Andhra Pradesh BIEAP AP Inter 1st Year Commerce Study Material 11th Lesson Multi National Corporations (MNCs) Textbook Questions and Answers.

AP Inter 1st Year Commerce Study Material 11th Lesson Multi National Corporations (MNCs)

Essay Answer Questions

Question 1.
Define MNC and explain its features.
Answer:
The word ‘Multinational’ consists of two words Multi and National. Multi means ‘many’ and national means “country or nation”. Therefore Multinational company means a company that operates in several countries.

Multinational companies are also known as Transnational corporations International corporations or Global corporations. They conduct business in two or more countries. These corporations possess huge capital resources, the latest technology along with worldwide goodwill.

Definition :
According to International Labour Organisations (ILO) report –
“An enterprise whose managerial headquarters are located in one country, while it carries out operations in a number of other countries as well.”

According to Neil. H. Jocoby “A multinational corporation owns and manages business in two or more countries.”

David E. Liliental, considering a wider parameter, defines the MNCs as “Corporations which have their home in one country but operate and live under the laws and customs of other countries as well.” For brevity, MNC refers to the business enterprise operating in more than one nation.

The essential feature of a MNC is that headquarters are located in home country and they carry operations in a number of other countries i.e. host countries.

Characteristics of MNCs:
a) Giant size :
The sales and assets of MNCs are quite large. Hence they earn supernormal profits.

b) Global operations :
MNCs carry production and marketing operations in different countries of the world. They possess all the infrastructural facilities.

c) Centralized control :
MNC has its headquarters in the home country. It exercises control over all branches and subsidiaries.

d) Dominant position and status :
MNCs carry on operations in bulk and cover many people. Hence they control the market and enjoy a dominant position and status in all operated countries.

e) Sophisticated technology :
Generally MNCs had advance technology so as to produce quality goods and services to the consumers.

f) Professional management:
MNCs employ professional trained managers to integrate and manage world wide operations to maximize profits.

g) International research and development :
MNCs internationalize their research and development operations in order to caputre the market of the host countries.

h) Easy entry :
MNCs can enter into any country easily with their huge capital, technology, and managerial skills.

i) Higher revenues :
MNCs generate huge revenues with their large size sales and benefits of large scale economies

AP Inter 1st Year Commerce Study Material Chapter 11 Multi National Corporations (MNCs)

Question 2.
Define MNC and explain the advantages of MNCs.
Answer:
The word Multinational consists of two words Multi and National. Mutli means many and national means “nations or countries”. Therefore Multinational company means a company that operates in several countries.

Multinational companies are also known as Transnational Corporations or International Corporations-or Global Corporations. They conduct business in two or more countries. These corporations possess huge capital resources, latest technology along with worldwide goodwill.

According to Neil. H. Jocoby “A multinational corporation owns and manages business in two or more countries.”

David E. Liliental, considering a wider parameter, defines the MNCs as.”Corporations which have their home in one country but operate and live under the laws and customs of other countries as well.” For brevity, MNC refers to the business enterprise operating in more than one nation.

The essential feature of a MNC is that headquarters are located in home country and they carry operations in a number of other countries i.e. host countries.

Advantages to Host Countries:
1) Provide Capital :
The MNCs provide required capital for the development of industries in under developing countries. The direct foreign investment is quite useful to the developing countries.

2) Transfer of Technology:
MNCs serve as vehicles for transfer of advanced technology to the developing countries.

3) Generate Employment :
MNCs create employment in various cadres and pay attractive salaries in the host countries.

4) Foreign Exchange :
MNCs enable the host countries to increase their exports and reduce the imports. It improves the position of balance of payments.

5) Managerial Revolution :
MNCs help to professionalise management in host countries. They employ modern management techniques and trained manager.

6) Break Monopoly :
MNCs encourage healthy competition and break domestic monopolies.

7) Growth of Domestic Business Firms:
MNCs encourage domestic suppliers, ancillary units, bankers, and other institutions to expand their activites.

8) Innovation :
MNCs bring out innovation in their production and distribution activities which are required to provide goods and services to needs of the consumers of the host country.

9) Better Standard of Living :
MNCs help to improve standard of living in host countries by providing superior products and services at a reasonable rate.

10) Improves Public Relations among Nations :
They encourage international brotherhood through international business.

Advantages to Home Countries :
1) Availability of resources:
MNCs procure the land, labour, materials at cheap rates and can supply goods and services at reasonable rates.

2) Develop exports :
MNCs encourage the export of several products. This will imporve their foreign exchange earnings.

