Q: Why are multinational companies so powerful today?
A: A Multinational Company can be defined as a company “that has production operations in more than one country for various reasons including securing supplies of raw materials, utilizing cheap labour sources, serving local markets, and bypassing protectionist barriers.”1 An MNC can have its operations in a number of forms such as Franchising, Joint Venture, Licensing, Turnkey Projects, etc.
Though it is much believed that the growth of Multinational Companies is more of a twenty-first-centuryphenomenon, the existence of these global giants date back to the early seventeenth century.
The first MNC, the Dutch East India Company was founded in the year 1602. Today the multinationals are the best players in the world economy. A very interesting statistic reveals that the combined sales of the world’s top 200 MNCs are bigger than the combined economies of all the world’s countries(except the top ten).2 Following are a few reasons behind the power of today’s multinationals:
· The Company form of organisation was formed inter alia the objective of gathering huge funds. A Multinational, makes optimum utilisation of this feature. Presence of huge funds facilitates not only large scale production at minimum costs, but also makes possible recruiting the best
technical manpower in the world while maintaining complete Research & Development facilities. Some of them have assets worth trillions of dollars and only the best technology in the world.
· The next reason for its power is Geographical Dispersion. They operate on the basis of best alternatives available anywhere in the world. Some Companies like Coca-Cola have production and marketing facilities in more than seventy countries. Wide geographical dispersion ensures cheaper raw materials availability and large markets.
· Here it is to be noted that MNCs don’t necessarily spread its roots only in capital rich
countries. In fact, developing countries invite multinationals to set up projects in their domestic countries. This acts instrumental to the growth of better technology in the domestic country. They even provide them tax reliefs. Turnkey Projects are the most popular form of Multinational operation in such countries. In case of turnkey projects, the multinational may undertake to
build an entire plant guarantee the quality and quantity of production over a
long period of time.
· Another very important reason for the sustained growth of Multinationals is that it can easily tackle adverse situations. This is again because it has huge financial resources at its disposal, and in today’s world, money conquers everything. It has easier access to capital markets and owing to its international reputation, financial institutions and domestic investors willingly invest money in it.
· It possesses a superior market information system, and trained personnel in science and technology which adds to its superiorities over other forms of organisations.
Thus if we analyse the reasons behind this gargantuan growth of the MNCs since the 1960s, we see that they grew, because they could. Millions of dollars worth investment, thousands of people employed with the cheapest labour rates and the ease with which they penetrated international boundaries are only a few reasons behind this growth.
APPENDIX
1 From the Oxford
University Press Dictionary of Business (first published as an e-book by Oxford
University Press in 2003.)
2 From a compilation by
Anup Shah-globalissues.org (URL:
http://www.globalissues.org/TradeRelated/Corporations/Facts.asp)
