Choose the most appropriate option. The most common route for investments by MNCs in countries around the world is to a) set up new factories. b) buy existing local companies. c) form partnerships with local companies.

The Correct answer is Option (B) – Buy Existing Local Companies

  • Expanding production by buying up local production is the most common route for investments by Multinational Companies (MNCs).
  • This mode of investment is very easy for MNCs having huge wealth.
  • Investment made by MNCs is called foreign investment.
  • The money spent on buying assets such as machines, equipment, buildings, and land is called investment.
  • The above actions are taken by MNCs with the objective of earning greater profits and to keep the cost of production low.
  • Government policies also play a big role in the investment decisions of MNCs.

Buy Existing Local Companies – Example

  • Smaller Indian companies such as Parakh Foods was bought by a very large MNC, Cargill Foods. 
  • In various parts of India, a large marketing network was built by Parakh Foods, due to which its brand had a very high reputation. 
  • Apart from the marketing network, Parakh Foods also had four oil refineries. Once Cargill bought Parakh Foods, the control of refineries was shifted to Cargill.
  • Due to this mode of investment in India by Cargill it started producing 5 million pouches on a daily basis making it the largest producer of edible oil in India.

To Control Production – 3 Different Methods Used by MNCs

  • By closely competing with the local companies or buying them up
  • By setting up partnerships with local companies
  • By using the local companies for supplies

Joint Production – Investments by MNCs

  • 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.

Partnerships with Small Producers – Investment by MNC

  • 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.

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