Question

What are the various ways in which MNCs set up, or control, production in other countries?

Answer 1

Production was predominantly organised within countries, until the middle of the twentieth century. If we take into consideration the past thirty years, we can understand that the major force in the process of globalisation has been the MNCs, connecting far away parts of the world. In fact, the entire budgets of the developing country governments are lesser than the wealth of the top MNCs.

Multinational Companies (MNCs)

• A company that controls or owns production in more than one country is known as a MNC.
• MNCs set up factories and offices for production in regions where they can get cheap resources including cheap labour.
• The above actions are taken by MNCs with the objective of earning greater profits and to keep the cost of production low.

MNCs – Factors that Influence Investment Decisions

• Investment made by MNCs is called foreign investment
• The money spent on buying assets such as machines, equipment, buildings, and land is called investment.
• Earning profits is the objective behind making any investments.
• MNCs set up production where the availability of various factors of production is assured, where there is availability of unskilled and skilled labour at low costs, where target markets are closeby.
• In addition, government policies play a big role in the decisions of MNCs.
• Once the above conditions are fulfilled, MNCs set up offices and factories for production.

3 Different Methods Used by MNCs – To Set up, or Control Production

1. By using the local companies for supplies
2. By setting up partnerships with local companies
3. By closely competing with the local companies or buying them up

The below paragraphs explain the above 3 ways in detail.

MNCs – Joint Production or Buy Local Companies

• Sometimes, local companies of a country and MNCs set up joint production facilities.
• There are two-fold benefits for the local company to go ahead with such joint production.
• The first benefit is local companies can speed up the production by buying new machines and to purchase these new machines, additional investments will be required, which will be provided by MNCs.
• The second benefit is that the latest technology for production will be given to the local companies by the MNCs.
• But the most common route for expansion of production is for the MNCs to make investments in buying up local companies.

MNCs tie up with Small Producers – Another Important Way to Control Production

• The above mentioned ways are not the only ways used by MNCs to control production, there is yet another way.
• Small producers will receive orders for production from large MNCs located in developed countries.
• Examples of industries where production is carried out by a large number of small producers around the world are sports items, footwear, garments.
• MNCs then sell the products received from small producers. MNCs will use their own brand names while selling these products to consumers.
• These large MNCs have greater power in deciding the labour condition for distant small producers, delivery, quality and price.