MULTINATIONAL ENTERPRISES (MNE’s)
A MNE is an enterprise, which has its services and assets in more than one country. MNE’s have offices and production unit in different countries known as host countries with a head office in the home country where all global management decisions are coordinated. E.G.: Coca-Cola, Toshiba, and Honda. MNE’s play a very important role in globalization.
STRUCTURE OF MULTINATIONAL ENTERPRISES
MNE’s have three different and unique structures (transnational corporations,2011)
Horizontally integrated MNE’s:
Horizontal integration is a plan where a company manages its production units in different countries to manufacture identical products. The soft drink company is the best example for horizontal integration of MNE’s.
Vertically integrated MNE’s:
Vertically integrated MNE’s manage production units in selected countries, which produce parts required as inputs for the main production units in another country. E.G.: the car industry.
Diversified MNE’s manage output in different countries that are neither horizontally nor vertically integrated. E.G.: Joint venture of Coca-Cola with McDonald's.
GENERIC STRATEGIES OF MNE’s
Global integration strategy:
The global integration strategy takes advantage of economies of scale and of diverse opportunities for cost reduction. (A comprehensive strategy for globally integrated operations, 2009)
Host country focus strategy:
The host country focus strategy considers companies as independent national firms
Hybrid international strategy:
Hybrid international strategy is gaining benefits from the combination of both global integration strategy and host country focus strategy.
SWOT ANALYSIS OF MNE’S
ADVANTAGES OF MNE’S
To the host country:
The host country is benefitted in several ways when a MNE plans to set up subsidiaries. There is a transfer technology and capital in the host country, this is helps the host country to grow. As there is a new company setting up in the country the level of employment opportunities increase leading to increase in income of an individual. Locals of the country have greater obtainability to variety of products. The country is also benefitted by increase in revenue as exports increase and imports decline.
To the home country:
The home country also gains a lot when the set up the MNE’S in another country. Raw materials are acquired from abroad at maybe a cheaper rate. The company gains better technology and management expertise, which helps them compete in the global market. There is also influx of income in form of profits and fees.
DISADVANTAGES OF MNE’S
➢ Trade constraints imposed at government level.
➢ Quotas of import.
➢ Effective management of globally detached organizations.
➢ Decrease in employment opportunities in home country.
➢ Abolishes competition and gains monopoly
WHEN IS COMPANY CLASSIFIED AS AN MUTINATIONAL ENTERPRISE?
A company is classified as a MNE when it has...