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Study notes

What is a Multinational Company (MNC)?

  • Levels: AS, A Level
  • Exam boards: AQA, Edexcel, OCR, IB, Eduqas, WJEC

A multinational company (MNC) is a business that has operations in more than one country.

Note that a business does not become an MNC simply because it sells its goods and services to more than one country. The key to being an MNC is that the business has business operations in two or more countries.

Key Reasons for the Growth of MNCs

There are many reasons why a business may wish to become an MNC and these factors have also fuelled the rapid growth of MNCs in recent. decades. These reasons include:

To Operate Closer to Target International Markets

Producing closer to target markets has several potential advantages, including reduced transport costs (which will be important for bulky goods) and improved market information and intelligence.

Gaining access to lower costs of production

Many MNCs have taken advantage of lower production costs from operating in developing economies. In some cases this can be achieved by outsourcing and offshoring production to suppliers based in those economies. However, for other businesses, it is more beneficial to set up their own operations in order to service domestic demand as well as supply demand in the host and nearby countries. Many MNCs now have highly complex supply chains integrating their operations in many economies.

Avoiding Protectionism

By producing in a host country, an MNC may be able to avoid restrictions on imports such as tariffs and import quotas..

Key Reasons for the Growth of MNCs

The global economy has witnessed the rapid growth of MNCs for a variety of reasons, including:

Global brands seeking to drive revenue and profit growth in emerging economies (in particularly seeking rising demand from increasingly affluent consumers).

The search for economies of scale, whereby MNCs can reduce unit costs by supplying global demand by concentrating production in a few key international locations.

The perceived need to supplement relatively weak demand in existing, developed economies.

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