2019/AUG/BAESC/B226097/DAY/KLA .

TRADE COURSE WORK

The multinational corporation is a business organization whose activities are located in

more than two countries and is the organizational form that defines foreign direct investment.

Characteristics of a Multinational Corporation

The following are the common characteristics of multinational corporations:

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 high, and they are
able to generate substantial profits.

Network of branches
Multinational companies maintain production and marketing operations in different
countries. In each country, the business may oversee multiple offices that function through
several branches and subsidiaries.

Control
In relation to the previous point, the management of 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.

Continued growth
Multinational corporations keep growing. Even as they operate in other countries, they strive
to grow their economic size by constantly upgrading and by conducting mergers and
acquisitions.

Sophisticated technology
When a company goes global, they need to make sure that their investment will grow
substantially. In order to achieve substantial growth, they need to make use of capital-
intensive technology, especially in their production and marketing activities.

Right skills
Multinational companies aim to employ only the best managers, those who are capable of
handling large amounts of funds, using advanced technology, managing workers, and
running a huge business entity.

Forceful marketing and advertising

2019/AUG/BAESC/B226097/DAY/KLA . TRADE COURSE WORK

One of the most effective survival strategies of multinational corporations is spending a great
deal of money on marketing and advertising. This is how they are able to sell every product
or brand they make.

Good quality products

Because they use capital-intensive technology, they are able to produce top-of-the-line
products.

What is the Role of MNCs in Developing Countries?

 MNCs have contributed significantly to the development of world economy at large.

They have also served as an engine of growth in many host countries. Their importance
in a developing country may be traced as follows:
 MNCs help a developing host country by increasing investment, income and employment
in its economy.
 They contribute to the rapid process of development of the country through transfer of
technology, finance and modern management.
 MNCs promote professionalisation management in the companies of the host countries.
 MNCs help in promoting exports of the host country.
 MNCs by producing certain required goods in the host country help in reducing its
dependence on imports.
 MNCs due to their wide network of productive activity equalize the cost of production in
the global market.
 Entry of MNCs in the host country makes its market more competitive and break the
domestic monopolies.
 MNCs accelerate the growth process in the host country through rapid industrialization
and allied activities.
 The growth of MNCs creates a positive impact on the business environment in the host
country.
 MNCs are regarded as agents of modernization and rapid growth

 MNCs are the vehicles for peace in the world. They help in developing cordial political
relations among the countries of the world.
 MNCs bring ideas and help in exchange of cultural values.
 MNCs through their positive attitude and efforts work for the establishment of social
welfare institutions and improvement of health facilities in the host countries.
 Growth of MNCs help in improving the balance of payment status of the host country.
 The MNCs integrate national and international markets. Their growth in these days has
remarkably influenced economic, industrial, social environment and business conditions.
2019/AUG/BAESC/B226097/DAY/KLA . TRADE COURSE WORK

 In short, through basically seeking maximization of profits by using all types of resources
and strategies of the global economy, eventually globalization has become the main focus
of their business. In this way, it has become a main propelling force behind the expansion
of world economy at large.

Different Challenges Faced by the Multinational Companies (MNC’s)

A multinational company  (MNC) is an enterprise that manages production or delivers
services in more than one country. There are some challenges faced by MNC’s that transact
business in international markets which can hinder its competitiveness hence its
controversies and these are as follows;

 Market Imperfections
corporation that decide to do business in a different country, where they don’t know the
laws, local customs or business practices of such a country are likely to face some
challenges that can reduce the manager’s ability to forecast business conditions. The
additional costs caused by the entrance in foreign markets are of less interest for the local
enterprise. Firms can also in their own market be isolated from competition by
transportation costs and other tariff and non-tariff barriers which can force them to
competition and will reduce their profits.

 Tax Competition
Countries and sometimes subnational regions compete against one another for the
establishment of MNC facilities, subsequent tax revenue, employment, and economic
activity.

 Political Instability
Many multinational enterprises face the challenge of political instability when doing
business in international markets. This kind of problem mostly occurs when there is an
absence of a reliable government authority. When this happens, it adds to business costs,
increase risks of doing business and sometimes reduces manager’s ability to forecast
business trends. Political instability is also associated with corruption and weak legal
frameworks that discourage foreign investments.

