Principles of Mnc
Principles of MNCs
Principles of Multinational corporations:
There are three generally recognized principles that underlie the multinational process. These principles are known as location, internalization and ownership. We shall consider each in turn.
Location:
Multinational activity may arise as a result of a number of ‘locational’ influences. It is said, for example, that upto 50,000 textile jobs might be lost in the UK as textile firms shift production to North Africa. Why this location? The answer is that textile production can be carried out more efficiently in North Africa because it is cheaper to employ labour there than in the U.K. The multinational process in this instance is driven by the production advantages offered by another (foreign)
location. We can also quote the example of another firm John West. John West, itself part of the Heinz group, is a producer of canned tuna fish. John West is based in Liverpool, but it has production plants in West Africa and the Seychelles. John West is engaged in multinational activity at least in part for the simple reason that the River Mersey and Irish Sea are not prime fishing grounds for tuna. Part of its business has to be conducted where the fish are hence its decision to operate production plant overseas.
Internalization:
Another underlying principle of multinational activity is what is called internalization.
Continuing without tuna fish theme for a moment, notice that location need not be decisive in the decision to operate multinationally. John West contracts some fishing work to local communities in West Africa. It could also contract out fish processing and canning the ‘factory’ end of its business. If it did this it could cease to operate multinationally; everything could be contracted from Liverpool to unrelated business overseas. In these circumstances, John West would be managing its business through a network of market relationships. Such an approach might sound a
Principles of Multinational corporations:
There are three generally recognized principles that underlie the multinational process. These principles are known as location, internalization and ownership. We shall consider each in turn.
Location:
Multinational activity may arise as a result of a number of ‘locational’ influences. It is said, for example, that upto 50,000 textile jobs might be lost in the UK as textile firms shift production to North Africa. Why this location? The answer is that textile production can be carried out more efficiently in North Africa because it is cheaper to employ labour there than in the U.K. The multinational process in this instance is driven by the production advantages offered by another (foreign)
location. We can also quote the example of another firm John West. John West, itself part of the Heinz group, is a producer of canned tuna fish. John West is based in Liverpool, but it has production plants in West Africa and the Seychelles. John West is engaged in multinational activity at least in part for the simple reason that the River Mersey and Irish Sea are not prime fishing grounds for tuna. Part of its business has to be conducted where the fish are hence its decision to operate production plant overseas.
Internalization:
Another underlying principle of multinational activity is what is called internalization.
Continuing without tuna fish theme for a moment, notice that location need not be decisive in the decision to operate multinationally. John West contracts some fishing work to local communities in West Africa. It could also contract out fish processing and canning the ‘factory’ end of its business. If it did this it could cease to operate multinationally; everything could be contracted from Liverpool to unrelated business overseas. In these circumstances, John West would be managing its business through a network of market relationships. Such an approach might sound a