Structures Multinational Companies

Management  A multinational company owns and manages its business in two or

more countries
 According to ILO report, the essential management of the MNCs
lies in one country and they carry out their business in number of
other countries.
 They have a centralized control on the business from their head
office.
 They have all the required facilities for production and marketing
in several countries

Operation  Multinational companies operate their business at least in six

countries.
 They play an essential role in the international trade
 They produce goods even in the countries where they operate
their business.
 They provide technological facilities to the countries where they
operate their business.
 They export raw materials as well as finished to the host
countries resulting to increased profits

Capital  Multinational companies have large-scale assets and

transactions.
 Home countries get foreign exchange by procuring raw materials
from the host countries
 Cheap costs and factors of production leading to lower average
costs

Manpower  Technological and administrative skills required for operation of
multinational companies.
 Generate employment opportunities not only for the home
countries but also for the host countries

Advantages Multinational Companies

Economy  Multinational companies procure raw materials from the host
countries and thus help the home country in getting foreign
exchange
 There is a remarkable increase in employment opportunities
 Generate employment opportunities to the host countries
 Help home country develop relations with other countries

Productivity  Multinational companies procure raw material from the host

countries and thus help the home country in getting foreign
exchange.
  There are new innovations and developed skills in the host
countries
 They make it possible to have standard quality products in all the
host countries
 Home countries provide technological and administrative
support to the developing host country which in turn
revolutionizes the production

Market  Multinational companies build their reputation and gain

recognition
 They increase their brand awareness and product recognition
 They help promote home country’s culture and traditions
 The host countries are also helped by exporting more and
importing less
 Enjoy cheap costs and factors of production leading to lower
average costs

Machinery/ Technology  Multinational companies bring new technology and knowledge to

the host countries
 They also provide high quality modern facilities and services to
the host countries
 The home country acquires technology and management
expertise from competing in the global markets

Profit  It Is even possible for them to earn profit and royalty through the
administrative agreement with host countries
 The host countries are benefited by increase in capital
investments by the multinational companies
 Inflow of income from overseas profits and management
contracts
 Home country export raw materials as well as finished goods to
the host countries thus increasing their profits

Disadvantages Multinational Companies

Economy  Multinational companies may evade tax by practicing transfer
pricing
 The home country of the MNC gets the lion’s share of the profits
 Multinational companies may neglect the home country’s
industrial and economic development
 Instead of providing job opportunities in the home country,
multinational companies focus on employing in host countries
Price competition  Multinational companies dominated the host countries getting
cheap costs which will lead them to selling products at high
prices for the consumers.
Local Market  Multinational Companies are pushing local firms out of business
 Competition may vanish in host countries
 Monopoly of multinational companies may established in the
host countries
 It may dilute the culture of the host country with the home
country’s cultures.

Quality  Home countries may lose their monopoly on various strategic

technologies and equipment thus resulting to a decreased quality

Labor’s salary  Multinational companies transfer capital from the home country
to various host countries causing unfavorable balance of
payment
 They exploit the labor force and resources in the host countries