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Multinational corporations are business entities that operate in more than one country. The typical multinational corporation or MNC normally functions with a headquarters that is based in one country, while other facilities are based in locations in other countries. In some circles, a multinational corporation is referred to as a multinational enterprise (MBE) or a transnational corporation (TNC). The exact model for an MNC may vary slightly. One common model is for the multinational corporation is the positioning of the executive headquarters in one nation, while production facilities are located in one or more other countries. This model often allows the company to take advantage of benefits of incorporating in a given locality, while also being able to produce goods and services in areas where the cost of production is lower. Another structural model for a multinational organization or MNO is to base the parent company in one nation and operate subsidiaries in other countries around the world. With this model, just about all the functions of the parent are based in the country of origin. The subsidiaries more or less function independently, outside of a few basic ties to the parent. A third approach to the setup of an MNC involves the establishment of a headquarters in one country that oversees a diverse conglomeration that stretches to many different countries and industries. With this model, the MNC includes affiliates, subsidiaries and possibly even some facilities that report directly to the headquarters. The idea of a multinational corporation has been around for centuries. Some trace the origins of the concept back to the Dutch East India Company of the 17th century, as the corporate structure involved a presence in more than one country. During the 19th and 20th centuries, the idea of a company that functioned in more than one nation became increasingly common. In the 21st century, this business model continues to be highly desirable. There are several ways that an MNC can come into existence. One approach is to intentionally establish a new company with headquarters in one country while producing goods and services in facilities located elsewhere. In other instances, the multinational corporation comes about due to mergers between two or more companies based in different countries. Acquisitions and hostile takeovers also sometimes result in the creation of multinational corporations. The first modern multinational corporation is generally thought to be the East India Company. Many corporations have offices, branches or manufacturing plants in different countries from where their original and main headquarters is located. Some multinational corporations are very big, with budgets that exceed some nations' GDPs. Multinational corporations can have a powerful influence in local economies, and even the world economy, and play an important role in international relations and globalization. International Power Tax Competition Multinational corporations have played an important role in globalization. Countries and sometimes subnational regions must compete against one another for the establishment of MNC facilities, and the subsequent tax revenue, employment, and economic activity. To compete, countries and regional political districts sometimes offer incentives to MNCs such
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as tax breaks, pledges of governmental assistance or improved infrastructure, or lax environmental and labor standards enforcement. This process of becoming more attractive to foreign investment. Market withdrawal Because of their size, 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 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. In these cases, governments have been forced to back down from their efforts. Similar corporate and government confrontations have occurred when governments tried to force MNCs to make theirintellectual property public in an effort to gain technology for local entrepreneurs. When companies are faced with the option of losing a core competitive technological advantage or withdrawing from a national market, they may choose the latter. This withdrawal often causes governments to change policy. Lobbying Multinational corporate lobbying is directed at a range of business concerns, from tariff structures to environmental regulations. There is no unified multinational perspective on any of these issues. Companies that have invested heavily in pollution control mechanisms may lobby for very tough environmental standards in an effort to for nonce compliant competitors into a weaker position. Corporations lobby tariffs to restrict competition of foreign industries. For every tariff category that one multinational wants to have reduced, there is another multinational that wants the tariff raised. Patents Many multinational corporations hold patents to prevent competitors from arising. For example, Adidas holds patents on shoe designs, Siemens A.G. holds many patents on equipment and infrastructure and Microsoft benefits from software patents. Culture Culture is the set of values and beliefs shared by a group. This includes groups as small as social groups, and as large as a whole country. Since multinational companies operate in more than one country, they are exposed to many different cultures. Each culture has its own beliefs and values. To be successful in these foreign countries, multinational companies must have a global mindset, and be able to recognize and adapt to the differences. 7 methods of managing diff. culture: 1. Hierarchy: This refers to the way people view how much they defer to people in authority, whether they feel entitled to express themselves and how empowered they feel to take the initiative on matters before them. 2. Group focus: This refers to whether people consider that accomplishment and responsibility are achieved through individual or group effort, and whether they tend to identify themselves as individuals or members of a group. Canadians are individualists while Brazilians, Chinese, Mexicans and Japanese are group-focused. 3. Relationships: This is about whether trust and relationships are viewed as a prerequisite for working with someone. Canadians focus primarily on the transaction, rushing to deal, while the Chinese, Italians, and Spaniards, for example, focus on nurturing relationships first.
