Multinational Corporations Flashcards
What is a multinational corporation?
A multinational corporation (MNC), also referred to as a multinational enterprise (MNE), a transnational enterprise (TNE), a transnational corporation (TNC), an international corporation or a stateless corporation with subtle but contrasting senses, is a corporate organisation that owns and controls the production of goods or services in at least one country other than its home country.
What is a subsidiary?
A subsidiary, subsidiary company or daughter company is a company owned or controlled by another company, which is called the parent company or holding company.
What word refers to the place where a company has its main offices?
Headquarters
What is the turnover of a company?
Value of the G & S that a company sells in a particular period of time
What does FDI mean?
Foreign Direct Investment
What is a centrally planned economy?
An economic system where a government body makes economic decisions regarding the production and distribution of goods.
What is a market economy?
An economic system where two forces, known as supply and demand, direct the production of goods and services.
What is a transition economy?
One changing from a centrally planned economy to a market economy.
Why do MNCs tend to invest more and more in developing countries?
- Production cost are cheaper
- Larger labour force
How do MNCs vary from one another?
- Size
- Business sector
- Production location
Organisational structures
What is the largest MNC in the world?
Walmart is the largest MNC in the world.
Explain how the production locations of MNCs depend on what they produce.
The production locations of Multinational Corporations (MNCs) depend on what they produce due to a variety of factors, including access to raw materials, labor costs, transportation costs, and proximity to markets.
What factors determine the organisational structure of an MNC?
- Strategy and objectives
- Geographical dispersion
- Size and complexity
- Industry and sector
- Corporate culture
- Regulatory environment
What types of organisational structures are used in MNCs?
- International division structure (IDS) (used to expand in a foreign country)
- Geographic area structure (GAS)
- Global product division structure (GPDS) (self-standing entity)
- Global matrix structure (GMS) (Perfect cuz reduces disadvantages of geographic and global product structure BUT it is the most complicated structure)
What is the mission of an international division?
To manage the MNC’s operations and growth in foreign markets.
What is the main advantage of global product division structure?
Prevents the inefficient duplication in multiple countries
What is the main disadvantage of global product division structure?
The company is not as locally responsive
In a matrix organisation, who do employees report to?
Reporting relationships are established as a matrix => workers apply a dual reporting relationship (workers report to 2 superiors who report to 2 reporters etc.)
What is the main disadvantage of a global matrix organisation?
The potential for confusion and conflict due to dual reporting lines and multiple decision-making processes.
Give reasons why companies may go multinational.
Firms want to find new markets and expand overseas
Who developed the Eclectic Paradigm? What is it?
The eclectic paradigm, also known as the OLI framework, was developed by John Dunning in the late 1970s. It’s a theory of international production that explains why firms choose to engage in foreign direct investment (FDI) rather than exporting or licensing.
The OLI framework identifies three main factors that influence a firm’s decision to engage in FDI: ownership advantages, location advantages, and internalization advantages. Firms will choose to engage in FDI when they possess ownership advantages that can be exploited in a particular location, and when the internalization of those advantages offers greater benefits than other forms of international business.
What does OLI stand for?
Ownership, Location, Internalisation
Give examples of assets that can be transferred abroad at a low cost.
Intellectual property, software and technology, brand reputation, management expertise, design and know-how
What do location advantages imply?
Lower production cost, and/or improve quality
What do internalisation advantages refer to?
Greater control
Economies of scale
Lower transaction cost
Access to knowledge and resources
What problems may multinationals face?
Language barriers
Social and cultural differences
Attitudes of host governments
