What are MNCs?
MNCs, or Multinational Corporations, are large, global companies that operate their business in multiple countries and have a significant presence in various international markets. These corporations are characterised by their ability to conduct business activities, such as manufacturing, sales, and services, across borders and often have subsidiaries or branches in multiple nations. MNCs play a vital role in the global economy, as they facilitate the movement of capital, technology, and expertise, driving economic growth and job creation in both their home and host countries. There are various dimensions of MNCs, based on size, structure, performance, and Behaviour.
According to Peter Dicken: “A multinational corporation (MNC) is a business organisation that is involved in the management of productive assets and the provision of services in two or more countries.”
Dimensions of MNCs
MNCs can be understood and categorised through various lenses, including their size, organisational structure, performance, and behaviour. These different dimensions provide a comprehensive perspective on the role and impact of multinational corporations in the global business landscape.
I. MNCs by Size
Multinational Corporations (MNCs) by size refers to categorising these corporations based on the scale of their global operations, financial resources, and overall magnitude in the business world. MNCs can be classified into different size categories, typically as large, medium-sized, or small MNCs. This categorisation is based on various factors, including their annual revenue, assets, market capitalisation, and the extent of their international reach.
1. Large MNCs: Large MNCs are often influential players in the global business landscape, with the capacity to invest heavily in research and development, innovation, and market expansion. They are characterised by their significant global presence, extensive financial resources, and operations that span numerous countries and regions. They are often among the largest corporations in the world in terms of revenue, assets, and market capitalisation. For example, Companies like Apple Inc., Microsoft Corporation, Toyota Motor Corporation, and ExxonMobil are examples of large MNCs. These corporations have a vast international footprint and play a substantial role in the global economy.
2. Medium-sized MNCs: Medium-sized MNCs have a noteworthy international presence but are not as massive as the largest corporations. They typically operate in multiple countries and industries, although their financial scale is more moderate compared to large MNCs. Medium-sized MNCs can excel in specific markets and industries. For example, Companies like Lenovo Group Limited, Marriott International, Inc., and Henkel AG & Co. KGaA fall into the category of medium-sized MNCs. They have a strong global presence in their respective sectors but may not be among the world’s top revenue earners.
3. Small MNCs: Small MNCs have a limited international footprint compared to their larger counterparts. They may operate in niche markets, focus on specific product lines, or have a regional rather than global presence. Their financial resources and reach are comparatively modest. Small MNCs may thrive by targeting niche markets or offering specialised products and services. For example, Smaller MNCs include companies like Brompton Bicycle, Tofurky, or Natura &Co, which export their products or services to multiple countries but on a smaller scale than industry leaders.
II. MNC by Structure
MNCs (Multinational Corporations) by structure refers to the organisational setup and configuration that multinational corporations adopt to manage their global operations. MNCs can have different organisational structures, and the choice of structure can significantly impact how they operate, make decisions, and respond to the challenges of international business.
1. Centralised Structure: In a centralised structure, key decisions and strategies are primarily formulated at the headquarters in the home country. The headquarters exercises a high degree of control over subsidiaries or international divisions located in various countries. This structure is often used by MNCs that want to maintain a unified corporate culture, standardised products or services, and consistent branding across the globe. For example, A company like McDonald’s maintains a highly centralised structure, ensuring that the menu and service standards are uniform in all its international locations.
2. Decentralised Structure: In a decentralised structure, subsidiaries or regional divisions in different countries have a significant degree of autonomy and decision-making authority. This structure is common among MNCs that want to adapt to local market conditions, respond to regional customer preferences, and address regulatory differences. For example, Unilever, a global consumer goods company, employs a decentralised structure, allowing its subsidiaries to customise products and marketing strategies according to local tastes and needs.
3. Matrix Structure: A matrix structure combines elements of both centralised and decentralised structures. It involves the creation of cross-functional teams or divisions that work on global projects and reports to both the headquarters and the regional or subsidiary management. For example, A company like Procter & Gamble (P&G) uses a matrix structure to leverage global product development while maintaining flexibility in regional operations.
4. Transnational Structure: The transnational structure aims to strike a balance between centralisation and decentralisation, fostering collaboration and knowledge sharing across the organisation. It encourages the development of core competencies that are shared globally while allowing subsidiaries to adapt to local conditions. For example, Nestlé is an example of a company that follows a transnational structure, integrating global innovation with local market responsiveness.