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4. Communication styles: This covers matters like verbal and non-verbal expression, how directly or indirectly people speak, and whether brevity or detail is valued in communication. Israel, Denmark, Germany and Sweden use a direct style, while indirect communication styles are the norm in China, United Arab Emirates, and Japan. 5. Time orientation: This refers to the degree to which people believe adhere to schedules United States, Germany, Denmark and Switzerland follow schedules while countries like Saudi Arabia, Spain, Thailand, and the United Arab Emirates are unconcerned about schedules and deadlines. 6. Change tolerance: How people are comfortable with change, risk-taking and innovation. Along with Australians, Canadians are the most tolerant of change, while Saudi Arabia, Indonesia, Mexico and Russia are change-averse. 7. Motivation: work/life balance: This characteristic examines whether people work to live or live to work. Canadians are driven by work and the status it provides - although not as much as people in China, Japan, and the U.S. - while in Norway, Saudi Arabia, United Arab Emirates, India and Mexico, family-work balance is treasured. Advertisement in different countries Another way for multinational companies to prove that they understand the specific market is through advertisement. Advertising products in different countries requires the companies to use specific methods of advertisement that is allowed by the tradition and culture of the country. For example, in western countries, sex appeal is used a lot in advertising many different products. It is used to grab attention of customers and is used to boost sales. This strategy however won¶t be successful in countries that are very religious like most Arabic countries where the dominant religion is Islam. In those countries people, especially girls, are mostly covered and so won¶t be wearing very revealing clothes. Therefore, ads that use sex appeal, like girls in bikinis for example, won¶t be used. Companies that adapted to foreign market successfully Just because a large company is very successful in one country, it doesn¶t mean that it will be successful in another country, especially if that country has a completely different culture. McDonalds is one of the largest companies in the world. However, it has adapted to the different cultures to make sure it is successful. In France, µMcDonald's added tablecloths and candles to improve the ambience at some eateries and introduced waiter service at certain outlets because they found that most Europeans prefer leisurely rather than fast food dining¶. In addition to space, McDonald¶s has changed its menus from one country to another, offering food that locals usually eat: in France, a burger has mustard and ciabatta rolls instead of regular buns. In Japan, fried egg burgers were offered. In Saudi Arabia, in accordance with the religious believes there, Starbucks has changed its logo and removed the girl from the picture. In addition, Starbucks branches there usually have two sections, one for the females and one for the males. This is the case with most stores since men aren¶t allowed to sit with women. Companies that failed to adapt to foreign culture In many occasions, a lot of the larger companies think that because they are a large corporation, they can succeed anywhere without changing anything. This tactic proved wrong, as many companies have failed and were forced to shutdown foreign branches. The biggest example was ³When Wal-Mart expanded in Germany in 1997, it hoped that Germans,
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like Americans, would scoop up its low-priced items. By July 2006, Wal-Mart had closed its German operations and absorbed $1 billion in losses. This was because they didn¶t adjust to the German culture where people preferred frequently specialty stores, not one-stop shops
Possible advantages of a multinational corporation are: 1.Multinational Companies are able to sell far more than other type of company. 2.Multinational companies can avoid transport costs. 3.Multinationals can take advantage of different wage levels in different countries(as in some countries only women and children work, so the wages can be low) 4.Multinationals can achieve great economies of scale. 5.Multinationals have less chance of going bankrupt than small companies. 6.Multinationals can carry out a lot of research and development
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