Introduction

A firm that conducts business in two or more nations is known as a multinational corporation (MNC).
These businesses are frequently run from a central office with its headquarters in the nation of origin.
MNCs have a regional focus in their orientation, and their goods are produced in accordance with
regional standards.

MNCs have a number of characteristics that distinguish them from other types of businesses. These
include:

Large size: MNCs are typically very large companies, with annual revenues in the billions or even trillions
of dollars.

Global reach: MNCs operate in multiple countries around the world.

Centralized management: MNCs have a centralized headquarters that coordinates the activities of their
subsidiaries and affiliates in different countries.

Foreign direct investment: The global economy is significantly impacted by MNCs. They can transfer
technology, create jobs, and support economic growth and development in the host nation. MNCs have
furthermore come under fire for their effects on the environment, their labor policies, and their effects
on regional cultures.

Here are some examples of multinational corporations:

 Apple
 Coca-Cola
 McDonald's
 Nike
 Samsung
 Toyota
 Walmart
Multinational Corporation
Any corporation that is registered and operates in more than one country at the same time is referred to
as a multinational corporation (MNC).It is also termed as transnational corporation. In most cases, the
corporation's headquarters are in one country, and it has totally or partially owned subsidiaries in other
countries. Its subsidiaries report to the corporation's main office.

OR

A multinational corporation (MNC) is a business that works in both its home country and other countries
across the world. It maintains a central office in one country that manages all of its other offices, such as
administrative branches or manufacturing.

OR

A business that owns and controls the production of goods or services in at least one country other than
its own.

According to Black's Law Dictionary, a firm or organization is regarded a multinational corporation "if it
derives 25% or more of its revenue from out-of-country operations."

MNC is different from a global business, which has facilities in many countries and regions worldwide.
While every global business can be considered multinational, not every multinational corporation is a
global business.

Characteristics of MNCs
Multinational corporations (MNCs) have characteristics that distinguish them from domestic or single-
country businesses. The following are the key characteristics of a multinational corporation:

 A global corporate presence.

 Direct investments in foreign countries.
 Jobs produced in other nations, maybe with greater earnings than those available locally.
 Seeks for increased efficiencies, lower production costs, and a larger market share.
 Adopting a global perspective and mission.

Reasons for Being a Multinational Corporation

A company's principal purpose is to enhance earnings and expansion. If it can enhance its worldwide
customer base and market share abroad, it may consider that opening offices in foreign nations is
worthwhile. Companies may also profit from particular tax structures or regulatory regimes prevalent in
other countries. There are numerous more reasons why businesses seek to become multinational firms.
Here are a few of the most popular reasons:
1-Access to lower production costs

Establishing production in other nations, particularly in emerging economies, frequently results in much
lower production costs. However, outsourcing is one method of reaching the goal and establishing
manufacturing units in other nations may be even more cost-effective.

MNCs can benefit from economies of scale and expand their worldwide brand because of their size. The
growth is done through strategic manufacturing/service placement, which allows the corporation to
take advantage of undervalued services across the globe, more efficient and inexpensive supply chains,
and advanced technological/R&D capacity.

2-Proximity to target international markets

It is advantageous to establish a business in countries where a company's intended consumer market is

located. This helps to cut transportation expenses while also providing global firms with better access to
consumer comments and information, as well as consumer intelligence. Because the same brand vision
may be implemented globally, international brand awareness facilitates the transition from different
countries and their specific marketplaces and reduces per capita marketing expenses.

3- Access to a larger talent pool

Multinational corporations are also known to hire only the best talent from around the world, which
allows management to provide the best technical knowledge and innovative thinking to their product or
service.

4- Different Taxes

Another common reason why a business will become multinational is to take advantage of countries
that offer lower corporate tax rates. Make sure that you work with an experienced tax planning team to
ensure that you understand how your tax obligation will change and any potential ramifications as a
result.

5- Avoidance of tariffs

When a company produces or manufactures its products in another country where they also sell their
products, they are exempt from import quotas and tariffs.

Risks that MNCs Faces

When multinational firms operate in multiple countries and regions, they address a variety of hazards.
Changes in legislation or laws, political instability, crime and violence, cultural differences, and currency
exchange rate variations are examples of such hazards. Furthermore, citizens in the home country may
be resentful about employment outsourcing to other countries.

The following is a detailed explanation of each risk:

1-Regulatory or legal risks

MNCs need to comply with the laws and regulations of the countries in which they operate. If they fail
to do so, they may face fines, penalties, or even imprisonment.

2-Political instability

MNCs may be at risk of losing assets or being forced to close down if there is political instability in the
country in which they operate. For example, if a country experiences a civil war, MNCs may be forced to
evacuate their employees and shut down their operations. When Cuba fell under communist
government, several corporations lost their holdings. Kennecott Copper Company lost all of its assets in
Chile when the country briefly became communist. Many Indians lost their companies in Kuwait when
Iraq attacked the country during the Gulf War.

