Definition-A corporation that
controls production facilities in
more than one country, such
facilities having been acquired
through the process of foreign
According to an ILO report,
the essential nature of the multinational
enterprises lies in the fact that its
managerial headquarters are located in one
country while the enterprise carries out
operations in a number of other countries as
MNC’S took birth in the early 1860’s it
was after the Second World War that
multinational have grown rapidly.
In the early days, the United States was
the home of the most of the MNC’S.
Now there are a large number of
Japanese and European multinationals.
Now in the list of 10 or 20 largest MNC’S,
Japan has the largest number.
MNC’S was the type of the corporation
popular when many European countries
internationalized during pre war (1920s
& 1930s) when the trade barriers were
According to Bartlett and Ghoshal,
MNC’S are defined by the following
a decentralized federation of assets
a management process defined by
simple financial control systems
overlaid on informal personal
dominant strategic mentality that viewed
the company’s worldwide operations as a
portfolio of national businesses.
MERITS OF MNCs
help increase the investment level
and thereby the income and employment
in host country.
The MNCs enable the host countries to
increase their exports and decrease their
They work to equalize the cost of factors
of production around the world.
provide an efficient means of
integrating national economies.
The enormous resources of the
multinational enterprises enable them to
have very efficient research and
development systems. Thus, they make
commendable contribution to inventions
MNCs help increase and break domestic
DEMERITS OF MNCs
may destroy competition and
acquire monopoly powers.
MNCs technology is designed for
worldwide profit maximization, not the
development needs of poor countries, in
particular employment needs and relative
factor scarcities in these countries.
retard growth of employment in the
The tremendous power of the global
corporations poses the risk that may
threaten the sovereignty of the nations in
which they do business.
The MNCs have been criticized for their
business strategies and practices in the
host countries. They undermine local
cultures and traditions, change the
consumption habits for their benefits
against the long term interests of local
incorporated or unincorporated
enterprises comprising parent enterprises
and their foreign affiliates.
A parent enterprise is deemed as an
enterprise that controls assets of other
entities in countries other than its home
country, usually by owing a certain equity
In a transnational, the specialized resources
and capabilities are dispersed among the
various operating units globally.
These units are interdependent and
integrated & have large flows of
components, products, resources, people
and information among them.
An important feature of the transnational, it is
a complex process of coordination and
cooperation in an environment of decision
MERITS OF TNCs
transnational corporations have
become vehicles for the transfer
technology, especially to the developing
They also kindle a managerial revolution
in the host countries through professional
management and the employment of
highly sophisticated management
DEMERIT OF TNCs
The transnational corporations cause
fast depletion of some of the nonrenewable natural resources in the host
They have also been accused of the
following environmental problems:
polluting the environment, not paying
compensation for the environmental
damages, causing harmful changes in
the local living conditions.
emphasis on market forces and
a growing role for the private sector in
nearly all developing countries.
Rapidly changing technologies that are
transforming the nature of organization
and location of international production.
The globalizations of firms and industries.
The rise in services to constitute the
largest single sector in the world economy.
DOMINANCE OF MNCs
The global liberalization has paved the way
for fast expansion and growth of the
MNCs. The value added by all foreign
affiliates of MNCs as a percentage of world
GDP increased from about 5 percent in the
beginning of the 1980s to nearly 7 percent
at the end of the 1980s.
The universe of TNCs is quite diverse &
includes a number of small and medium
MNCs AND INTERNATIONAL
Peter Drucker remarks that multinationalism
and expanding world trade are two sides
of the same coin. He points out that the
period of most rapid growth of
multinationals- the fifties and sixties, was
the period of most rapid growth of
multinational trade. Indeed, during this
period the world trading economy grew
faster-at an annual rate of 15% or so in
most years-than even the fastest growing
domestic economy, that of Japan.
There was a very significant increase in the
export intensity of the foreign affiliates of
Apart from trade in commodities, other
transactions also take place extensively
between the different parts of these
Ex- granting of loans, licensing of
technology & the provision of services.
MNCs IN INDIA
Multinationals in several developing
countries make substantial contribution to
export earnings. The performance in case
of India has, however been very dismal.
This is mostly to the Government policy.
We have consistently
policies in India that discriminate against
export production and in favor of
production for the local market.
In 1947, foreign companies did not have an