2. Definitions
Multinational Companies (MNC’s)
As defined by I. L. O. or the International Labor Organization, a M. N. C.
is one, which has its operational headquarters based in one country
with several other operating branches in different other countries. The
country where the head quarter is located is called the home country
whereas, the other countries with operational branches are called the
host countries.
Transnational Companies (TNC’s)
As defined by United Nations Commission on Transnational
Corporations as ‘enterprises which own or control production or service
facilities outside the country in which they are based.
3. D i f f e r e n c e B e t w e e n M N C ’s & T N C ’s
• Transnational corporations are a type of Multinational corporations.
• MNC have an international identity as belonging to a particular home country
where they are headquartered. On the other hand, transnational corporations
are more or less borderless in this regard as they do not consider a particular
country as their base.
• MNC’s have branches in other countries, whereas TNC’s have subsidiaries
• MNC have investment in other countries, but do not have coordinated product
offerings in each country. It is more focused on adapting their products and
service to each individual local market. A TNC, on the other hand, have
invested in foreign operations, have a central corporate facility but give
decision-making, R&D and marketing powers to each individual foreign market.
4. Advantages of MNCs and TNCs to Host Country
1. The investment level, employment level, and income level of the host country
increases due to the operation of MNC's & TNC's.
2. The industries of host country get latest technology from foreign countries through
MNC's & TNC's.
3. The host country's business also gets management expertise from MNC's & TNC's.
4. The domestic traders and market intermediaries of the host country gets increased
business from the operation of MNC's & TNC's.
5. MNC's & TNC's break local monopolies, create competition among domestic
companies and thus enhance their competitiveness.
6. Domestic industries can make use of R and D outcomes of MNC's & TNC's.
7. The host country can reduce imports and increase exports due to goods produced
by MNC's & TNC's in the host country. This helps to improve balance of payment.
8. Level of industrial and economic development increases due to the growth of
MNC's & TNC's in the host country.
5. Advantages of MNC's & TNC's for the Home country
1. MNC's & TNC's create opportunities for marketing the products produced in the
home country throughout the world.
2. They create employment opportunities to the people of home country both at
home and abroad.
3. It gives a boost to the industrial activities of home country.
4. MNC's & TNC's help to maintain favorable balance of payment of the home
country in the long run.
5. Home country can also get the benefit of foreign culture brought by MNC's &
TNC's
6. Disadvantages of MNC's & TNC's for the host country
1. MNC's & TNC's may transfer technology which has become outdated in the home
country.
2. As MNC's & TNC's do not operate within the national autonomy, they may pose a
threat to the economic and political sovereignty of host countries.
3. MNC's & TNC's may kill the domestic industry by monopolizing the host country's
market.
4. In order to make profit, MNC's & TNC's may use natural resources of the home
country indiscriminately and cause depletion of the resources.
5. A large sums of money flows to foreign countries in terms of payments towards
profits, dividends and royalty.
7. MNC’s & TNC’s in India Why?
There are a number of reasons why the multinational companies are coming down to
India. India has got a huge market. It has also got one of the fastest growing
economies in the world. Besides, the policy of the government towards FDI has also
played a major role in attracting the multinational companies in India.
For quite a long time, India had a restrictive policy in terms of foreign direct
investment. As a result, there was lesser number of companies that showed interest
in investing in Indian market. However, the scenario changed during the financial
liberalization of the country, especially after 1991. Government, nowadays, makes
continuous efforts to attract foreign investments by relaxing many of its policies. As a
result, a number of multinational companies have shown interest in Indian market.
