A multinational corporation (MNC) is a company which is based in one country (home country) and operates in several other countries (host countries). MNCs make the world more globalized by uniting different parts of the world with one activity. Their main strategies are focused on the establishment of their sales units in other countries (mostly in the Third World), and the promotion of their products in these countries. Thus, they play a key role in the development of these countries increasing the employment rates, introducing innovative technologies, and improving the overall level of life there (Goerzen et al. 429).
MNCs and Their Functions
Multinational corporations are usually big companies that have headquarters in one country and operate in several different countries. Although this is the main feature that defines an MNC, there are other features that these corporations have in common. If a company wants to become multinational, it must have a clear business plan and the ability to operate in several countries, as its operations require a large number of employees. The Internet has allowed all kinds of businesses to reach the international level. Even small businesses can participate in the global competition by selling products to different places of the world via the Internet. However, in contrast to small businesses, MNCs import and export much larger volumes of products (Geppert and Dörrenbächer 227).
Although it is not necessary to trade publicly in order to become an MNC, many of them often go public. The main reason for this is to attract investors. The money invested in such companies help increase its growth and the value of its shares. This helps achieve great success in the stock market, which, in its turn, gives such a company the ability to influence the economy of an entire country. Public multinational companies also tend to develop partnerships with governments to carry out local initiatives and with non-governmental organizations to help raise money for charity (Geppert and Dörrenbächer 235).
MNCs as an Instrument of Globalization
Globalization is a process that unites separate national economies and helps create one common economy that encompasses the whole world. It widens the economic integration by including the developing countries’ economies into it and deepens it with the help of the developed countries. MNCs promote globalization by creating the international trade, implementing foreign direct investment, and using modern technologies (Kesselman 21).
Global corporations play a key role in all global issues beginning from human rights and ending with environmental policies. They can help poor countries by making long-term investments in local and global communities, which is more effective than the activities of charitable and aid institutions. In order to do so, they must earn public’s trust first. They must show that their purpose, especially in poor states and the emerging economies, is the human progress. Moreover, they must show that the globalization is not something that makes rich countries richer and poor countries poorer. In this respect, those who oppose globalization deprive almost 2 billion people living in absolute poverty of the chance to escape from it, which is totally unacceptable. Thus, nowadays, the MNCs have a great opportunity to demonstrate that they are the driving force of progress and can dispel the doubts and earn people’s trust, which is crucial for security and prosperity (Goerzen et al. 436).
Differences and Similarities between MNCs and UNCs
MNCs like the uninational corporations (UNCs) are owned by shareholders who annually receive dividends for funding the company. They also try to hire highly qualified workers for the least possible salary, buy the cheapest materials, produce their goods in countries with the lowest taxes, and sell their products in markets where they can earn more money. Thus, probably the main difference between an MNC and a UNC is that the former is usually more successful than the latter and has the ability to expand its activities to several other countries (Giuliani and Macchi 488).
Many people consider the UNCs to be helpful in the development of the regions where they operate, as they enrich labor and earn high incomes by renting or buying buildings and land. In this respect, they are similar to the MNCs that increase the employment rates and enrich owners of the resources in the countries of the Third World. Without them, the people there would have earned much less money, and the demand for the resources there would have been much lower. For example, if such hotels as Four Seasons, the Holiday Inn, and Hyatt had not bought or leased some properties on the coasts of the popular tourist resorts in the countries of the Third World, the owners of that land would have received much less money for their sale. This also gives owners the opportunity to invest money in other enterprises of their country (Giuliani and Macchi 493).
MNCs’ Strategies
MNCs’ main strategy is perhaps operating in countries where the cost of labor and resources is low, and the local regulations are less strict. This strategy allows these companies to minimize the production costs and maximize income. The developing countries of the Third World often encourage MNCs, as they provide innovative technologies and pay higher wages than other local companies. MNCs also expand by using the strategy of establishing sales units in other countries rather than by using marketing strategies to promote their product through the local companies. This strategy gives them the assurance that their product reaches their customers and that they control the prices. MNCs can also make their sales units more autonomous, that allows them to adjust their sales strategies to the market conditions of the host country (Geppert and Dörrenbächer 238).
Another strategy that MNCs often use is the establishment of sales units in other countries aimed only at the local market. They produce goods in the host country and sell them in the same country. This strategy helps MNCs save money on transportation and saves them from the instability in currency values (Geppert and Dörrenbächer 239).
