Multinational Corporations

Question 1

What is a multinational corporation?

Answer 1

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.

Question 2

What is a subsidiary?

Answer 2

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.

Question 3

What word refers to the place where a company has its main offices?

Answer 3

Headquarters

Question 4

What is the turnover of a company?

Answer 4

Value of the G & S that a company sells in a particular period of time

Question 5

What does FDI mean?

Answer 5

Foreign Direct Investment

Question 6

What is a centrally planned economy?

Answer 6

An economic system where a government body makes economic decisions regarding the production and distribution of goods.

Question 7

What is a market economy?

Answer 7

An economic system where two forces, known as supply and demand, direct the production of goods and services.

Question 8

What is a transition economy?

Answer 8

One changing from a centrally planned economy to a market economy.

Question 9

Why do MNCs tend to invest more and more in developing countries?

Answer 9

• Production cost are cheaper
• Larger labour force

Question 10

How do MNCs vary from one another?

Answer 10

• Size
• Business sector
• Production location
  Organisational structures

Question 11

What is the largest MNC in the world?

Answer 11

Walmart is the largest MNC in the world.

Question 12

Explain how the production locations of MNCs depend on what they produce.

Answer 12

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.

Question 13

What factors determine the organisational structure of an MNC?

Answer 13

• Strategy and objectives
• Geographical dispersion
• Size and complexity
• Industry and sector
• Corporate culture
• Regulatory environment

Question 14

What types of organisational structures are used in MNCs?

Answer 14

• 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)

Question 15

What is the mission of an international division?

Answer 15

To manage the MNC’s operations and growth in foreign markets.

Question 16

What is the main advantage of global product division structure?

Answer 16

Prevents the inefficient duplication in multiple countries

Question 17

What is the main disadvantage of global product division structure?

Answer 17

The company is not as locally responsive

Question 18

In a matrix organisation, who do employees report to?

Answer 18

Reporting relationships are established as a matrix => workers apply a dual reporting relationship (workers report to 2 superiors who report to 2 reporters etc.)

Question 19

What is the main disadvantage of a global matrix organisation?

Answer 19

The potential for confusion and conflict due to dual reporting lines and multiple decision-making processes.

Question 20

Give reasons why companies may go multinational.

Answer 20

Firms want to find new markets and expand overseas

Question 21

Who developed the Eclectic Paradigm? What is it?

Answer 21

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.

Question 22

What does OLI stand for?

Answer 22

Ownership, Location, Internalisation

Question 23

Give examples of assets that can be transferred abroad at a low cost.

Answer 23

Intellectual property, software and technology, brand reputation, management expertise, design and know-how

Question 24

What do location advantages imply?

Answer 24

Lower production cost, and/or improve quality

Question 25

What do internalisation advantages refer to?

Answer 25

Greater control
Economies of scale
Lower transaction cost
Access to knowledge and resources

Question 26

What problems may multinationals face?

Answer 26

Language barriers
Social and cultural differences
Attitudes of host governments