Answered Essay: Describe the multinational corporation and the five tiers of internationalization.

Describe the multinational corporation and the five tiers of internationalization.


Expert Answer

Multinational Corporations can be described as an organization that conducts its business in multiple countries including its domestic market. Normally the parent company of the MNC is headquartered in home country and its other division and entities are located in multiple host countries. MNC’s are also termed as transnational companies, Multination Enterprises (MNE) or Global corporations. Depending on scope of business, organziatinal structure and operations there are five tires of through which corporation internationalize their business, those are:

1.   Exporting

2.   Foreign sales office

3.   Licensing

4.   Direct investment in foreign countries

5.   Global operations


1. Exporting: This is most easiest and simple way of conducting cross-border trade. The products are produced in home country and exported to the customers or retailers in the foreign country. As the product is already purchased by the customer or consumer there is very less risk in conducting international business.


2. Foreign sales office: Through exporting corporation understanding the demand pattern and needs of the product in foreign country. To capture the market further, the corporation opens its own sales network in host country. Or it might collaborate with the fully organised sales network already serving the targeted foreign countries. Only sales activity is focused in the host country, the production and other related activities are conduct in home country.

3. Licensing: Licensing is the process of giving rights to the firms in the foreign countries to sell or produce products in their respective market. This includes giving franchises, rights to use the brands, patents or technology by the foreign firms. Still the control over the materials and process to be used is powered by the headquarters in the home country. This step increases the market presence of the products in the foreign markets. For example, the soft drink giants Coca Cola and Pepsico gives license to the foreign bottlers to produces assigned beverages in the respective country.

4. Direct investment: At this fourth tire, the corporation, understands the demand more and aims for reducing its cost or to improve the service quality. For this corporation buy or create manufacturing and sales facilities in foreign countries to serve local market more efficiently.

Global Operations: Due to free trade and lesser cross-border restrictions, the corporation nowadaysdecides to distribute its various steps in supply chain throughout the globe. Global operations gets an country advantage of the conducting the various operations of supply chain in various countries.

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