3) Generate income :
They can earn huge income from dividends, licenising fees, royalty and profits from their operations. This will improve the home country’s income.

4) Provides employment:
MNCs provide employment to the people of home country, as managers, technicians and other staff members.

5) Make use expertise :
The MNCs make use the latest technical knowledge and expertise of managers of different countries to run their business.

Question 3.
Define MNC and explain the limitations of MNCs.
Answer:
The word Multinational consists of two words Multi and National. Mutli means many and national means “nations or countries”. Therefore Multinational company means a company that operates in several countries.

Multinational companies are also known as Transnational Corporations or International Corporations or Globed Corporations. They conduct business in two or more countries. These corporations possess huge capital resources, latest technology along with worldwide goodwill.

According to Neil. H. Jocoby “A multinational corporation owns and manages business in two or more countries.”

David E. Liliental, considering a wider parameter, defines the MNCs as “Corporations which have their home in one country but operate and live under the laws and customs of other countries as well.” For brevity, MNC refers to the business enterprise operating in more than one nation.

The essential feature of a MNC is that headquarters are located in home country and they carry operations in a number of other countries i.e. host countries.

Disadvantages of MNCs:
1) Monopolize the markets :
MNC may join hands with big business units in host country to monopolize the markets. This ultimately leads to concentration of economic power.

2) Disregard host countries’ priorities :
MNCs invest only in porfitable business and ignore priorties set by the host countries. This results in regional backwardness in the host country.

3) Imbalance in the foreign exchange remittances :
MNCs and their subsidiaries collect huge amounts in the form of dividend. This creates an imbalance in the foreign exchange remittances.

4) Transfer of outdated technology :
The MNCs transfer the outdated technology, which is unsuitable and absolute by charging higher rates.

5) Impose restrictions :
MNCs try to impose restrictions with host countries related to non transfer of technical knowlege, determination of price, etc. to discourage the exports.

6) Threat to sovereignty :
MNCs may interfere in the political affairs of the country and try to create internal disturbances.

7) Spread of foreign culture :
MNCs cause damage to the cultural values of the host countries. They spread the foreign culture and change the attitudes, desires and fashions of the people.

8) Depletion of natural resources:
MNCs cause rapid depletion of some of the natural resources in host countries.

9) Retard growth of employment :
MNCs try to provide employment to their own nations. This bias attitude of the MNCs may lead to unemployment in the host country.

10) Business strategies and practices :
MNCs dump harmful products, give deceptive advertisements attract the consumers to purchase outdated and unwanted goods.

AP Inter 1st Year Commerce Study Material Chapter 11 Multi National Corporations (MNCs)

Question 4.
What is globalisation and explain the necessity of Globalisation?
Answer:
Globalisation refers to the increasing integration of markets (exchange) and production, to include the mobility of resources (capital, labour, ‘organisation and knowledge’).

The world is moving away from self-contained national economies toward an interdependent, integrated global economic system. Globalisation refers to the shift toward a more integrated and interdependent world economy.

Globalization has two facets :

  1. The globalization of markets
  2. The globalization of production

1) Globalization of Markets:

  • The globalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace
  • Falling trade barriers make it easier to sell internationally
  • The tastes and preferences of consumers are converging on some global norm
  • Firms help create the global market by offering the same basic products worldwide

2) Globalization of Production :

  • The globalization of production refers to the sourcing of goods and services from locations around the globe to take advantages of national differences in the cost and quality of factors of production like land, labour and capital
  • Companies compete more effectively by lowering their overall cost structure or improving the quality or functionality of their product offering

There are two macro factors that underlie the trend toward greater globalization :
1) Low Trade Barriers:
The decline in barriers to the free flow of goods, services and capital. Advanced countries made a commitment to lower barriers to trade and investment.

2) Technological change:
Technological change has made the globalization of markets a reality. Important advances have occurred in microprocessors, telecommunications, Internet and World Wide Web, transportation technology, etc.

Short Answer Questions

Question 1.
Explain the meaning of MNC.
Answer:
The word Multinational consists of two words Multi and National. Mutli means many and national means “nations or countries”. Therefore Multinational company means a company that operates in several countries.

Multinational companies are also known as Transnational Corporations or International Corporations or Global Corporations. They conduct business in two or more countries. These corporations possess huge capital resources, latest technology along with worldwide goodwill.

According to Neil. H. Jocoby “A multinational corporation owns and manages business in two or more countries.”

David E. Liliental, considering a wider parameter, defines the MNCs as “Corporations which have their home in one country but operate and live under the laws and customs of other countries as well.” For brevity, MNC refers to the business enterprise operating in more than one nation.

