NAME: DOSUNMU ADEBAYO MUKTAR

MATRIC: 170107111
COURSE TITLE: BUSINESS HISTORY
CODE: HSS437

ASSIGNMENT
Analysis of the definition,evolution,characteristics,impact of multinational corporations.

What is Multinational Corporation?

A Multinational Corporation (MNC) is a company that has business operations in at least one
country other than it’s home country. By some definitions, it’s also generates at least 25% of its
revenue outside of its home county. Generally, a multinational company has offices, factories, or
other facilities in different countries around the world as well as centralized headquarters which
coordinates global management. Multinational companies can also be known as international,
stateless or transnational corporate organizations or enterprises. Some may have budgets that
exceed those of small countries.
A multinational corporation is an enterprise whose business activities occur in at least two
countries. Some may consider any company with a foreign branch to be a multinational
corporation. Others may limit the definition to only those companies that derive at least a quarter
of their revenue outside of their home country. Multinational companies can make direct
investments in foreign companies. Many are based in developed nations. Advocates say they
create high paying jobs and technologically advanced goods in countries that otherwise would
not have access to such opportunities or goods. However, critics of these enterprises believe
multinational corporations exert undue political influence over governments, exploit developing
nations, and create job losses in their home countries. The history of multinational company is
linked with the history of colonialism. Many of the first multinational companies were
commissioned at the behest of European monarchs to conduct international expeditions. Some
of the colonies not held by spain or portugal existed under the administration of some of the
world’s earliest multinational companies. One of the first was The east India company,
established in 1600. The British multinational enterprise took part in international trade and
exploration, and operated trading post in India. Other early examples of multinational companies
include the Swedish African company, founded in 1649 and the Hudson’s Bay company,
founded in 1670.

Evolution of multinational corporations.

The evolution of multinational corporations began with the history of colonialism. The first
multinational corporation were founded to build set up colonial “factories” or port cites. I’m
addition to carrying on trade between the mother countries and the colonies, the British East
India Company, and the Dutch East Inda company(VOC). Others included the Swedish African
company, and the Hudson’s Bay Company. These early corporations engaged in international
trade and exploration, and set up trading posts. The Dutch government took over the VOC in
1799 and during the 19th century, other governments increasingly took over the private
companies, most notable on British India. During the process of decolonization, the European
colonial charter companies were disbanded, with the final colonial corporation, the Mozambique
Company, dissolving in 1972.

Mining.
Mining of gold,silver,copper and especially oil were major activities early on and remains so
today. International mining companies became prominent in Britain in the 19th century, such as
Rio Tinto company founded in 1873, which started with the purchase of sulfur and copper mines
from the Spanish government. Rio Tinto, now based in London and Melbourne Australia, has
made many acquisitions and expanded globally to mine aluminum,iron ore,copper,uranium and
diamonds. European mines in South Africa began opening in the late 19th century, producing
gold and other minerals for the world market, jobs for locals and business and profits for
companies. Cecil Rhodes (1853-1902) was one of the few businessmen in the era who became
prime ministers (of South Africa 1890-1896). His mining enterprises included the British South
Africa company and De Beers. The latter Company practically controlled the global diamond
market from his base in Southern African.

Oil.
The “seven sisters” was a common term for the seven multinational companies which
dominated the global petroleum industry from the mid 1940s to the mid 1970s

. Anglo-Iranian oil company (originally Anglo-Persian; now BP)

. Royal Dutch Shell
. Standard Oil company of California (SoCal, later chevron)
. Gulf oil (now merged into chevron)
. Texaco (now merged into chevron)
. Standard oil company of New York (Socony, later Mobil, now part of ExxonMobil)

Preceding the 1973 oil crisis, the seven sisters controlled around 85 percent of the world’s
petroleum reserves. In the 1970s most countries with large reserves nationalized their reserves
that had been owned by major oil companies. Since then, industry dominance has shifted to the
OPEC cartel and state owned oil and gas companies, such as Saudi Aramco, Gazprom
(Russia), China National Petroleum corporation, National Iranian oil Company,
PDVSA(Venezuela), petrobras (Brazil), and petronas (Malaysia). By 2012 only 7% of the world’s
known oil reserves were in countries that allowed private international companies free rein. Fully
65% we’re in the hands of state owned companies that operated in one country and sold oil to
multinationals such as BP, Shell, ExxonMobil and Chevron.

Manufacturing.
Down through the 1930s about ⅘ of the international investments by the multinational
corporations was concentrated in the primary sector, especially mining (especially oil) and
agriculture (rubber, tobacco, sugar, palm oil, coffee, cocoa, tropical fruits). Most went to the
Third World Colonies. That changed dramatically after 1945 as the investors turn to
industrialized countries, and invested in manufacturing (especially high-tech electronics,
chemicals, drugs and vehicles) as well as trade. Sweden’s leading manufacturing concern was
SKF, a leading maker of bearings for machinery. In order to expand its international business, it
decided in 1966 it needed to use the English language. Senior officials, although mostly still
Swedish, all learned in English in major internal documents that were in English, the lingua
Franca of multinational corporations.
Unilever: A prominent multinational manufacturer is Unilever, a consumer goods company
headquartered in London. It’s product include many foods, as well as vitamins, supplements,
tea, coffee, cleaning agents, water and air purifiers, pet food and cosmetics. Unilever is the
largest producer of soap in the world. Unilever’s product are sold in 190 countries. Unilever
owns over 400 brands, with a turnover in 2020 of 51 billion euros. The company is organized
into three main divisions: Foods and refreshments; Home Care and Beauty and personal care. It
has research and development Facilities in china, India, the Netherlands, the United Kingdom
and the United States. Unilever was founded in 1929 by the merger of a Dutch margarine
producer Magarine Unie and the British soap maker Lever brothers. After 1950, it increasingly
diversified its products and expanded its operations worldwide. It’s numerous acquisitions
included Lipton(1971), Brooke Bond(1984), Chesebrough-Ponds(1987), Best foods(2000),
Ben&jerry’s(2000), Alberto-Culiver(2010), Dollar shave Club (2016) and pukka Herbs(2017)