3-Currency exchange rates

MNCs with operations in numerous countries are vulnerable to currency exchange rate swings. If the
value of a country's currency falls, the MNC's operations in that country may become more expensive.

4-Possible backlash by host country citizens

Local residents may have the impression that they are being exploited for the advantage of a foreign
corporation. This resentment may be motivated by legitimate national concerns. For example, during
the Union Carbide plant disaster in Bhopal, India, many people were heard saying, "This could never
happen in America," implying that safety and operating standards are not as high in the operations of
plants in developing countries due to the low premium placed on the lives of people in developing
countries.

5-Resentment Risk

MNCs that outsource jobs to other countries may face resentment from people in the home country.
This is because outsourcing can lead to job losses in the home country.

To protect their investments and operations, multinational firms must carefully manage these risks.
They can accomplish this by conducting extensive due diligence prior to entering a new market,
engaging local expertise, and preparing contingency plans in the event of unforeseen circumstances.

Nature of MNCs
Multinational corporations can be viewed as four main organizational types.

1-Centralized Global Corporation

A centralized global corporation's organizational structure includes a chief administrative and

management office, sometimes known as the head office. For example, the corporation may outsource
production to developing nations in order to reduce costs; these businesses may also establish
production facilities in these countries in order to maximize affordable resources and gain cost benefits.
A centralized multinational organization is more likely to be close to its international target markets. The
primary benefit of affiliates and subsidiaries in target areas is lower distribution costs. It also increases
the accessibility of potential customers and their information.

2-Decentralized Corporation

A decentralized corporation maintains a presence in its home country and has autonomous offices and
other facilities in locations around the world. This type of multinational company has the capability to
achieve more, faster because it is decentralized. Each office manages the local business itself, making its
own decisions.

3-International Division within a Corporation

An international division is the component of a multinational corporation in charge of all foreign

operations. This framework improves corporate decisions and general activity in domestic and
international marketplaces. Operating independently, on the other hand, can cause issues when general
corporate consensus and action are necessary. Maintaining and displaying the multinational's carefully
cultivated, enterprise-wide brand image may also be an issue.

4-Transnational Corporation

A transnational firm has a parent-subsidiary structure in which the parent company manages the
operations of subsidiaries in both foreign and home nations. Subsidiaries can utilize assets belonging to
the parent company, such as research and development data. Subsidiaries may also be different brands.
The parent company normally retains a managerial role, guiding the operations of its domestic and
overseas subsidiaries.

Objectives of MNCs
The objectives of multinational corporations (MNCs) typically encompass a range of strategic goals that
drive their global operations and expansion efforts. Here are some key objectives of MNCs:

1- To expand the business beyond the boundaries of the home country, where they were originally
established.
2- Minimize the cost of production, especially the labor cost.
3- Avail the competitive advantage internationally.
4- Establish an international corporate image.
5- Make the best use of technological advantages by setting up production facilities abroad.
6- Operating across multiple countries enables MNCs to take advantage of economies of scale.
7- MNCs can offer employment opportunities, training, and skill development to the local
workforce in their host countries.

It is crucial to note that the specific aims of an MNC might change depending on factors such as industry,
size, market conditions, and the general strategy of the firm.
Advantages of MNCs
MNCs have several advantages that are not only beneficial to the people but also contribute to the
development of the nation, some of the advantages are:

 Developing an international presence can open up new markets and sales opportunities
unavailable or not feasible when operating just domestically.
 Corporations can establish operations in markets where their capital can be used most
efficiently and wages have less impact on the bottom line than they did in the home country.
 MNCs provide an inflow of capital.
 It allows countries to purchase imports.
 It provides local employment.
 It can diversify local economies.
 It encourages more innovation.
 It increases cultural awareness.

DIAdvantages of MNCs
As there are various benefits of an MNC, also there are some drawbacks. Here are a few disadvantages
of MNCs:

 Those opposed to multinational corporations point to the potential they may have to develop a
monopoly (for certain products). This can drive up prices for consumers, stifle competition, and
inhibit innovation.
 Multinational companies may also cause the downfall of small, local businesses. Activists have
also claimed that multinational companies breach ethical standards. They accuse them of
evading laws to advance their business agendas.
 Import skilled laborers, which is not good for local laborers.
 It encourages political corruption.
 It removes jobs from their home country.
 It creates one-way raw material resource consumption.

Matrix organizational structure

A matrix organization is a work structure where team members report to multiple leaders. In a matrix
organization, team members (whether remote or in-house) report to a project manager as well as their
department head. This management structure can help your company create new products and services
without realigning teams.

