Multinational Businesses (AQA A Level Business): Revision Note

Targeting overseas markets as a multinational

• A multinational company (MNC) is a business that is registered in one country but has manufacturing operations or outlets in different countries

  • E.g. Starbucks' headquarters are in Washington, USA but they have 32,000 stores in 80 countries

• Factors such as globalisation and deregulation have contributed to the growth of MNC’s

• MNC’s usually choose locations based on factors such as cost advantages and access to markets 

  • E.g. Nike originates from the USA but 50% of their manufacturing takes place in China, Vietnam and Indonesia due to the lower production costs in these countries

Advantages and disadvantages of operating as a multinational

• There is the potential for the host country to gain significant tax revenue

  • Governments can use tax revenue paid by MNCs to invest in improving public services and infrastructure 

• However, MNCs seek to maximise profits and will try to reduce their tax liabilities

  • Transfer pricing is a method used by MNCs to shift profits from where they are generated to countries with lower tax rates

  • This is a method of tax avoidance and means that the businesses will pay less tax in the host country 

Managing international business

• When firms operate across many countries, managers face two powerful and competing pressures

  • They must decide how far to adapt to local conditions while also trying to keep costs low through worldwide efficiency

Pressures for local responsiveness

• Businesses face pressure to tailor their products, marketing and operations to each country in which they operate

• Managers may need to decentralise certain decisions, allow country managers to adapt the marketing mix, and sometimes run multiple product versions side by side

Differences between international markets

Pressures for cost reduction

• Businesses face pressure to strip waste to achieve the lowest possible unit cost worldwide

  • Managers may look to centralise R&D and production, design globally standard products, and use uniform marketing where possible to keep costs low