Question

Discuss the various ways in which MNCs set up, or control, production in other countries. Support your discussion with horizontal and vertical integration strategies applied by MNCs.

Answer 1

Multinational corporation or MNCs is a corporate organization that controls the production of goods and services in more than two countries.

MNCs size can be measured in the terms of profit or revenue.

It can also be called an international corporation or transnational corporation.

How can these MNCs set up and control the production in other countries?

There are many ways of doing this-

• They can carry on its operations with the local companies of their countries.
• For expanding its production in various countries they buy the local companies.
• They set up their production in those areas where they have availability of Skilled and unskilled labours, various factors of production.
• They place orders with the small producers.

Some of the examples of MNCs include Walmart, Apple etc, as they try to maximise their cost advantage through foreign investments.

There are many strategies applied by these MNCs- Horizontal integration and Vertical integration.

Horizontal integration- In this the company expands by acquiring similar companies in the country at the same supply chain.

Vertical integration- In this the company acquires another company which operates before and after the supply chain.

MNCs use Horizontal integration strategy when it expands its business, by doing so rather than expanding its size, the company also expands into new markets, reduces competition and diversifies product offerings.

MNCs apply horizontal strategy when it either buys any local company or merges with the company as it is stated above that how MNCs set up production in other countries.

MNCs use Vertical integration when they choose to acquire another company. This way they increase their profit by minimising the costs. They can also get better control of its operations.

Multinational corporations by using vertical integratio strategy manage production establishments in various countries to produce the products which serves as input to its production establishments other country. For example- Adidas.