Business Studies - Multinational Firms

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Sometimes a firm decides to expand overseas, so it has operations in more than one country. These firms are called multinational enterprises (MNEs) or transnational corporations (TNCs)

Firms Become Multinational for Many Reasons

The main factors influencing the location of a business basically boil down to two things: keeping costs to a minimum, and maximising revenue. Many businesses think that the best compromise between these two things is to locate overseas. Some of the reasons why firms do this include:

  • By producing in various countries they can keep transport costs to a minimum.
  • They can increase their knowledge of local market conditions .
  • They can avoid trade barriers by producing inside a country.
  • They can reduce risks from foreign exchange fluctuations
  • They can gain access to raw materials or cheap labour
  • By employing expert accountants and shuffling money between countries, big companies can avoid paying tax
  • They can win subsidies from governments and force workers to accept lower wages by threatening to relocate production in another country

MNEs Can Benefit the Host Country...

  • MNEs are often a source of foreign investment. And they create employment for locals.
  • MNEs bring their own methods of working, giving the host country access to foreign technology and working methods - like with Japanese car producers in the UK
  • The profits of the MNE can be a source of taxation revenue for the host country's government - in theory at least.
  • The MNE will probably export goods from the host country to foreign markets. The revenue from these export sales may improve the host country's balance of payments (this is the difference between the money coming into a…

Comments

davidsalter

Useful set of notes on multinational firms. Also has test yourself facility to check understanding

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