During its early stages, international business was conducted in the form of enterprises that were owned singly or in partnerships. As the size of organizations grew with industrialization and companies’ needs for capital increased, corporations began to displace privately held firms. These corporations had the distinct advantage of being entities with a separate legal identity, consequently limiting the liabilities of the principals or owners. At the same time, by issuing shares of stock, the corporation could tap an enormous pool of excess funds held by potential individual investors.
A multinational corporation is a firm that conducts international business from a multitude of locations in different countries. For example, Nestle, Sony Citygroup etc are some of leading MNCs in the current business world.
Advantages and Disadvantages of MNC aka, Multinational Corporations
MNCs have certain unique advantages and disadvantages in their operations that make them quite different from purely domestically oriented companies.
ADVANTAGES
The most important advantage that MNCs enjoy is patented technical know-how, which enables them to compete internationally.
Most MNCs tend to be large. Some of them have sales that are larger than gross national products of many countries. The large size confers the advantage of significant economies of scale to MNCs.
The large production levels of multinational necessitate the purchase of inputs in commensurately large volumes. Bulk purchase of inputs enable MNCs to bargain for lower input costs, and they are enable to obtain substantial volume discounts. The lowered input costs imply less expensive and therefore, more competitive finished products.
Many MNCs lower inputs and production costs by accessing raw materials in foreign countries. In many of these cases, MNCs supply the technology to extract or refine the raw materials, or both.
The ability ot shift production overseas is another advantage enjoyed by MNCs. To increase their international competitiveness, MNCs relocate their production facilities overseas, thereby taking advantage of lower costs of labor, raw materials and other inputs and utilizing incentives offered by host country.
DISADVANTAGES
Since MNCs conduct business outside the borders of their own countries, they deal with the currencies of other countries, which render them vulnerable to fluctuations in exchange rates.
Reference : International Business by Karel Cool
