What is a multinational company?
A multinational company is one where regional headquarters are set up in different countries. In this example, Adidas is a multinational company because aside from its main parent headquarters in the United States of America, it has set up regional headquarters in other countries, such as China, Indonesia, Great Britain, and so on. Such a globalised company has profound effects on the company itself and the host countries.
Benefits to the Host Country
Investment. Multinational companies from abroad have to invest into the host country’s economy in order to business there. They have to pay taxes to the local government, create jobs for the local workforce, provide training, and so on. In some countries, such as China, foreign companies are legally obliged to create a corporate alliance with a local company in order to business in the vicinity. This benefits the lost country as the local businesses will then learn from the foreign, larger and more successful firms, from different manufacturing systems to more advanced business models. This know-how is important for the local firm’s future expansion and growth, and can aide these small firms to one day expand into a major international player. All in all, money will flow into the host country if a multinational company chooses to enter.
Disadvantages to the Host Country
One of the biggest disadvantages for multinational companies operating in a host country is the dominance it can have on the local market. Adidas is a very large firm; it can take advantages to many economies of scale, from research and development to marketing and advertising, and can enjoy much larger margins of profit as a result. With the influx of Adidas products, which are superior to local brands because of the fore mentioned reasons, local companies in the same market may face lowering numbers of customers. Large firms as such can throttle smaller firms, and generate as a result more...
Bibliography: 'IB Business and Management ' by Paul Hoang.
Please join StudyMode to read the full document