What are the Main Features of MNCs?

The term “multinational corporation” is variedly defined. In a broad sense, Multinational Corporation refers to a corporate giant business firm having extended its productive activity in many nations besides its home country. David E. Liliental, considering a wider parameter, defines the MNCs as “corporations which have their home in one country but operate and live under the laws and customs of other countries as well.” For brevity, MNC refers to the business enterprise operating in more than one nation.

In a report of the International Labour Organisation (ILO), it is observed that, “the essential of the MNC lies in the fact that its managerial headquarters are located in one country (home country), while the enterprise carries out operations in a number of the other countries (host countries).”

It follows that even the firms participating in foreign trade or international economic relations simply by exporting or by licensing technology are not regarded as MNCs. To qualify to be a MNC, the firm must carry on production activity by its actual investment in several countries.

In India, the Foreign Exchange Regulation Act, 1973 (FERA) provides a specific definition of multinational corporation as follows:

“A corporation incorporated in a foreign country or territory shall be deemed to be multinational corporation if such corporation’ (a) is a subsidiary or a branch or has place of business in two or more countries or territories, (b) carries on business or otherwise operations in two or more countries or territories.”

A “multinational corporation” is also referred to as an international, transactional or global corporation. Actually, for an enlarging business firm, multinational is a beginning step, as it gradually becomes transnational and then turns into a global corporation. For, transnational corporation represents a stage where in, the ownership and control of the concerned organisation crosses the national boundaries.

The transnational corporation develops into a global corporation when it has capacity to allocate production across countries and the company can equalise the cost of capital across the nations to an extent. A global corporation aims at market maximisation and profit-maximisation rather than welfare maximisation.

Features of MNCs :

The following are the main features of MNCs:

1. MNCs have managerial headquarters in home countries, while they carry out operations in a number of other (host) countries.

2. A large part of capital assets of the parent company is owned by the citisens of the company’s home country.

3. The absolute majority of the members of the Board of Directors are citisens of the home country.

4. Decisions on new investment and the local objectives are taken by the parent company.

5. MNCs are predominantly large-sized and exercise a great degree of economic dominance.

6. MNCs control production activity with large foreign direct investment in more than one developed and developing countries.

7. MNCs are oligopolistic in character. It is sustained by modern technologies, management skill, product differentiation and enormous advertising.

8. MNCs are not just participants in export trade without foreign investments.