III. MNC by Performance
Multinational Corporations (MNCs) by performance involves evaluating and understanding these corporations based on their operational and financial achievements, which can be assessed using various performance metrics. The performance of MNCs is a critical aspect of their role in the global business landscape. Here are key elements of the concept of MNCs by performance:
1. Financial Metrics: Performance is often measured using financial indicators, including:
- Revenue: The total income generated by the MNC from its global operations.
- Profitability: This includes metrics like net profit margin and return on equity, which assess the MNC’s ability to generate profits relative to its investments.
- Market Capitalisation: The total market value of a publicly traded MNC’s outstanding shares, reflecting its perceived value in the financial markets.
- Market Share: The portion of a particular market that an MNC controls, indicating its competitive position.
2. Growth and Expansion: An MNC’s performance can be evaluated based on its ability to expand into new markets and regions, enter into strategic partnerships, and increase its market presence. This can include metrics like the number of new subsidiaries, the rate of expansion, and the diversification of product lines.
3. Innovation and Research & Development: The ability to innovate, develop new products or services, and stay at the forefront of technology can be a performance indicator. R&D expenditure and the introduction of groundbreaking products or processes are relevant factors.
4. Operational Efficiency: Efficiency metrics like cost control, supply chain management, and productivity improvement can be used to assess an MNC’s operational performance.
5. Sustainability and Responsibility: Performance also encompasses an MNC’s commitment to corporate social responsibility and sustainability. This includes efforts to reduce environmental impact, ensure ethical labour practices, and contribute positively to the communities in which they operate.
6. Risk Management: MNCs’ performance evaluation may consider their ability to identify and manage risks associated with international operations, including geopolitical, economic, and operational risks.
7. Stock Price Performance: For publicly traded MNCs, stock price performance over time is a key indicator of investor confidence and financial health.
IV. MNC by Behaviours
Multinational Corporations (MNCs) can be understood and categorised by their behaviour, which encompasses the way they operate, interact with various stakeholders, and engage in corporate social responsibility. The behaviour of MNCs is a crucial aspect of their reputation and impact on society. Here are the key dimensions of MNCs by behaviour:
1. Corporate Social Responsibility (CSR): MNCs are often evaluated based on their commitment to CSR, which includes activities aimed at giving back to communities, promoting ethical business practices, and supporting sustainability. CSR initiatives may involve philanthropy, environmental conservation, and efforts to improve the welfare of local communities. For example, Unilever is recognised for its Sustainable Living Plan, which focuses on environmental sustainability and social impact.
2. Ethical Business Practices: Ethical behaviour is a fundamental dimension of MNC behaviour. This includes adherence to ethical standards in business dealings, supply chain management, and interactions with stakeholders. MNCs are expected to uphold high ethical standards in areas such as fair labour practices, anti-corruption measures, and product safety. For instance, The Body Shop has long been associated with its ethical stance against animal testing and sourcing fair trade ingredients.
3. Compliance with Local Laws and Regulations: MNCs are expected to comply with the laws and regulations of the countries in which they operate. Ensuring legal compliance is a critical aspect of responsible behaviour. Failure to do so can result in legal issues and damage to the company’s reputation. Companies like Google have faced challenges in various countries over data privacy and antitrust concerns, highlighting the importance of compliance.
4. Transparency and Disclosure: Transparency in reporting financial information, environmental impact, and social responsibility initiatives is essential for responsible behaviour. MNCs are expected to provide stakeholders with accurate and comprehensive information. Companies like Patagonia are known for their transparency in disclosing their environmental and sustainability efforts.
5. Labour and Human Rights: Ensuring fair and humane treatment of workers and respecting their rights is a key dimension of behaviour for MNCs. This includes issues like fair wages, safe working conditions, and preventing child labour and discrimination. Nike, for example, faced scrutiny in the past over labour practices in its supply chain but has since made efforts to improve labour conditions.
6. Environmental Sustainability: MNCs are increasingly focusing on sustainability and reducing their environmental footprint. Many engage in eco-friendly practices, reduce carbon emissions, and invest in renewable energy. For instance, Tesla, an MNC in the electric vehicle industry, is known for its commitment to sustainability.
7. Community Engagement: Engaging with local communities and addressing their concerns is a positive behavioural aspect for MNCs. This includes initiatives to support education, healthcare, and economic development in the regions where they operate. Procter & Gamble’s “Children’s Safe Drinking Water” program is an example of community engagement to address water scarcity issues.