The growing importance of international trade has intensified the role and importance of multinational companies across the world. A multinational company (MNC) is any business organization that has operations overseas, irrespective of whether it produces/sells goods and/or provides services, i.e., MNCs operate in two or more countries.

Although the MNC has its headquarters (or central administrative office) in one country, it has operations and premises (such as offices, factories, assembly plants, and retail outlets) in other countries. This means MNCs spend on foreign direct investment (FDI) in overseas markets. FDI refers to cross-border investment in which a foreign company establishes an ongoing and significant stake (financial interest and degree of influence) in its operations in another economy.

Examples of large multinational companies with operations in many parts of the world include Adidas, Amazon, Apple, BMW, Coca-Cola, HSBC, McDonald's, Royal Dutch Shell, Samsung, Saudi Aramco, Tesla, Toyota, and Walmart. In some cases, The biggest multinationals generate annual sales revenues in excess of the gross domestic product (GDP) of entire economies. For example, Saudi Aramco, the world's largest oil company, earns annual sales revenues that exceed the GDP Italy, Brazil, Canada, and Russia.

Note: a business that only exports products to overseas markets does not qualify it to be a MNC as it operates from the domestic (home) country.

The business operations of multinational corporations (MNCs) can have both positive and negative impacts on their host countries.

 Positive impacts

The positive impacts of MNCs include the following points:

• Employment opportunities – MNCs can account for a significant number of jobs in the host country. This has huge economic benefits, such as higher incomes, consumption, savings and tax revenues. Overall, this can raise the quality life for citizens in the host country.

• Support for the workforce – In addition to job creation, MNCs create other opportunities for domestic workers. For example, the wages offered by MNCs are often better than those offered by local firms (even if the wages paid by MNCs are low by international standards). Local workers may also benefit from training and development opportunities.

• Support for local businesses – MNCs can provide a range of benefits to local businesses, directly or indirectly. For example, they are likely to purchase stocks from domestic suppliers of raw materials, semi-finished goods and finished goods. This provides revenue for local firms and supports domestic industries. In addition, MNCs are also likely to use the services of local firms, such as insurance and distribution.

• Choice and quality – MNCs offer consumers in host countries more choice and often better quality products. Domestic customers no longer have to rely only on local suppliers and must compete with the prices and quality of the products offered by MNCs.

• Efficiency gains – Similarly, MNCs create increased competition for local suppliers, forcing the domestic businesses to improve their operational efficiency. This covers aspects of the prices, quality and customer care of local firms.

• Tax revenues – The host country’s government benefit from profitable multinational companies as they pay corporate taxes. The additional finance can be spent to further improve the economy, such as better infrastructure to further entice foreign direct investment.

Multinational supermarkets use produce from local farms

 Negative impacts

The negative impacts of MNCs on their host countries include the following:

• Negative impacts on local businesses – Many local firms, especially smaller ones, may lose customers to the larger foreign multinational companies. A fall in their market share and profit can eventually lead to bankruptcies and some job losses in the economy.

• The repatriation of profits – Any profits declared at interest and tax payments are accounted for may be repatriated (sent back) to the home country, rather than the funds being used to invest further in the host country.

• Exploitative business practices – MNCs have been known to be socially irresponsible, especially when operating in less economically developed countries where rules and regulations are less stringent. This has often resulted in workers being exploited (poor pay and working conditions) and business operations that cause damage to the environment (such as air pollution and destruction of natural habitats). For example, Coca-Cola’s bottlers have been accused of causing water shortages in certain parts of India and South America.

• Loss of cultural identity – The growing presence of multinational companies, and the convergence of habits and tastes brought about by globalization, can cause a depletion of local cultures. MNCs and globalization have been blamed for causing a cultural shift in how people live, especially for the younger generation.

Multinational companies have positive and negative impacts on host countries

 Case Study 2 - The Walt Disney Company

The Walt Disney Company is the world's largest entertainment company. The infographic below lists all the companies and subsidiaries owned by The Walt Disney Company at the time of writing. These companies include well-known companies and brands, such as ESPN, ABC, Marvel, Lucasfilm, Touchstone Pictures, The History Channel, Pixar, plus many more.

Besides these companies, The Walt Disney Company also owns other global businesses under its family brand name, including Disney Channel, Disney retail stores, Disney radio stations, and Disney theme and leisure parks (including Walt Disney World Resort, Disneyland Resort, Disneyland Paris, Hong Kong Disneyland, Disney Cruise Line, and a host of other vacation-related properties). The Walt Disney Company's media networks and its theme parks and property portfolio tend to be the corporation’s biggest cash cows.

Source: TitleMax.com

  ATL Activity 2 (Research and communication skills)

In small groups of 2 or 3, investigate the main ways in which host countries can attract more multinational companies. Use real-world examples to substantiate your findings. Be prepared to share your findings with the rest of the class.

 Teacher only box

Teachers' notes

The purpose of this task is to highlight why governments might want to attract more MNCs to operate in their respective countries due to the positive impacts of MNCs on the host countries.

Whether MNCs decide to expand in a particular overseas country will depend on both the objectives of the business and how welcoming the host country is towards MNCs operating in their nation.

This task also creates an opportunity to apply STEEPLE analysis as a business management tool (as part of the BMT). For example, possible ways that host countries can make things easier and more attractive to MNCs include:

• Economic factors - economic growth rates, tax incentives for MNCs, government grants and subsidies, exchange rate stability, inflation rates, wages and salaries, cost of land/premises, access to raw materials, etc.

• Political factors - political stability, the level of corruption, government attitudes and incentives towards FDI, national minimum wage legislation, legal constraints on business activities and oeprations, health and safety laws, employment rights, etc.

• Social factors - availability of suitable/skilled labour, labour productivity rates, attitudes towards labour unions (trade unions), number of potential customers in foreign markets, etc.

• Technological factors - infrastructure (transportation and telecommunications networks), reliable and affordable energy sources, cybersecurity, etc.

Essentially, the easier and more welcoming it is to operate in an overseas country, the more likely it will be to attract multinational companies to locate their operations in that nation.

 To review your understanding of this topic, watch this informative video about multinational corporations.