The Importance and Growth of Multinational Companies 

The ultimate goal for a growing business that wants to increase the scale of its operations is to compete abroad as Multinational companies or MNCs. 

There are a number of reasons that businesses become MNCs, they generally include: 

• Increased market share 
• Cheaper production costs 
• Economies of scale -many companies are developed into multinationals which allows them to enjoy lower costs.
• Avoiding barriers to trade 
• Potential government grants and other funding 

Benefits to a business becoming a Multinational 

• Wider/larger consumer base 

Most firms reach a product of market saturation – in a product life-cycle, a large firm has very limited scope for growing sales in an economy. Selling abroad enables a much greater consumer base and opens up new possibilities to increase sales. 

• Avoid Trade Barriers 

One of the benefits of becoming a multinational is that trade barriers can be avoided. Since multinationals are prepared to set up operations in other countries, they can overcome/bypass trade barriers by establishing operations in those countries that have barriers in place 

• Access to lower production costs 

Setting up production in other countries, especially in developing economies, usually translates to spending significantly less on production costs. Though outsourcing is a way of achieving the objective, setting up manufacturing plants in other countries may be even more cost-efficient. 

• Higher Profile 

As business grows to international companies, they can get a better market profile. Large companies have strong, recognisable brands. For instance, Microsoft, Apple, McDonalds, Google. 

• Lower Taxes 

Multinationals can reduce tax they pay on their profits by basing their head office in countries where taxes are lower. 

Benefits and Drawbacks of Multinationals to a Country/Economy 

Advantages Disadvantages 

Exploitation – a situation in which you treat someone unfairly by asking them to do things for you, but give them very little in return. 

Repatriation – where a multinational returns the profits from an overseas venture to the country where it is based, typically from a developing country.