenditure and 69
percent of the world’s
business R&D.

Multinational corporations encourage more innovation.


Multinational corporations encourage more innovation.
Multinational corporations enforce minimum quality standards.

Most multinationals rely


on vendors for their
distribution work. Some
even use them for sales
opportunities.
Because of their size and influence, these companies put leverage
on their partners (including their suppliers) to provide an
expected experience to each customer.
Multinational corporations increase cultural awareness.

When companies expand overseas, they become exposed to new cultural


realities.

Managers and HR agents working for multinational companies need to be


culturally sensitive, as do those responsible for training methods and
materials in different cultural settings.
Multinational corporations increase cultural awareness.

These companies offer a positive influence on cross-culture communication


if this advantage becomes a top priority for them.
Disadvantages of Multinational
Corporations
Multinational corporations create higher environmental costs.

One primary advantage which multinationals see in doing business in the


developing world is a lack of robust environmental legislation.

Weaker governments tend to


exchange environmental harm for
additional profits.
Multinational corporations don’t always leave profits local.
There is evidence to show that the investments
made by multinational companies improve the
local infrastructure. Additional education and
job training offer new opportunities for
domestic workers.

Once the investments are made, however, the profits earned by the
company tend to be repatriated for use in other areas.
Most companies in The amount of time
this position will necessary to create
import the skilled local skills that
labor they require encourage high
from other productivity levels is
economies to meet measured in years, not
their needs weeks or months.

Multinational corporations import skilled labor.


Multinational corporations remove jobs from their home country.

Manufacturing jobs are outsourced most often, with multinationals focusing


on Southeast Asia because of the lower labor costs involved.

Call centers are outsourced frequently too, again because wages are lower
overseas than in their home market.

Writers and graphic designers are often outsourced because contract


employees are cheaper than full-time staff.
Multinational corporations build legal monopolies.

Even though the assets controlled by multinational corporations are


managed by a centralized structure, governments treat each location as its
own entity.

Giant corporations control over 70% of the world's trade, carry out the bulk
of new research and development (R&D), shape international markets
through their advertising and exert a great deal of influence over price
Multinational corporations build legal monopolies.

Google currently owns a 63% share of search engine traffic handled


Multinational corporations put other companies out of business.
Transnational Corporations
MNCs vs TNCs

MNCs
- Invest in other countries Defining Characteristic:
but do not coordinate Seeks to maximize profit of
product offerings in each the center parent company
country
Realistic View Towards MNCs
Augusto Espiritu (1978)

1. MNCs do not guarantee development.

At best: development facilitators

At worst: instruments for domination


Augusto Espiritu (1978)

2. Awareness of the association of MNCs and power. Political,


cultural, and economic power.
Augusto Espiritu (1978)

3. MNCs and foreign investments aren’t there to boost


underdeveloped countries’ economic growth.
Augusto Espiritu (1978)

4. They haven’t reduced inequalities within host countries nor


have they helped with the poverty issue.
Augusto Espiritu (1978)

5. Highly limited participation of local skilled workers in the


contribution of GDP
Augusto Espiritu (1978)

6. MNCs vary. Some may have records of undesirable


business practices. Others may not.
TNCs

1. Enterprises composed of a 2. Enterprises that own/control


parent firm responsible for the production or facilities
assets not only of its own outside the country in which
country they are based
- United Nations Conference -United Nations Commission
on Trade and Development on Transnational
Corporations and Investment
TNCs

•Invest in foreign operations


•Have a central corporate facility but
•Decision-making & marketing powers were given to each
individual foreign market
TNCs

•Oil/Petroleum
•I.T.
•Consulting
•Pharmaceutical Industries
•Food & Manufacturing Center
TNCs

•Overall performance -Factors to consider in


-Conglomerated/collected placing investment:
reports of the subsidiaries -Operation
-Resources
TNCs

•67% of Global Trade •75% of Total World


Investment
TNCs

•How does employment in TNCs affect the


parent company?

•How do operations of TNCs affect social


development of parent company?
Filipino TNCs
Filipino TNCs
Operation of TNCs
Operation of TNCs

1. Setting up a subsidiary which may be wholly or


partially owned

*subsidiary – company owned/controlled by the parent company


Operation of TNCs

§ Coca-Cola
§ Procter and Gamble
§ Toyota
§ Motorola
§ Dole Philippines
§ Del Monte Philippines
Operation of TNCs

2. Entering a joint venture using Filipino capital

*joint venture (JV) – arrangement of 2/more business parties to pool their resources
to accomplish a specific task
Operation of TNCs

3. Investing in domestic corporations through


minority shareholdings

*minority shareholder – holds stock < 51%


Ex. 5% of shares outstanding in Johnson & Johnson
Operation of TNCs

We cannot stop the operation of TNCs.

TNCs are already here and it would cause serious


economic dislocations if their operations immediately stop.
Operation of TNCs

•Lim(1991) debunks the myth that:


Operation of TNCs

•Lim (1991) argues that right policy is to:


Pursue long, medium, and short-term plans to
change the composition of exports
TNCs
•Food and Agricultural Sector
•Fishing
•Food Processing Industry
•Garment Factories
•Oil Industry
•Motor Vehicles
References
1.Difference Between TNC and MNC. Difference Between.
http://www.differencebetween.net/business/difference-between-tnc-and-mnc/
2.Pedroso, L.R. (1998). The Social Development Impact of TNCs in the
Philippines. Philippine Journal of Public Administration, 42(3&4), 262 – 290
3.Magallona, M.M. (1987). Transnational Corporations in the Philippines:
Changing Dimensions and Modalities of Exploitation
4. Growth of TNCs. https://sayaglobal.weebly.com/transnational-corporations.html