A multinational corporation may be defined company that operates in more than one country. According to the United Commission, Multinational Corporations or Global Corporation is a corporation, which operates in addition to the addition in which; it is incorporated, in one or more other, countries. Such a corporation owns and controls, business in two or more countries.
In common usage, multinational corporations are also called global corporations and international corporations. While in general these terms may be used interchangeably, there are actually subtle differences between them. Global corporation and multinational corporation represent two extremes whereas International corporation falls somewhere between these two. In a global corporation production facilities are generally centralized. These are located in one or two countries to get the advantage of economy of scale and cost. The products are exported from these countries to the others depending on demand. On the contrary, in a -multinational corporation, production facilities are decentralized and located in each country. Operations in each country totally Independent in organization. However; within such interdependence, there is always a need for integrating the operations of local subsidiaries with a view to achieve overall optimality for the parent company. Such optimality may be in terms of economy, monetary repatriation, surplus, growth, etc.
An international corporation shall move towards becoming a Global Corporation or Multinational Corporation depending on the relative strengths a global pull factors and regional Pull factors. When the global pull factors the international corporation shall tend to, become a global corporation. On the other hand, if regional pull factors are stronger, the corporation will become a multinational corporation.
Stages in the Development of a Multinational Corporation
Typical stages in the growth of a multinational corporation are as follows
- The domestic firm begins to export its products abroad through middlemen in the home country.
- As sales of products increase abroad, the firm begins to sell directly to an importer located abroad. The firm establishes an export department or division in the home country.
- The firm establishes a sales branch abroad to handle sale:, and promotional work in a given foreign market. The manager of the sales branch is directly responsible to the home office.
- An overseas sales subsidiary is established. It is incorporated in a foreign country and hence enjoys, greater autonomy than a sales branch.
- The firm starts production in the, foreign country through contract, manufacturing or assembly operations.
- A manufacturing facility is established abroad. Now the fain has a subsidiary abroad that, manufactures and sells the product in the foreign -market.
- The subsidiaries or operating units abroad are integrated, the parent company takes strategic, or, policy decisions, for all subsidiaries. The subsidiaries operation under capitalized planning and control.