MEANING OF

MULTINATIONAL
COMPANIES
Multinational companies are those companies whose management, ownership and control are
spread in more than one country. It does business in two or more countries. It is a large
industrial organization. They are established in one country as parent country and in other
countries as subsidiaries or as host countries. They produce and distribute goods and services
in all these countries where they operate. The main aim of these companies is to operate
business in most of the part of the world. Popular multinational companies of the world are
IBM Company (USA), Sony Company. Wai wai, nestle company, coca cola company.

Characteristics:
1. Productive organization: this organization produces various types of goods and services. It
is supplies in many countries. It uses its own technology, patent right for manufacturing goods.

2. Worldwide: multinational companies operate in whole world. It extends its business world
wide. It establishes many branches in various companies. They extend their business in more than
one country.

3. Ownership and control: ownership of company remains on both parent and host country.
Parent company control, manage and help in the operation of all host countries. They have control
in capital, high technology, and trade mark.

4. Transfer of technology: these multinational companies are establishes with hug capital and
advanced technology. It also transfers the technology in the host countries that can be used for
production.

5. Marketing superiority: it is large organization which has international name and fame. It has
good network world wide for distribution of goods.

6. High efficiency: these organizations operate their business with efficiency. They use
advanced technology. They also involve keenly in research works. They used many trained person
that helps in the production of quality goods.
Merits of multinational
companies
1. Quality: it provides and produces quality goods. It produces goods which can satisfy the
international customers too. It has huge investment and consists of trained and qualified personnel
and specialists. It uses advanced technology to produce quality goods.

2. Mass production: it produces huge number of quality goods to satisfy the customers from all
around the world. It must supply the goods constantly worldwide. Advanced technologies are
used for mass production.

3. Low cost of production: the cost of production is also low. It produces goods in huge
quantity which increases the rate of return and decreases in the cost of production. Low cost of
production is the major benefit for multinational companies

4. Employment: it provides employment opportunities to large number of people from all

around the world. Most of the host countries can help to solve the unemployment problems. It
helps to maintain the living standard of people. It helps in consumer satisfaction too.

5. Increase in government revenue: multinational companies produce and sell the goods in
large number of quantities. It earns abnormal profit. Government from both parent and host
countries can collect custom duty, income tax, sales tax etc. In that way, government can earn
more revenue.

6. Increase in export: it produces commodities in international standard. They are not

produced to meet the needs of local people only. Host countries have the benefit of exporting the
goods in other many countries of the world where the company has been or not established. It
helps largely in the export business

7. Industrialization: multinational companies help in industrialization. It brings more capital in

the business and help to establish industries. It also uses advance technologies to establish
industries. It helps in establishment of industries in host country too.
Defect of multinational
countries:
1. Outflow of foreign exchange: It uses local capital for their industrial development. They earn
industrial development. They earn huge amount of dividend too. The foreign currencies from host
countries also go out in the form of royalty and technical fees.

2. Negative effect on local industries: Multinational companies have huge market in national
as well as international market. This has negatively affected on local industries. They have
increased competition on local industries and are slowly replaced by multinational companies.

3. Economic exploitation: The main aim of multinational companies is to earn maximum profit.
They use unused natural resources and labor,. They produce goods and services at lower cost but
the market price is very high. They earn maximum profit by unfair exploitation of host country

4. Exploitation of consumers: Multinational companies produce goods and services at lower

costs by using cheap local resources and labor in the host country. Due to the high cost of
royalties of these commodities they charge higher price to the local consumers. As a result, local
consumers are exploited.

5. Inequality of employment: There is distinction on employee between parent and host

country. They provide minimum employment to local people. They provide minimum wages to
the local people. They use advanced technology for the production of goods so that only highly
skilled manpower which may not be available in the host countries are employed. They appoint
low level employee from host countries and give low salary and high level employees from their
own country and give high salary. This creates inequality in employment