Characteristics of Multinational Corporations

Although an MNC is a vast corporation, businesses in this category have their benefits and
drawbacks. The following are some of the advantages and disadvantages of multinational
corporations

1. Establishing branches in other countries: As implied by the name, multinational MNC

conducts business in various nations through the establishment of subsidiaries.
Typically, the items will also adhere to the local country’s rules and culture to be more
readily accepted by the market.
2. State of the art technology: when it comes to enabling the status of intentional
corporation, some of them are large, allowing them to have sophisticated technology. It
can assist the parent business in overseeing different global branch enterprises via this
sophisticated and current technology.
3. Captain control: Multinational Corporations controls the company’s capital, either
through the leading corporation or though branch corporations. Money is one of the
elements that might affect a business since significant capital can aid in the company’s
development.
4. Global distribution and management system: Many people define MNC as a
multinational corporation, meaning global management and distribution with high
professionalism. The dissemination objective is also pursued on a global scale.
5. Adopting a global perspective and mission: Due to its several branches in other nations,
it must also have a worldwide vision and goal. Even the methods by which the firm
accomplishes its purpose and objective must be global. As a result, whatever the
business does affects global conditions.

Impacts of Multinational Corporations on host countries (Positive and Negative)

.Positive
There are many advantages for the host country to benefit from the presence of multinational
corporations.

.1 job creation: Multinational companies create employment opportunities. They also tend to pay
more than local firms in host countries. Training programs will also improve the quality and
efficiency of local workforce. Therefore, more of the local workforce will be employed to work in
the multinational companies.

. 2 Boost to the local economy: Multinational corporations help to increase the value of country’s
annual output by producing and selling high volume of products. They will also boost export
earnings for the host country by selling product abroad. This will create consumption
expenditure since more people are in paid employment, and boost the host country’s Gross
domestic product (GDP). Therefore, the overall standard of living will be improved.

. 3 more TAX revenue for local governments: the income generated by the multinational
companies will be TAXable in the host country. The government in a host country will receive
more corporate TAX revenues from any Net profits before interest and Tax made by
multinational companies. Most of the multinational companies tend to be highly profitable
business year after year. This will lead to more income for the government to spend on
important public services such as health care and education.

. 4 Bring new managerial skills and development: Multinational corporations introduce new skills
and technology in production processes to host countries. With new ideas in management, and
technology transfers, the efficiency of production in host country will be raised. Management
expertise in the community will slowly improve. Then, the foreign managers might be replaced
by local staff once they are suitably qualified.

. 5 intensity competition- improved quality: With multinational companies on the market, local
business will be forced to improve their quality and productivity up to international standards to
compete with the multinationals. It is because without the threat from multinational companies,
domestic firms do not necessarily have the incentive to be innovative or to respond to market
forces. Higher competition will lead to greater efficiency to the benefit of domestic customers.

. 6 Increase in choice of products: Domestic customers will have access to greater variety of
goods and services as there is more competition. Therefore, customers will be able to benefit
from more choices. Also due to competition and better production methods, the quality of goods
may be higher too.

. 7 improvement of the country’s reputation: Multinational corporations will invest in foreign

countries that has a positive regulatory and economic environment. Usually, governments of
host countries provide incentives to multinational companies to set up in areas with high
unemployment and plentiful supply of labor. This may encourage other multinational companies
to set up there as well.

. 8 local suppliers can gain new customers: local producers and suppliers likely to benefit from
the increased presence of multinational companies in the country. They will be supplying raw
materials, components and finished goods, as well as services, and this will generate additional
jobs and higher sales revenue for those suppliers.

.Negative
However, it will not be all good news. The expansion of multinational corporations into a country
could lead to many drawbacks to the host country.

. 1 Exploitation of the local workforce: some multinational companies have been criticized for
paying low wages to workers in poor countries. Especially, when the host country faces high
unemployment and workers are low skilled. Also due to the absence of strict labor, and health
and safety rules in some underdeveloped and developing countries. Multinationals can employ
cheap labor for long hours with few of the benefits that the staff in their home country would
demand.

. 2 Higher pollution and environmental damage: pollution from manufacturing plants in

undeveloped and developing countries might be at higher levels than allowed in other
developed countries. It might be because of many reasons. Multinational companies aim to
produce goods as quickly and cheaply as possible and in doing so may ignore their impact on
the environment.

. 3 Repatriation of profits to home countries: Many multinational companies send back the
profits that they earn in host countries of their home country. Profits may be sent back to the
country where the head office of the company is based, rather than kept for reinvestment in the
host nation. Whilst multinational companies can create wealth in the host country, the profits are
repatriated to the home country in the end. This will leave the host country with very little
financial benefit.

. 4 small local companies may go out of business: since multinational companies are large
and are experts in their area of operation, they are also cost-efficient. Usually, they can provide
better quality goods at lower prices. Local companies that provide the same goods may suffer in
such case, therefore be squeezed out of business due to inferior equipment and much smaller
resources. Due to the fierce competitive pressures, domestic firms might be forced to reducing
prices to remain competitive.

. 5 Contributing to severe unemployment: Multinational companies are capable of causing

severe unemployment in the host country. It is because they are so good at what they do that
they can pose a threat to domestic business. In general, competition can be good when it
causes local firms to improve their performance. But competition can also be bad when
domestic firms are unable to compete on equal terms ending up with laying off redundant
workers, or even having to shut down the business in the worst case scenario.