Multinational corporations

• What is a multinational?


  Are organisations that operate in more than one country
• What is a home country?


  the country the headquarters are located
• What is a host country?


  This is where a business sells or makes their products
• What does divest mean?


  To sell
• What is GNP?


  Value of all goods and services that a country owns abroad.
• What does turnover mean?


  Value of a businesses sales
• What does it mean for a business to gain global market dominance?


  This means they gain customers from all over the world
• What does it mean if a business increases its market share?


  Means the amount of customers a business has is increasing. You are 'stealing' customers from other businesses. This leads to the business becoming stronger, the business is spreading risk this makes them less vulnerable to a takeover or acquisition.
• What are trade tariffs?


  Is a tax that is put onto imported goods.
• How can a multinational influence a government?


  Can request infrastructure investment and if the host country government wasn't to comply then the multinational may move out of that country. This is powerful and a reason for growth as they are taking job away from the local area.
• What does it mean for a multinational to utilise cheap labour and materials?


  You may be closer to your raw materials so can save on transport costs. Labour may be cheaper in foreign countries e.g a lower minimum wage.

  E.g if you grow cotton in India it will be cheaper than growing it in the US as there is cheaper labour and you are closer to your raw materials.
• How can a business take advantage of economies of scale?

  Economies of scale is something that only large businesses can take advantage of. E.g they can benifit from receiving bulk buying discounts.

  E.g Tesco buys beans from Heinz that will be a huge order so may only pay 30p a tin so can make a large profit by taking advantage of economies of scale. Whereas a small business may only be able to buy a small amount of Heinz beans so may pay 60p a tin.
• How can economies of scale affect a managerial economy?


  It allows a business to have specialist people for different areas of a business

  E.g finance, operations etc
• How can a financial economy benefit from economies of scale?


  Bigger companies will get a loan faster than a small company as they are less risky as they have more money to pay the loan back on time. A bigger organisation may have a lower interest rate than a small business due to there ability to pay it back.
• How can a multinational improve competitiveness and acquire expertise?


  Can be more competitive by lowering their prices so they can appeal to a wider market. This means that consumers get more value for their money. Multinationals can attract expertise (best people for the job) because they have the best knowledge and are attracted by a large pay check.
• How can a multinational avoid monopoly legislation in a home country?


  A monopoly is when one company dominates the market. They have more than 25% of the market. If a multinational has this amount of control over the market and influence and you change a high price. A high price like this is describes as anti-competitive behaviour.
• What does an increased use of e-commerce mean for a multinational?


  It means that the business can interact with customers from all over the globe in just a few days. Businesses can now reach a wider customer base than ever before.
• Why do some businesses take control of their supply chain?


  Doing this cuts out the middle man profits.
• How can you reduce transport costs?


  By having your factory and raw materials close by, this means that raw materials do not need to be transported far for a product to be created. This means transportations costs have been saved.
• What does it mean if a business is apart of a world trade organisation?


  You can be protected from trade barriers, you may also achieve free trade this is known as free movement.

  E.g if the uk was to sell goods to japan they want to do it with free trade so that they can export it with no extra cost. If a tariff was added it would make the product more expensive for the Japanese consumers meaning that sales and profits would decrease.
• Why is social media and advertising useful to a business?


  It allows people in foreign countries to see what is being produced somewhere else. People in other countries will want to try products seen in another country.
• How can organic growth be achieved?


  1. Opening of a new branch

  2. Creation of a new product

  3. Introduction of a e-commerce facility

  4. Introduce business into new markets

  5. Increase the number of employees, this allows for production to increase and customer service to improve leading to loyal customers
• What are advantages of organic growth?


  - The gradual and sustained gain of economies of scale as the business developed, growth can be controlled more easily.

  - The business can strengthen the existing corporate culture, no need to adapt to differing way of work, procedures etc.

  - The expert workforce can be further utilised and developed.

  - Technology can further develop organic growth e.g the music industry now has downloads.
• What is horizontal integration?


  The joining of two firms that are in the same stage in production
• What are advantages of horizontal integration?


  1. Eliminates competition and increases market share.

  2. Achieve greater economies of scale, such as greater discounts as a result of being able to buy inputs in bigger quantities.

  3. Aquire assets of another firm.

  4. Become stronger and therefore more secure from hostile takeover bids.

  5. A greater choice can be offered to the consumer.
• What is backward vertical integration?


  This is when a firm takes over another that is in an earlier stage in the production process.
• What are advantages of backwards vertical integration?


  1. Businesses can be aware of quantity and quality of the product consumers are receiving.

  2. Businesses can control the costs of their materials.

  3. Businesses have more control over the raw materials.
• What is forwards vertical integration?


  This is when a firm takes over another that is in a later stage in the production process.
• What are advantages of forwards vertical integration?


  1. Eliminates the middleman and their profit margin.

  2. Gives the firm greater economies of scale.

  3. Allows the firm to link processes more easily- greater synergy between production processes/ parts of the bigger business.

  4. Greater control over the distribution of goods.
• What is conglomerate integration?


  This is the combining of firms which operate in different markets.
• What are advantages of conglomerate integration?


  1. It allows the firm to spread risk, failure in one area can be compensated by the success in another.

  2. It enables a firm to overcome season fluctuations in its markets.

  3. It makes the firm larger and more financially secure.

  4. The firm acquires the assets of the other company
• What is lateral integration?


  When a business acquires or merges with another business that is in the same industry but does not provide the same product.
• What is a merger?


  When two similar sized companies come together.
• What is a takeover?


  When a larger business acquires a smaller business. This is often hostile.
• What is a de-merger?


  Is the splitting up of conglomerate so it becomes two new companies in their own right.
• What are reasons for a de-merger?


  1. The businesses may be stronger apart, this allows them to make different strategic decisions or to take new directions.

  2. One part of the business may be losing money draining other resources and preventing the other part of the business from growing.

  3. The management team believes they have taken the business as far as possible and it would benifit from being broken up.
• What is outsourcing?


  This is when a firm pays for another external business to complete certain activities.

  E.g a business may outsource a cleaning company.
• What are advantages of outsourcing?


  1. It allows the business to concentrate on its core activities.

  2. The outsourced firms are specialist and can carry out the work more efficiently or to a higher standard.

  3. Savings are made on equipment, machinery, staffing and repairs.

  4. There is no need to employ, don't need to use the HR department to recruit and train new employees.
• What are disadvantages of outsourcing?


  1. Any negative publicity to the outsourced firms may impact the main business.

  2. May be expensive as it is a specialist service.
• What are disadvantages of external growth?


  1. Duplication of effort

  2. Duplication of staffing

  3. Compulsory redundancies

  4. Diseconomies of scale

  5. Clashes of culture