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Multinational Companies and Their Host Regions

By Edited Apr 25, 2016 0 0

If asked to define a multinational company, most men and women would say it is a big company doing business in more than one country. A lot of experts, on the other hand, wouldn't be satisfied with this definition. They believe that it does not indicate the scale and size of the multinational company's activities.

Take Lifetouch Portrait Studio Inc (JCPenney Portrait Studios, FLASH! Digital Por

JC Penney Portrait Studio
traits, The Studio at Target etc.) for example. This company serves the portraiture needs of families and individuals through seven hundred portrait studios located across the US. This company is huge, but not multinational.

Therefore, to be a true multinational company, they claim, a company should operate in at least eight countries and have no less than 20 percent of its sales or assets in those countries. Furthermore, it should think internationally. That is to say, management should have a global perspective. It should see as inter-related and inter-dependent. To think internationally is the general change of the economic climate in the world.

Because of their global approach, multinationals often make decisions which are against the interests of their host countries. They may decide, for example, to close down their plant in County A because they wish to concentrate production in Country B. The parliament of that country will probably put pressure on the multinational company to change its mind. These companies are criticized by foreign governments for other reasons. Sometimes, a subsidiary in one country will supply another subsidiary with cheap – or below cost – products. This happens when a subsidiary has just started up in a country. The other subsidiary will help it to get on its feet. Difficulties often arise when a multinational company wishes to transfer its earnings back to Head Office. The host country may feel that the transfer will have a bad effect on the exchange rate of its currency. Or, it may want the multinational company to re-invest profits in the business. The interests of multinational companies and foreign governments clash. Finally, this situation can lead to friction between the two sides, and even bitterness.


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