OR

A matrix organizational structure doesn't follow the traditional, hierarchical model. In the matrix
structure, you share resources and staff across teams and projects, as well as within departments or
functions.
Matrix organizational structures are often used by multinational corporations because they can help to:

Improve communication and collaboration

Matrix arrangements may enhance communication and cooperation by dismantling silos and enabling
staff to work across departments and divisions. This is particularly crucial in international workplaces
where personnel may be dispersed across several time zones and nations.

Respond to change quickly

Traditional organizational structures may not be as flexible as matrix structures, which makes it easier to
adapt to changes in the marketplace or the environment. For instance, a matrix structure can be used to
assemble staff from various departments and divisions to collaborate on a project if a global firm wants
to swiftly launch a new product.

Share resources effectively

Matrix structures can help to share resources effectively across functions and divisions. This can be
important for multinational corporations that need to operate in multiple countries with different
resources.

However, matrix organizational structures can also have some challenges, such as:

Conflict

Employees may experience conflict between their functional and divisional managers. This can be
especially challenging if the two managers have different priorities or expectations.

Lack of clarity

Employees may not be clear about who their boss is or who they should report to. This can lead to
confusion and uncertainty.

Complexity

Matrix structures can be complex and difficult to manage. This can be especially challenging for
multinational corporations with a large number of employees and operations.

Overall, matrix organizational structures can be a good choice for multinational corporations that need
to improve communication and collaboration, respond to change quickly, and share resources
effectively.

However, it is important to be aware of the challenges of matrix structures before implementing them.
Followings below are the examples of multinational corporations that use a matrix organizational
structure:

 Boeing
 Cisco Systems
 General Electric
 IBM
 Procter & Gamble
Methods to enter in Global Market
There are several methods to enter in global market namely,

1. International Trade
2. Licensing
3. Franchising
4. Acquisitions of Existing Operations
5. Establishing New Foreign Subsidiaries
6. Joint Ventures

International Trade

Firms can utilize it as a somewhat conservative strategy to enter new markets (by exporting) or to get
goods at a lower cost (by importing). Because the company doesn't put any of its cash at danger, this
strategy involves very little risk. If the company's exporting or importing decreases, it may often cut or
end this aspect of its operation at a modest cost.

Licensing

A company is required to license its technology (copyrights, patents, trademarks, or trade names) in
exchange for payments or other agreed-upon advantages. Through licensing, businesses may utilize
their technology in international markets without having to make significant investments abroad or pay
for shipping. The difficulty for the company supplying the technology to provide quality control in the
overseas production process is a significant drawback of licensing

Franchising

In exchange for recurring payments, franchising requires a company to offer a unique sales or service
approach, support help, and maybe an initial investment in the franchise. McDonald's, Pizza Hut, etc. are
a few examples.

Acquisitions of Existing Operations

Companies routinely buy out rival businesses abroad to get access to new markets. For instance, Procter
& Gamble just bought a bleach firm in Panama, while American Express recently acquired premises in
London. Through acquisitions, companies may swiftly gain a sizable percentage of the overseas market
share while maintaining complete control over their foreign operations.

Establishing New Foreign Subsidiaries

Companies can also break into international markets by starting new businesses to manufacture and
promote their goods there. This approach necessitates a substantial expenditure. Because new
subsidiaries may be specifically adapted to the needs of the company, they may be preferable over
international acquisitions. Additionally, a lower investment may be needed than what would be needed
to buy already-running businesses.
Joint Ventures

A joint venture is a business that at least two companies jointly own and run. Many businesses enter
overseas marketplaces by forming joint ventures with businesses already present there. The majority of
joint ventures let two companies use their unique competitive advantages on a specific project. For
instance, General Mills, Inc. and Nestlé SA formed a joint venture so that General Mills' cereals could be
distributed through Nestlé's international sales network.

In a globalized international society, it is clear that economic liberalism and the free market system
substantially benefit multinational corporations. They increase the local tax base and provide jobs. These
businesses frequently come under fire from those both at home and abroad who believe their influence
on these nations may be more detrimental than beneficial.

Foreign Direct Investment (FDI)

Foreign direct investment (FDI) is an investment made by a company or individual in one country into a
company or asset in another country. A long-term investment gives the investor a significant degree of
control over the company or asset.

Foreign direct investment (FDI) occurs when an investor becomes a large or long-term investor in a
foreign business or corporation, which can benefit the global economy. It is a type of active cross-border
investment in which the investor owns at least 10% of the company.

Key takeaways of FDI

1. Foreign direct investments (FDIs) are sizeable, long-term investments made into a foreign
enterprise by a company or a government.
2. Investors in foreign direct investment (FDI) frequently hold controlling positions in local
businesses or joint ventures and actively participate in their management.
3. The investment could entail purchasing a material supply, growing a business's reach, or
establishing a global presence.
4. Over the past few years, China and the United States have been the major receivers of FDI.
5. The main donors to FDI outside of their own boundaries have historically been the United States
and other OECD nations.