The essential feature of a MNC is that headquarters are located in home country and they carry operations in a number of other countries i.e. host countries.

Question 2.
List out the features of MNCs. [Mar. 2018 – A.P. & T.S.]
Answer:
a) Giant size :
The sales and assets of MNCs are quite large. Hence they earn supernormal profits.

b) Global operations :
MNCs carfy production and marketing operations in different countries of the world. They possess ail the infrastructural facilities.

c) Centralized control :
MNC has its headquarters in the home country. It exercises control over all branches and subsidiaries.

d) Dominant position and status:
MNCs carry on operations in bulk and cover many people. Hence they control the market and enjoy a .dominant position and status in all operated countries.

e) Sophisticated Technology :
Generally MNCs had advance technology so as to produce quality goods and services to the consumers.

f) Professional Management :
MNCs employs professional trained managers to integrate and manage world wide operations to maximize profits.

g) International research and development:
MNCs internationalize their research and development operations in order to caputre the market of the’host countries.

h) Easy entry :
MNCs can enter into any country easily with their huge capital, technology and managerial skills.

i) Higher revenues :
MNCs generate huge revenues with their large size sales and benefits of large scale economies.

Question 3.
State any four merits of MNCs to host country. [Mar. 2019 – A.P. Mar. 17 – T.S.]
Answer:
MNCs help the host country in the following ways.

  1. The investment level, employment level and income level of the host country increases due to the operation of MNCs.
  2. The industries of host country get latest technology from foreign countries through MNCs.
  3. The host country’s business also gets management expertise from MNCs.
  4. The domestic traders and market intermediaries of the host country gets increased business from the operation of MNCs.
  5. MNCs break protectionalism, curb local monopolies, create competition among domestic companies and thus enhance their competitiveness.
  6. Domestic industries can make use of R & D outcomes of MNCs.
  7. The host country can reduce imports and increase exports due to goods produced by MNCs in the host country. This helps to improve balance of payment.
  8. Level of industrial and economic development increases due to the growth of MNCs in the host country.

Question 4.
Explain any four merits of MNCs to home country. [Mar. 15 – T.S.]
Answer:
MNCs home country has the following advantages.

  1. MNCs 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. MNCs help to maintain favourable balance of payment of the home country in the long run.
  5. Home country can also get the benefit of foreign culture brought by MNCs.

AP Inter 1st Year Commerce Study Material Chapter 11 Multi National Corporations (MNCs)

Question 5.
Explain any four disadvantages to the host country. [Mar. 17, 15 – A.P.]
Answer:

  1. MNCs may transfer technology which has become outdated in the home country.
  2. As MNCs do not operate within the national autonomy, they may pose a threat to the economic and political sovereignty of host countries.
  3. MNCs may kill the domestic industry by monopolising the host country’s market.
  4. In order to make profit, MNCs may use natural resources of the home country indiscriminately and cause depletion of the resources.

Question 6.
State any four disadvantages to home country.
Answer:

  1. MNCs may join hands with big business units in host country to monopolize the markets. This ultimately leads to concentration of economic power.
  2. The MNCs transfer the outdated technology, which is unsuitable and absolute by charging higher rates.
  3. MNCs may interfere in the political affairs of the country and try to create internal disturbances.
  4. MNCs try to provide employment to their own nations. This bias attitude of the MNCs may lead to unemployment in the host country.

Very Short Answer Questions

Question 1.
Define Globalisation.
Answer:
The world is moving away from self contained national economies toward an interdependent integrated global economic system. Globalization refers to the shift toward a more integrated and interdependent world economy.

Globalisation has two facets :

  1. The globalization of markets
  2. The globalization of production

Question 2.
Define FDI.
Answer:
Foreign Direct Investment (FDI) is the control of production which takes place in one country (host country) by a firm based in another country (home). FDI is the defining feature of the MNC. Foreign direct investment (FDI) occurs when a firm invests resources in business activities outside its home country.

AP Inter 1st Year Commerce Study Material Chapter 11 Multi National Corporations (MNCs)

Question 3.
Define MNC. [May, 17 – A.P.]
Answer:
The word ‘Multinational’ consists of two words Multi and National. Multi means ‘many’ and national means “country or nation”. Therefore Multinational company means a company that operates in several countries.

Multinational companies are also known as Transnational corporations or International corporations or Global corporations. They conduct business in two or more countries. These corporations possess huge capital resources, latest technology along with world wide goodwill.

Examples of MNCs are :
Pepsi, Hyundai, Nike, Reebok, LG, Samsung and many more.