In addition, MNCs use the strategy of sequential marketing that helps reduce or eliminate the local rivalry by offering better products, or by uniting with or purchasing local companies. Also, some MNCs present their products and services in the same way as they present them in their home countries, whereas other MNCs adapt their products and services to comply with the local demand (Goerzen et al. 444).
MNCs’ Impact on the Third World Countries
MNCs perform effective and useful activities in the countries of the Third World. These activities significantly extend the opportunities for these countries to get a higher income, to consume upscale products, and to get high-quality services (Kesselman 21). However, there are people who oppose these corporations stating that the primary goal of these corporations is not to help the Third World countries in their economic development but to impose the Western cultural values on them, as they are all located in the developed countries such as the U.K., Germany, the U.S, France, and others. Thus, the adherents of this point of view insist on the regulation and the thorough supervision over these corporations by the poor countries’ governments or even on their complete expulsion from these countries (Giuliani and Macchi 499).
However, this point of view is not groundless, as there have been several unpleasant incidents in the past like the Nestlé baby milk scandal, the Bhopal disaster, the overthrow of the Chilean President Allende, and so on. Additionally, the value of the MNCs’ assets is sometimes higher than the national income of the countries where they operate, which also causes more suspicion. There have also been some cases when MNCs have bribed the government officials of those countries to freely perform their profitable operations. As a result, several states chiefly in Africa and Latin America being frightened by these facts implemented the hostile policies against MNCs (Giuliani and Macchi 501).
Nevertheless, despite those incidents, the overall image of the MNCs is positive, as they have significantly improved the economies of the Third World countries. It is important for the resisting poor countries to know about the benefits the MNCs can bring to them. Even if the main goal of the MNCs may sometimes be the money they gain from the investment into the Third World countries, their actions undoubtedly improve the material lives of people who live there (Giuliani and Macchi 502).
However, those who oppose MNCs or think that their contributions to the Third World countries’ economies are small admit that these companies pay wages to local workers that are higher than anywhere else in their country and pay more for the rent of land and buildings. Nevertheless, they state that the MNCs pay much less money to the workers there than they pay to their employees in the developed countries and that the working conditions in the Third World countries are worse. However, the opponents of the MNCs do not take into account several factors. For instance, the Third World workers’ level of education and skills is lower than that in the developed countries. The equipment the workers use is more advanced in the industrialized countries than that in the poor countries. Thus, the quantity of the product produced by a worker in a developed country is usually larger than that in a Third World country (Giuliani and Macchi 514).
In general, the cooperation between MNCs and the workers of the Third World countries is mutually beneficial. On the one hand, if the workers cannot find a job in their country where they will be paid more than in MNCs, they will choose employment there. On the other hand, if MNCs can get the same income as they gain at home taking into account the additional risks they take to invest in the countries of the Third World, they will establish their businesses there (Giuliani and Macchi 517).
Conclusion
Multinational corporations have become an integral part of the global economy. On the one hand, globalization is the main reason the MNCs have become popular and successful. On the other hand, the MNCs are now the driving force of globalization. The main strategies the MNCs implement are the search for favorable conditions for their businesses in different countries of the world and the establishment of their sales units in those countries to promote their products. As a result, they help the countries of the Third World by creating employment there and bringing innovative technologies to these countries thereby improving the level of people’s lives there. As for the future of the MNCs, nowadays, some MNCs can operate in several countries, but soon some of them will probably be able to operate in all countries of the world.
Works Cited
Geppert, Mike, and Christoph Dörrenbächer. “Politics and Power within Multinational Corporations: Mainstream Studies, Emerging Critical Approaches and Suggestions for Future Research.” International Journal of Management Reviews, vol. 16, no. 2, 2014, pp. 226-244.
Giuliani, Elisa, and Chiara Macchi. “Multinational Corporations’ Economic and Human Rights Impacts on Developing Countries: A Review and Research Agenda.” Cambridge Journal of Economics, vol. 38, no. 2, 2014, pp. 479-517.
Goerzen, Anthony, et al. “Global Cities and Multinational Enterprise Location Strategy.” Journal of International Business Studies, vol. 44, no. 5, 2013, pp. 427-450.
Kesselman, Mark, et al. Introduction to Politics of the Developing World (6th ed.). Wadsworth, Cengage Learning, 2013.