Some countries believe that inviting multinational companies from other countries to open their offices and factories is a good idea. While other countries think that investing in their own national companies instead is a better choice.
In order to invite multinational companies to open branches on their own, or to create Joint Ventures (JVs) with local businesses, the country must make some effort.
Once a company has operations overseas it will be producing products in the host country, as well as exporting those locally produced products back to its home country and other countries. So, the nation’s economy will benefit.
Whether a business decides to expand internationally or become a multinational company, it will depend not only on that firm’s business aim and business objectives, but also on how welcoming the host country is towards foreign companies.
Factors required for a positive environment in the host country
There are five main factors that are required for host countries to have in order to attract multinational companies. Let’s take a look.
ECONOMIC FACTORS:
- High economic growth. So multinational companies can operate in the favorable environment with long-term growth prospects to grow their sales.
- Limited legal restrictions on foreign investments. So multinational companies can start their operations with fewer regulations to deal with.
- TAX incentives. So multinational companies can be aided financially – increase overall profits.
- Stable currency of the host country. So multinational companies which export their products can easily forecast sales revenue, costs and profits.
- Inflation kept at low levels. So multinational companies can predict costs and forecast cash flows when prices are relatively stable.
SOCIAL FACTORS:
- Availability of skilled workers. So multinational companies can operate effectively and efficiently.
- Productivity of the workforce. So multinational companies can deliver quality goods on time.
- Workers lower paid than in other locations. So multinational companies can keep their labor costs low and be profitable when it comes to Gross Profit.
POLITICAL FACTORS:
- Political stability. So, there is no abrupt change of the country’s government, nor prospects of any military conflicts or war.
- Existence of required legal controls. So multinational companies do not need to worry about any immediate changes in policies that may affect the business such as the Corporate TAX rates or the amount of minimum wage.
- Security and safety. So, Fixed Assets of multinational companies are protected, and their local and overseas employees are safe.
INFRASTRUCTURAL FACTORS:
- Good infrastructure. So multinational companies can benefit from air, land and sea transportation, as well as fast communication in order to operate more efficiently.
- Reliable energy supply. So multinational companies can operate with as little downtime as possible and maintain continuous production.
OPERATIONAL FACTORS:
- Attractive cost of premises. So multinational companies can rent or purchase office space, land or factory building at attractive prices to lower the costs.
- A reliable supply of raw materials. So multinational companies can ensure timely production of goods at reasonable prices.
- Close to the resources, customers and sales outlets. So multinational companies can reduce transportation costs and reach out to their customers faster and easier.
The more of the above factors a country can offer, the easier it will be to attract more multinational companies to locate their operations in that country.
