The United States, Japan and the major economic forces of Western Europe are developed countries whose infrastructures and well-established financial markets are conducive to the operation and potential success of multinational corporations (MNCs). Many MNCs are based in the U.S. Many of these companies are among the Fortune Global 500.
What Are Some Advantages Gained by MNCs in These Countries?
MNCs rely upon infrastructure, both soft and hard, to establish and sustain healthy business environments in any given location. These infrastructures are closely related, and both are impacted by politics and economics. MNCs view their existence as trade facilitating indicators, necessary for investing and doing business in that country.
The U.S., Western Europe and Japan all possess highly developed soft infrastructures and financial markets that enable companies located there to raise large amounts of money at a low cost. The presence of advanced technology and sophisticated management techniques is also an enormous advantage to these companies.
Soft infrastructure encompasses human capital, specialized talent, training and supporting institutions such as the colleges and universities that help produce educated employees. A sound, soft infrastructure also contains administrative, judicial and law-enforcement agencies that safeguard the kind of political and social stability necessary to do business efficiently, as well as grow and convey specialized services to people.
The absence of soft infrastructure means that there are institutional voids, such as a lack of regulatory systems, specialized intermediaries, educational institutions, talent and training. This makes it difficult for new corporations based in developing countries to access human capital or talent inexpensively, and it is equally challenging for MNCs wishing to do business in such countries.
Hard infrastructure is yet another reason most MNCs are based in the U.S., Western Europe and Japan. This consists of roads, bridges, ports, buildings and any structures falling under the heading of public works. Because hard infrastructure impacts transportation, its absence negatively affects the supply chain potential and the ability of MNCs to physically move materials and goods from place to place.
Though MNCs have long avoided entering developing countries, globalization and the new potential to initiate the creation of infrastructures finds them more frequently embracing the challenge. The promise of receiving enormous tax revenues compels governments in developing countries to entice MNCs to do business in their territories.
In addition to providing revenue, MNCs generate jobs, stimulate local economies, as well as create and share culture. They also introduce previously unavailable goods and services, advanced technologies and management techniques. Local MNCs can then take advantage of these benefits, becoming more competitive and creating their own opportunities to do business across national borders.
Though the U.S. still boasts the largest number of MNCs compared to other countries, the percentage of the largest MNCs headquartered there has dwindled over the years. Sixty percent of the world's top 500 MNCs were headquartered in the U.S. in 1962. By 1999, that number had dropped to 36 percent.