Taiwan and South Korea have long had an embargo against Japanese cars for political reasons and to help domestic automakers. In another example, when the environmentally conscious Green movement challenged the biotechnology research conducted by BASF , a major German chemical and drug manufacturer, BASF moved its cancer and immune-system research to Cambridge, Massachusetts.
Another advantage for multinationals is their ability to sidestep regulatory problems. Multinationals can also shift production from one plant to another as market conditions change. When European demand for a certain solvent declined, Dow Chemical instructed its German plant to switch to manufacturing a chemical that had been imported from Louisiana and Texas. Computer models help Dow make decisions like these so it can run its plants more efficiently and keep costs down.
America is the cradle of the consumer goods brand. Here, a free-spending and marketing-saturated public nurtured Apple, Google, Coca-Cola, Microsoft, and countless others to maturity.
Many of those brands grew up to conquer other societies, as well. Taylor, chief marketing officer of the Marketing Science Institute. American companies have lost the most ground in the middle tier of recognizable brand names, says George T. One area from which U. In the appliance category, two Chinese companies, Haier and Kelon , are becoming top competitors for well-known U. The Chinese branding trend is not confined only to hard goods.
Sporting goods and sportswear brand Li Ning, well known within China, is building its international profile. The threat to U. South Korean brands, such as Samsung , LG , and Hyundai , have emerged on the global stage in specific categories, such as smartphones, household appliances, and automobiles.
The animosity that many Europeans feel toward the United States is translated into a preference for European or even Asian brands at the expense of U. Plus, experts say, European brands are simply becoming stronger and more consistent. The company's long-term commitment to operating internationally offers many advantages, including economies of scale, reduced costs and market growth. Converting a small manufacturer to a multinational may give the business an opportunity to achieve increased production efficiency as the quantity produced rises.
Because each manufactured unit shares fixed costs that are unrelated to the quantity of goods produced, the average cost per unit goes down as the number of units manufactured increases. Becoming a multinational helps a small business expand its reach, which enables the company to exploit new growth markets, such as the Mexican economy. This opportunity is especially beneficial if the domestic demand for the company's products or services has plateaued.
Broadman and Sunita Saligram write that multinationals seek opportunities in emerging markets in particular because the average growth rate of gross domestic product in these markets is twice that in developed countries, such as the United States.
Operating as a multinational provides a small business the option of conducting some of the company's offshore sourcing through subsidiaries, rather than independent contractors. This flexibility in selecting the origin of its supplies provides the business a better opportunity to control the quality of its products or its product's components. Relying on its own subsidiaries as a source of supply also provides a business the opportunity to better ensure promised delivery dates of critical product components.
National regulators sometimes discriminate against foreign subsidiaries unless the subsidiary is established enough locally to be perceived as a domestic firm. Establishing foreign subsidiaries, therefore, may protect the small business from certain governmental investigations, audits and prosecutions.
There are a number of advantages to establishing international operations. Having a presence in a foreign country such as India allows a corporation to meet Indian demand for its product without the transaction costs associated with long-distance shipping.
Corporations tend to establish operations in markets where their capital is most efficient or wages are lowest. By producing the same quality of goods at lower costs, multinationals reduce prices and increase the purchasing power of consumers worldwide. Establishing operations in many different countries, a multinational is able to take advantage of tax variations by putting in its business officially in a nation where the tax rate is low—even if its operations are conducted elsewhere.
The other benefits include spurring job growth in the local economies, potential increases in the company's tax revenues, and increased variety of goods. A trade-off of globalization —the price of lower prices, as it were—is that domestic jobs are susceptible to moving overseas.
In this respect, education and the cultivation of new skills that correspond to emerging technologies are integral to maintaining a flexible, adaptable workforce. Those opposed to multinationals say they are ways for corporations to develop a monopoly for certain products , driving up prices for consumers, stifling competition, and inhibiting innovation.
They are also said to have a detrimental effect on the environment because their operations may encourage land development and the depletion of local natural resources. The introduction of multinationals into a host country's economy may also lead to the downfall of smaller, local businesses. Activists have also claimed that multinationals breach ethical standards , accusing them of evading ethical laws and leveraging their business agenda with capital.
A multinational corporation MNC is one that has business operations in two or more countries. These companies are often managed from and have a central office headquartered in their home country, but with offices worldwide.
Simply exporting goods to be sold abroad does not make a company a multinational. A company may seek to become an MNC in order to grow its customer base around the globe and increase its market share abroad.
The primary goal is therefore to increase profits and growth. Companies may want to introduce their products in ways that are modified or tailored to specific cultural sensibilities abroad. MNCs may also benefit from certain tax structures or regulatory regimes found abroad. MNCs are exposed to risks related to the different countries and regions in which they operate.
These can include regulatory or legal risks, political instability, crime or violence, cultural sensitivities, as well as fluctuations in currency exchange rates.
People in the home country may also resent an MNC outsourcing jobs abroad. The East India Company. Junius P. Hudson's Bay Company. United Nations Conference on Trade and Development. Accessed Aug. Income Tax. International Markets. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page.
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