multinational enterprise , multinational company


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multinational enterprise (MNE), multinational company (MNC) or transnational company

A firm that owns production, sales and other revenue-generating assets in a number of countries. Foreign direct investment by MNEs in the establishment or acquisition of overseas raw material and components operations, production plants and sales subsidiaries occurs because of the potentially greater cost-effectiveness and profitability in SOURCING inputs and servicing markets (see FOREIGN MARKET SERVICING STRATEGY) through a direct presence in a number of locations, rather than sole reliance on a single home base and IMPORTS and EXPORTS as the basis of the firms' international operations.

A firm may possess various COMPETITIVE ADVANTAGES over rival suppliers (‘firm-specific advantages’) in the form of patented process technology or a unique branded product which it can better exploit and protect by establishing overseas supply facilities. Direct investment may enable a firm to reduce its distribution costs and keep in touch more closely with local market conditions – changes in consumer tastes, competitors' actions etc. Moreover, direct investment enables a firm both to avoid governmental restrictions on market access such as TARIFFS and QUOTAS, and be able to benefit from other ‘country-specific advantages’ such as the availability of government cash grants and subsidies on inward investment. In the case of sourcing, direct investment allows the MNE to take advantage of some countries' lower labour costs or provides access to superior technological know-how.

See BUSINESS STRATEGY, CAPITAL INFLOW, HOST COUNTRY, FOREIGN DIRECT INVESTMENT, INDUSTRIAL LOCATION, INTERNALIZATION, TRANSFER PRICE, OFFSHORE PRODUCTION, INTERNATIONAL MARKETING, FOREIGN CURRENCY TRANSLATION, DOUBLE TAXATION, UNITARY TAXATION, WITHHOLDING TAX, EXCHANGE RATE EXPOSURE, SCREWDRIVER OPERATION, MIXER COMPANY, TAX HAVEN.

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