introduction to MNC's

Topics: Investment, Foreign direct investment, Macroeconomics Pages: 7 (1740 words) Published: September 25, 2013
1.1 Introduction
2 JV/MNCs in Nepal

Foreign direct investment (FDI) is defined as a long-term
investment by a foreign investor in an enterprise resident in an economy other than that in which the foreign direct
investor is based. The FDI relationship consists of a parent enterprise and a foreign affiliate, which together form a
trans-national company/corporation (TNC). In order to
qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate. The United Nations
(UN) defines control in this case as owning 10 percent or
more of the ordinary shares or voting power of an incorporated firm, or its equivalent for an unincorporated firm
(http://www.en.wikipedia.org/wiki/Foreign_direct _investment). In the years after World War II, while much of the world
recovered from the destruction wrought by the conflict,
global FDI was dominated by the United States (US). The
US accounted for around three-quarters of new FDI
(including reinvested profits) between 1945 and 1960. Since
that time, FDI has spread to become a truly global phenomenon, no longer the exclusive preserve of Organization for
Economic Co-operation and Development (OECD) countries.
FDI has grown in importance in the global economy
and FDI stocks now constitute over 20 percent of global
gross domestic product (GDP). In the last few years the
emerging market countries, such as China and India, have
become the most favoured destinations for FDI and
investor confidence in these countries has soared. As per
the FDI Confidence Index for 2005, compiled by A.T.
Kearney, China and India hold the first and second position
respectively, whereas the United States has slipped to third position.

FDI is a broad term used to denote different forms of
foreign investment including financial, technical and managerial, including trade-mark. In specific terms, FDI
enterprises are categorized into multinational companies
(MNCs) or joint venture companies/corporations (JVs). A
MNC or TNC is a company/corporation that spans
multiple nations. These companies/corporations are often
very large. Such companies have offices and/or factories in
different countries. They usually have a centralized head
office where they coordinate global management. Very large
multinationals have budgets that exceed those of many
countries. They can be seen as a power in global politics
(http://www.investordictionary.com/definition/multinational
+corporation.aspx).
In other words, a MNC is defined as any corporation registered and operating in more than one country at a time,
usually with its headquarters in a single country. A firm’s advantages in establishing itself multi-nationally include
both vertical and horizontal economies of scale (reductions
in cost from an expanded level of output). Critics regard
multinational corporations as destructive of local economies abroad and prone to monopolistic practices.
Similarly, joint ventures between domestic companies and
foreign companies have become a popular means for both
to satisfy their objectives. They offer, at least in principle, an opportunity for each partner to benefit significantly from the comparative advantages of the other. Local partners
bring knowledge of the domestic market; familiarity with
government bureaucracies and regulations; an understanding
of local labour markets; and, sometimes, existing
manufacturing facilities. Foreign partners can offer advanced process and product technologies, management know-how
and access to export markets. For either side, the possibility of joining with another company in the new venture lowers
the capital requirements, compared to going it alone.
In conclusion, the term MNC or MNE denotes any
company or enterprise that has opened up operations in
more than one country with a national partner or as a sole
enterprise by the foreign investor/s. JV enterprises are those in which two or more investors are present from two or...
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