The Importance of Multi National Companies (MNCs) | Business Studies for GCSE/IGCSE - Year 11 PDF Download

Multinational Companies

• A multinational company (MNC) is a business that is registered in one country but operates in several countries. 
• For instance, Starbucks, originally from the USA, has expanded its operations to 80 countries with 32,000 stores worldwide.

Diagram: Examples of Multinational Companies

• Factors like globalization and deregulation have facilitated the expansion of multinational corporations (MNCs).
• MNCs frequently select their operational locations based on considerations such as cost efficiencies and market accessibility.
  • For instance, Nike, an American company, conducts 50% of its manufacturing in countries like Mexico, China, Vietnam, and Indonesia, attracted by their lower production expenses.

Benefits of Operating as a Multinational Corporation

• Economies of Scale: Operating globally allows companies like Nike to increase production output, thus benefiting from cost efficiencies driven by economies of scale.
• Profit Maximization: While a significant portion of profits may be repatriated to their home country, some multinational corporations, including Nike, maintain profits in offshore accounts, impacting the actual flow of money back to the home country.
• Employment Generation: Setting up new facilities in host countries leads to the creation of jobs, contributing to improved income levels and subsequently enhancing the standard of living in those regions.
• Exploring New Markets: Multinational corporations can identify and enter new markets, expanding their customer base and revenue streams.
• Cost Efficiency in Transportation: By establishing facilities closer to their consumers, MNCs like Nike can reduce transportation costs, enhancing operational efficiency.
• Risk Diversification: Operating in multiple markets helps mitigate the risk of business failure. For instance, a downturn in one market can be offset by growth in another, ensuring more stable operations.
• Tax Optimization: Multinational corporations strategically locate operations in countries with favorable tax conditions, such as low corporate taxes or tax incentives. This enables them to maximize profits and minimize tax liabilities.
• Adaptation to Protectionism: By establishing bases in countries with protectionist policies, MNCs can circumvent trade barriers and tariffs, safeguarding their interests and optimizing production and distribution processes.

Impact of Multi-National Companies (MNCs) on Stakeholders

• MNCs can affect various business stakeholder groups in both positive and negative ways, such as employees, local communities, governments, consumers, and suppliers.

The Impact of MNCs on Stakeholders