Multinational Corporations; There Definition and Evolution

1034 Words Aug 12th, 2007 5 Pages
A Multinational Corporation has been described as one that has production facilities or other fixed assets in at least one foreign country and makes its major management decisions in a global context. In marketing, production, research and development, and labor relations, its decisions must be made in terms of host-country customs and traditions. In finance, many of its problems have no domestic counterpart-the payment of dividends in another currency, for example, or the need to shelter working capital from the risk of devaluation, or the choices between owning and licensing. Economic and legal questions must be dealt with in drastically different ways. In addition to foreign exchange risks and the special business risks of operating in …show more content…
• export continues
3. Multinational Stage
The company becomes a multinational enterprise when it begins to plan, organize and coordinate production, marketing, R&D, financing, and staffing. For each of these operations, the firm must find the best location.
Motives for Direct Foreign Investment
New MNCs do not pop up randomly in foreign nations. It is the result of conscious planning by corporate managers. Investment flows from regions of low anticipated profits to those of high returns.
• Growth Motive: A company may have reached a plateau satisfying domestic demand, which is not growing. Looking for new markets.
• Protection In The Importing Countries: Foreign direct investment is one way to expand bypassing protective instruments in the importing country. o European Community: imposed common external tariff against outsiders. US companies circumvented these barriers by setting up subsidiaries. o Japanese corporations located auto assembly plants in the US, to bypass VERs.
• Market Competition: The most certain method of preventing actual or potential competition is to acquire foreign businesses.
• Cost Reduction:
• Cheap Foreign Labor: Labor costs tend to differ among nations. MNCs can hold down costs by locating part of all their productive facilities abroad.
Supplying Products to Foreign Buyers
Export versus Direct Foreign

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