Interlinking Production across Countries
MNCs look into 4 major criteria before they set up production in any place.
1. The factory or company should be close to the markets
2. Skilled and unskilled labour should be available at low costs
3. Availability of other factors of production should be assured. (eg. Infrastructure)
Local Government policies should be in their interests.
When the above conditions are to their satisfaction MNCs set up factories and offices for production in different countries. As these MNCs are setting up factories in a foreign country, the investment they make in terms of acquiring land, constructing buildings and buying machinery is called foreign investment.
At times, MNCs set up production jointly with some of the local companies of these countries. Then the local company benefits in 2 ways from this joint venture.
1. MNCs provide money for additional investments, like buying new machines for faster production.
2. MNCs introduce the latest technology for production.
MNCs are spreading their production and interacting with local producers in various countries across the globe.
1. MNCs are setting up partnerships with local companies
2. MNCs are using the local companies for supply of raw material or accessories
3. MNCs are closely competing with the local companies
4. MNCs are taking over local companies with their immense money power.
Thus MNCs are exerting a strong influence on production at distant locations. As a result, production in these widely dispersed locations is getting interlinked.
The most common strategy for a Multi National Corporation is to first buy a local company and then to expand production.
Depending on the product, MNCs adopt another strategy also. In labour intensive products like garments and footwear, MNCs place huge orders from developing nations, and then sell these under their own brand names to the customers, thus making a huge profit.