Multinational Companies

Definition – Public limited companies which are so large that they operate on an international scale (operating in more than one country)
Advantages
1. Employment is created in the ‘host’ countries
2. Economies of scale can be achieved – countries producing on such a large scale can spread production costs over a large output and so prices can be reduced
3. Multinational companies can introduce new management styles in the ‘host’ countries. These new management styles can increase staff motivation, reduce costs and help develop the business into a powerful global market leader.
Disadvantages
1. In some cases, the jobs created in the ‘host’ country are low-skilled assembly jobs, with the high-skilled research jobs being kept in the country origin.
2. Profits earned in the ‘host’ country are usually transferred back to shareholders in the country of origin.
3. A multinational company could make demands on the government of its ‘host’ country and if these requests are note granted the company could withdraw from the country. This could cause unemployment in the areas of the ‘host’ country.
Objetives
1. To reduce production costs
2. To reduce transport costs
3. To penetrate markets protected by import controls
4. To take advantage of host-government financial assistance
5. To escape government regulations at home
6. To earn higher after-tax profits
Source of Finance
1. Company profits from previous years
2. Selling shares to the public
3. Bank loan
4. Bank overdraft
5. Issue debentures
6. Government grants
7. Trade credit
8. Debt factoring

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Multinational Companies

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