Definition of Multinational Corporation (MNC)
- An MNC is a company that has its facilities, plants and other assets in a country other than its home country or the country that it is incorporated in.
- They are popularly termed as International Companies or Transnational Corporations.
- A centralized headquarters is responsible for coordinating activities across branches.
- The history of MNCs finds its roots in colonialism and imperialism. One of the earliest known MNCs in India is the British East India Company (EIC) established by the Charter Act of 1600.
- Some examples of MNCs are – Burger King, Walmart, Adidas etc.
Types of MNCs
- Decentralised MNC – this corporation maintains a prominent presence in its home country.
- Centralized global corporation – this corporation has a chief administrative and management office or head office which outsources production to developing economies in order to lower costs.
- International company – is a corporation that builds on the research and development of its parent company to increase the success rate in its endeavours.
- Transnational Enterprises - These corporations do business in several countries without one location as a corporate home.
Advantages of an MNC
- The MNC enjoys economies of scale, thereby lowering cost of production.
- Enjoys high turnover and has a large number of assets in its name.
- There is continued growth through mergers, acquisitions, expansions etc.
- Use of capital intensive technology enhances quality of the product.
- Access to a large, diverse talent pool.
- Increased innovation.
Disadvantages of an MNC
- Indiscriminate use of resources and environmental damage.
- Increases competition and oftentimes throws smaller, domestic players out of the market.
- Profits are exported to the home country.
- Adverse impact on societies due to negative externalities created.
- Powerful pressure group on the government.
Difference between MNC and Domestic Corporation
MNC - It has physical presence in many countries - It has physical presence in its home country - An MNC has a more complicated business model
Domestic Corporations - It has a simpler business model - Subject to International Financial Reporting Standards (IFRS) - Subject to Generally Accepted Accounting Principles (GAAP)