Forms of FDI
Followings are the forms of FDI and mentioned below:

Greenfield investment
 A Greenfield investment is a type of foreign direct investment in which a company establishes a
subsidiary in another nation and makes investments in the building of facilities such as offices,
plants, sites, buildings, etc. to manage its operations and achieve the tightest possible controls over
its operations.

Merger and acquisition (M&A)

This is essentially the transfer of ownership of current assets to a foreign owner. A merger occurs
when two businesses combine to become one, whereas an acquisition occurs when one business is
acquired by another.

Motivating factors of FDI

FDI can be motivated by a number of factors, including:

Access to new markets

FDI may assist businesses in broadening their client base and reaching new markets.

Access to resources

FDI can assist businesses in gaining access to resources like labor, raw materials, or technology that are
not readily available in their native nation.

Cost savings

By operating in nations with cheaper labour or tax expenses, FDI may assist businesses in lowering their
costs.

Risk diversification

By making investments in many nations, FDI may assist businesses in risk diversification.

Advantages of FDI
FDI can have a number of benefits for both the host country and the home country. For the host
country, FDI can:

Create jobs

By constructing new factories or offices and recruiting local people, FDI can generate jobs in the host
nation.

Transfer technology

Technology may be transferred through FDI from the home country to the host country, increasing the
productivity and competitiveness of the host nation.
Increase exports

As businesses generate products and services in the host country for export to other nations, FDI can
result in higher exports from the host nation.

Increase tax revenue

Corporate taxes, property taxes, and income taxes paid by workers of foreign-owned enterprises are just
a few of the ways that FDI may bring in tax revenue for the host nation.

For the home country, FDI can:

Increase profits

By giving domestic businesses access to new markets and resources, FDI may boost their earnings.

Create jobs

By increasing domestic firms' activities abroad, FDI can generate jobs in the home nation.

Reduce risk

By expanding operations abroad, FDI can assist home-country businesses in lowering their risk.

Disadvantages of FDI
However, FDI can also have some drawbacks, such as:

Job displacement

FDI can lead to job displacement in the home country if companies move their operations to foreign
countries with lower labor costs.

Technology transfer

FDI can lead to the transfer of technology from the home country to the host country, which can give
the host country a competitive advantage.

Increased competition

FDI can increase competition in the home country's markets as foreign-owned companies enter the
market.
Political risk

FDI can be exposed to political risk, such as changes in government policies or instability in the host
country.

Types of Foreign Direct Investment (FDI)

Foreign Direct Investment (FDI) can be classified into several types based on the nature and direction of
investment. The main types of FDI are:

1-Horizontal FDI
A corporation of this type expands its operations to produce the same goods or services in a foreign
country as it does in its native country. The objective is to expand into new markets and reach a larger
client base. For example, a vehicle manufacturer may establish manufacturing operations in other
nations to service local customers.

2-Vertical FDI
Vertical FDI happens when distinct phases of the manufacturing process take place in separate
countries. It occurs when an investment is made within a typical supply chain in a company, which may
or may not necessarily belong to the same industry. As such, when vertical FDI happens, a business
invests in an overseas firm which may supply or sell products. It is further classified into two types:

Backward Vertical FDI

This entails investing in industries that supply inputs or raw materials to the MNC's primary
manufacturing activities. For example, a smartphone manufacturer may invest in mining companies to
ensure access to critical materials.

Forward Vertical FDI

In this sector, the corporation invests in industries that are involved in the distribution, marketing, or
sales of its products. For example, a clothes retailer may invest in international retail stores.

3-Conglomerate FDI
In a conglomerate FDI, a company invests in a foreign business that is unrelated to its core business.
Because the investing company has no prior experience in the foreign company’s area of expertise, this
often takes the form of a joint venture. It is also termed as diversified FDI.

4-Platform FDI
Platform foreign direct investment is the final category. With platform FDI, a company develops into a
foreign nation, but the goods produced are exported to a third nation. For instance, the French perfume
company Chanel established a production facility in the USA and exports its goods to other American,
Asian, and European nations.
Pakistan has seen an 88% increase in foreign direct
investment (FDI), from $1.36b in 2019 to $2.56b in
2020, according to the data released by the State Bank.

FDI improved from 2015 to 2018 and then majorly fell in 2019
because of the rupee depreciation but it is improving again in 2020
even though the economy was hit hard due to the coronavirus
pandemic

The foreign investment improved from 2015 to 2018 and then fell in
2019. The drop mainly happened because the rupee’s value tanked.

It is, however, improving in 2020 even though the economy was hit
hard due to the coronavirus pandemic. This is primarily because China
is investing in the telecommunication and power sector via the CPEC
programme.

With Pakistan's new government gaining the trust of its Chinese

counterparts, it is expected that investment from China will keep
coming in.  
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