 Market Withdrawal
The size of multinationals can have a significant impact on government policy, primarily
through the threat of market withdrawal. For example, in an effort to reduce health care
2019/AUG/BAESC/B226097/DAY/KLA . TRADE COURSE WORK

costs, some countries have tried to force pharmaceutical companies to license their
patented drugs to local competitors for a very low fee, thereby artificially lowering the
price. When faced with that threat, multinational pharmaceutical firms have simply
withdrawn from the market, which often leads to limited availability of advanced drugs.

 Lobbying
Multinational corporate lobbying is directed at a range of business concerns, from tariff
structures to environmental regulations. Companies that have invested heavily in
pollution control mechanisms may lobby for very tough environmental standards in an
effort to force non-compliant competitors into a weaker position. Corporations lobby
tariffs to restrict competition of foreign industries.

 Infrastructure
Selecting a suitable place in the country can be quite a challenge for Multinational
Companies. Western companies tend to lease office spaces rather than owning it. Due to
lack of professional infrastructure and high demands, companies need to book offices in
under construction buildings way before they are completed. Not only this, they also need
to lease large office spaces in the very beginning to keep a check on growth of the
company, and availability of more space. This creates quite a hassle in the beginning for
the spaces are too large for the amount of people it holds.

 Recruitment
Recruitment is another challenge for the companies as there is an enormous crowd
applying for jobs in prevailing country, whereas the number quality and talented
professionals is very less. To filter out the cream is a challenge in itself.

 Diverse Culture
There is one big weakness for the companies to set up their business. Since most
companies are western, and the top management is foreign in the beginning, there is a
huge problem in coping up with the culture of the diversity of employees they hire. This
can stir quite an unrest in the employees.

 Price Centric Customers

The mentality of the people in buying goods and availing services. Countries that are
more of a price centric , do not witness as much brand loyalty, as it does consider the
price.

 Total government control on the prices of all the enlisted products.

 Import of raw material which costs a lot of precious foreign exchange.
 2019/AUG/BAESC/B226097/DAY/KLA . TRADE COURSE WORK

 Following the Current Good Manufacturing Practice (cGMP) and produce quality
products, majorly involve all quality control test which brings about delay.
 Rapid devaluation of the money in the country against the major currencies, due to
which the profit margins are shrinking.
 Increasing cost of manpower and energy.

Prevent challenges faced by MNCs in foreign countries

 Promoting political stability in the country to favor and habit the MNC in the foreign
countries.
 Minimize manpower and energy costs at an affordable price so as to attract MNC in the
country and favor there activities
 Use of quality inactive ingredients, not only active raw material so as to make proper use
of them through creativity.
 Minimizing government control in the country through creating independent
organizations to take part in control of prices of enlisted products.
 Use of local raw materials with in the reach to reduce on exportation costs on foreign
exchange.
 Hiring human resource managers to carry out recruiting of employees and selecting out
the best through proper screening despite the number.
 Setting up good quality or improved infrastructures that harbor the MNC activities in
foreign countries.
 To compete, countries and regional political districts must offer incentives to MNCs such
as tax breaks, pledges of governmental assistance.
 Providing government assistance to support the MNCs in the foreign countries.
 Provide quality products to the MNCs
 Charge a competitive price for that as people would compare features without going into
the premium depth, and hence choose a cheaper version. The fall of the telecom sector is
a perfect example for the price centric mentality of the people.
 The firms can maximize their joint income by merger or acquisition which will lower the
competition in the shared market. This could also be the case if there are few substitutes
or limited licenses in a foreign market.

REFERENCE
 2019/AUG/BAESC/B226097/DAY/KLA . TRADE COURSE WORK

https://www.rroij.com/open-access/challenges-fasces-by-mncs-in-pakistan-due-to-unethical-
practice-ofnational-pharmaceuticals-.php?aid=73252

https://medium.com/@RajivDidolkar1/challenges-faced-by-multinational-companies-in-india-
8f7fc09eea92

https://www.preservearticles.com/business/what-is-the-role-of-mncs-in-developing-countries/
20063

https://corporatefinanceinstitute.com/resources/knowledge/strategy/multinational-corporation/
2019/AUG/BAESC/B226097/DAY/KLA . TRADE COURSE WORK