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Role of Multinational Corporations in the modern world
An expatriate, on international business travel most of the times, arrives on the British Air Way’s flight, rents a Toyota at Hertz, drives down-town to Hilton hotels and reaches the room, flips on to Sony TV and catches the glimpse of the same flashing signs of ‘Coca-Cola’ and ‘BMW’ etc. Then suddenly while watching the news on BBC a sense of disorientation sets in and they try to remember where they are Sydney, Singapore, Stockholm or Seattle? This has become a common experience, thanks to the MNC phenomenon. Multinational Corporations (MNC) account for 40% of the worlds manufacturing output and almost a quarter of the world trade. About 85% of the world’s automobiles, 70% of computer, 35% of toothpaste and 65% of soft drinks are produced and marketed by MNCs (Bartlett et al, 2003, p3).
However, most of the MNCs have come up in recent times of change and globalisation. It is evident in the changed definition of MNC i.e. till 1973 the United Nations defined MNC as an enterprise which controls assets, factories, mines, sales offices and the like in two or more countries (Bartlett et al, 2003). However, the scope of what the term Multinational Corporation covers has changed and required two crucial qualifications vis-à-vis first qualification requires an MNC to have substantial direct investment in foreign counties and not just an export business. While the second requisite for a true MNC would be a company engaged in the active management of these offshore assets rather than simply holding them in a passive financial portfolio (Bartlett et al, 2003).
One of the most important motivations for companies to expand their operation internationally is the low-cost factors of production in developing countries like China and India (Papers4you.com, 2006). This has had a tremendous influence on the economies of the developing countries, acting as a catalyst in their growth process. However, entering a new market in a different nation is not as easy as it sounds, with factors like local culture and local market knowledge presenting as obstacle initially. There are various ways in which a company can decide to enter the market, one such model being the Uppsala model, which suggests a company should make an initial commitment of resources to the foreign market through which it gains the local market know-how on the basis of which further evaluations can be made (Bartlett et al, 2003). However, there are many companies who do not follow such models and take a short cut to building the market knowledge by investing in or acquiring a local partner for instance Wal-Mart entered the UK by buying the supermarket chain Asda (Papers4you.com, 2006).
However, in recent times most companies have recognised the need to be responsive to local markets and political needs and the management styles followed by multinationals are gradually shifting towards a trans-national strategy of ‘Think global, act local’.
Bartlett, C. et al. (2003). ‘Transnational Management’. 4th Ed. McGraw-Hill, London.
Papers For You (2006) "C/B/311. Multinational Enterprises (MNEs) in Developing Countries ", Available from http://www.coursework4you.co.uk/sprtbus35.htm [17/06/2006]
Papers For You (2004) " P/B/220. Is it true to say that many U.S. multinational enterprises (MNEs) are more economically and politically powerful than some nation states? Does this scenario best explain America's rise to globalism and the real power behind the White House today?", Available from Papers4you.com [18/06/2006]
About the Author: Copyright © 2006 Verena Veneeva. Professional Writer working for http://www.coursework4you.co.uk