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A multinational organisation is a company which has its headquarters in one country but has assembly or production facilities in other countries. Examples of multinationals include:

• The Coca-Cola Company
• Nike
• BP

There are some reasons why companies wish to become multinationals:

• to increase market share – companies may find they are at saturation point in the domestic market and need a new outlet. They may start by exporting to other countries but eventually they will want to being production overseas. Coca Cola started this way following US soldiers around the world after WW1.
• to secure cheaper premises and labour – cost of land and labour will be cheaper in developing countries. Sweatshops in the Far East are an example of cheap labour, whereas production plants opening in the old Soviet Bloc nations like Poland, Bulgaria etc are examples of cheap factories.
• to avoid tax or trade barriers – different nations have different levels of corporation tax and may have different barriers to entry. Japan only allows a small percentage of foreign cars to be sold in Japan to protect their own industry.
• government grants – many US companies were attracted to the UK in the 80s due to government giving them money to open up operations here.

Advantages

Advantages of multinational organisations include:

• creating jobs. This boosts the local economy and employs more workers who will contribute tax.
• bringing expertise in and improving the skills of the workforce. Some may use IT that leads to the introduction or improvement of technology in the developing world.
• benefiting from economies of scale. This means the cost per unit can be lowered through specialisation – with a large workforce work can be divided up and people can do their limited job expertly.
• gainingtechnical economies with automated equipment. But this is only when fixed costs of machine can be spread out over outputs.
• achievingpurchasing economies. For example, by buying in bulk companies can obtain supplies and materials at a cheaper cost per unit.

Disadvantages

Multinationals can be accused of:

• relying ondeskilled jobs that may be low-paid, repetitive assembly line work.
• not keeping profits in the host country. For example the money made and saved by General Motors moving car assembly production to Mexico would still go back to HQ in Michigan.
• cutting corners. Social responsibility may be overlooked.
• exploiting the workforce and/or the environment. Workers can work below minimum wage and for longer hours. Both Levi jeans and Wal-Mart have been accused of exploiting workers in the Far East. Also, relaxed health and safety laws and little if any environmental laws may be in place. For example the Bhopal gas disaster in 1984 killed hundreds of people in India. Union Carbide was held accountable.
• exerting political muscle. The multinational may threaten to pull out of a country if they don't get deals on workforce (wages) or overheads (land, rent and rates) and pollution/clean-up deals.