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Q.3 What are the benefits of MNCs? Benefits of MNCs


MNCs have certain unique advantages in their operations that are not benefited by domestic oriented companies. The international success of MNCs is mainly because of the ability to capitalise the advantages. The advantages widely depend on the nature of individual corporations and the type of their business. Benefits are –


1. To the company
 Superior technical knowledge – The most important advantage of MNCs is the patented technical knowledge which enables them to compete internationally. Large MNCs have access to advanced levels of technology which are either developed or acquired by the corporation. These technologies are patented. It can be in the areas of management, services or production. Extensive application of these technologies gives a competitive advantage to the MNC in international market, as it results in efficient, low-priced, hi-tech products and services that dominate a large international market. This results in efficient production and services like that of IBM or Microsoft.

 Large size of economy – Generally, MNCs are large like Wal-Mart and ExxonMobil which has sales larger than the gross national products of many countries. The large size gives the advantage of significant economic growth to the MNCs. The higher volume of production leads to lower fixed costs per-unit for the company’s products. Competitors, whose volume of production of goods is smaller, must raise the price to recover the higher fixed costs. This situation implies to capital-intensive industries like steel, automobiles etc., in which fixed costs form a major proportion of total costs. Example – MNC like Nippon Steel of Japan can sell its products at lower prices than those of companies with smaller plants.

 Lower input costs due to large size – The production levels of MNCs are large and thus the purchase of inputs is in large volumes. Bulk purchases of inputs enable the corporation to bargain for lower input costs and obtain considerable amount of discount. Lower input costs means less expensive and more competitive products. Example – Nestle, which buys huge quantities of coffee from the market, can bargain for lower prices than small buyers can. Wal-Mart sells products at lower prices relative to its competitors due to bulk purchasing and efficient inventory control. By identifying which product sell effectively, Wal-Mart combines low-cost purchasing with efficient inventor to achieve competitive advantage in retail market.

 Ability to access raw materials overseas – By accessing raw materials in foreign countries, many MNCs lower the input and production costs. In many cases, MNCs supply the technology to extract raw materials. Such access can give MNCs monopolistic control over raw materials because they supply technology in exchange for monopolistic control. This control enables them to supply or deny raw materials to their competitors.

 Ability to shift production overseas – Another advantage of MNCs is the ability to shift the production overseas. MNCs relocate their production facilities to take advantage of lower labour costs, raw materials and other incentives offered by the host countries. They take advantage of the lower costs by exporting lower-cost goods to foreign markets. Many MNCs have set up factories in low-cost areas like China, India, Mexico, etc.

 Brand image and goodwill advantage – Most of the MNCs possess product lines that have created a good reputation for quality, value and service. This reputation spread to other countries through exports and promotion and adds to the goodwill or brand image of the company. MNCs are able to influence this brand image by standardizing their product lines in different countries. Example – Sony PlayStations do not have any modifications for different countries and the parent factory produces standardised products for the world market. Brand names like Sony help the company to charge premium prices for its products, because the customers are ready to buy quality products at premium prices.

 Information advantage – MNCs have a global market view with which it collects, analyses, and processes the in-depth knowledge of worldwide markets. This knowledge is used to create new products for potential market niches and expand the market coverage of their products. The MNCs have good information gathering capabilities in all aspects of their operations. Through this information network, the MNC is able to forecast government controls and gather commercial information. The network also helps in providing important information about economic conditions, changing market trends, social and cultural changes that affect the business of MNCs in different countries. With these information MNCs can position themselves appropriately to contingencies.

 Managerial experience and expertise – The MNCs function in large number in different countries simultaneously. This enables them to integrate wealth for valuable managerial experience. This experience helps them in dealing with different business situations around the globe. Example – An MNC located in Japan can attain knowledge of Japanese management techniques and apply them successfully in a different location.

2. To the nations where it operates (domestic nations)
MNCs bring advantage to the countries in which they operate. The benefits of MNCs to the nations where it operate are:

 Economic growth and employment – An MNC comes to a country with more amount of money to invest than any local company. The countries from where the MNCs operate are also called host countries. It brings inward investment to the host countries. This helps in boosting the national economy. Example – Constructing new plants requires resources like land, capital and labour. It provides employment to a large number of people which helps in dealing with the unemployment problem in the host countries. The inward investment can help in generating wealth in the local economy because it increases the spending ability of the people by providing them employment. As the MNCs provide employment to the people, they pay taxes to the local government. The people have more money to spend which provides market for local companies to sell their goods. The MNCs also attracts other smaller firms to the area where it is located. These firms provide different services to the MNCs.
 Skills, techniques and quality human capital – The MNCs bring with them new ideas and new techniques to improve the quality of production. This helps in improving the quality of human capital in the host country. The MNCs employ local labour and train them in new skills to improve productivity and efficiency. Example – Sunderland is one of the most productive car manufacturing plants in Europe. The workers had to get used to different ways of working that were used in other British firms. This can be a challenge and can also lead to improvement in productivity. The skills that the workers build up can be passed on the other workers which help in improving the supply of skilled labour in that area.

 Availability of quality goods and services – Generally, production in a host country is aimed at the export market. However, in some cases, the inward investment can gain access to the host country market to avoid trade barriers. Availability of quality goods leads to improved quality in other related industries. Example – The UK has access to high quality vehicles at cheaper price; this competition has led to improvement in prices, working practices and quality in other related industries.

 Improvement in infrastructure – The MNCs invest in a country for production and distribution facilities. In addition to this, the company might also invest in additional infrastructure facilities like road, port and communication facilities. This can benefit the entire country.

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