multinational company

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multinational company


multinational company (MNC) or multinational enterprise (MNE)

a firm that owns production, sales and other revenue-generating assets in a number of countries. Foreign direct investment by MNCs 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 obtaining inputs and servicing markets through a direct presence in a number of locations rather than sole reliance on a single home base and IMPORTS and EXPORTS for the firm's 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 that 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 to benefit from other ‘country-specific advantages’ such as the availability of government cash grants and subsidies on inward investment. In the case of inputs, direct investment allows the MNC to take advantage of some countries’ lower labour costs or provides access to superior technological know-how. See FOREIGN INVESTMENT, FOREIGN MARKET SERVICING STRATEGY, INTERNALIZATION, TRANSFER PRICE, MIXER COMPANY, EXCHANGE RATE EXPOSURE, STRATEGIC ALLIANCE, SCREWDRIVER OPERATION.

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