MULTINATIONAL CORPORATIONS

MULTINATIONAL CORPORATIONS

Until the middle of the twentieth century, production was largely organised within countries. What crossed the boundaries of these countries were raw material, foodstuff and finished products. Colonies such as India exported raw materials and foodstuff and imported finished goods. Trade was the main channel connecting distant countries. This was before large companies called multinational corporations (MNCs) emerged on the scene. An MNC is a company that owns or controls production in more than one nation. MNCs set up offices and factories for production in regions where they can get cheap labour and other resources. This is done so that the cost of production is low and the MNCs can earn greater profits. Consider the following example.

Spreading of production by an MNC

A large MNC, producing industrial equipment, designs its products in research centres in the United States, and then has the components manufactured in China. These are then shipped to Mexico and Eastern Europe where the products are assembled and the finished products are sold all over the world. Meanwhile, the company’s customer care is carried out through call centres located in India.

This is a call centre in Bengaluru, equipped with telecom facilities and access to the Internet to provide information and support to customers abroad.

In this example, the MNC is not only selling its finished products globally but more importantly, the goods and services are produced globally. As a result, production is organised in increasingly complex ways. The production process is divided into small parts and spread out across the globe. In the above example, China provides the advantage of being a cheap manufacturing location. Mexico and Eastern Europe are useful for their closeness to the markets in the US and Europe. India has highly skilled engineers who can understand the technical aspects of production. It also has educated English speaking youth who can provide customer care services. And all this probably can mean 50-60 percent cost-savings for the MNC! The advantage of spreading out production across the borders to the multinationals can be truly immense.

Let’s work these out

1.  Complete the following statement to show how the production process in the garment industry is spread across countries.

       The brand tag says ‘Made in Thailand’ but they are not Thai products. We dissect the manufacturing process and look for the best solution at each step. We are doing it globally. In making garments, the company may, for example, get cotton fibre from Korea, ........

Source: This topic is taken from NCERT TEXTBOOK