Multinational Company Requirements
Discuss the factors that a multinational company needs to consider in setting up a factory in a developing country? (20) A multinational company is any organization that has its headquarters in one country, but with operating branches, factories and assembly plants in other countries. A factory is an industrial building where workers gather and concentrate resources to manufacture goods and operate machine processing one product to another i. e. value adding. Developing country is a nation that is poor and whose citizens are mostly agricultural workers but it wants to become more advanced socially and economically.
It is a nation with a low living standard, undeveloped industrial base, and low Human Development Index (HDI) relative to other countries. Factors needed to be considered in setting up a factory:- * Natural Routes * Site Requirement * Access to the market * Availability of raw materials * Skilled labour * Power Supply * Industrial Linkage or Strategic Importance * Government incentives One of the factors needed to be considered is the Site requirement. In developing country the land rents and values are cheaper so it’s an advantage to the company.
The Land must be cheap, flat, undulating, and well-drained so that the construction of the factory is economical and environmentally friendly. The land chosen must be competent enough for alterations when considered necessary. Moreover, the climate and weather conditions at the site are favorable for production of goods throughout the year. Another factor is the access to the Natural Routes. The firm would be of great benefit if there is major land or sea route for transportation of raw materials and industrial goods. Road, Rail and Air Transport are available. This would give speedy and cost-effective transport.
Other factors are the access and availability to the market place and raw materials. The distance between the site and market or raw material’s site should be brief and rapid enough for greater, inexpensive and reliable supply of raw materials and industrial goods. The raw materials should be available at an affordable and discounted price. One other factor is the presence of skilled labor force. Factory should be situated in an area where cheap work-force is on hand. A decent numbers and ample variety of workers are available, with reasonable skilled and knowledge, at or near the site.
Another factor is the presence of power supply. There should be ample sources of power like electricity and gas, with an adequate amount and at cut-rates. The factory should be situated in an area where government may provide incentives and reduce taxes. The incentives could be in form of grants, low interest rates, simplified planning procedures and training. Another factor is industrial linkage or Strategic Reason. The firm should be established in area which is closed to linkage industries such as suppliers and customers from which some benefit could be gained.
It should be apart from similar and rival organization in order to reduce competition and gain greater market share in that area. Perhaps the major factor that a multinational company needs to consider is the choice of the developing country. The chosen country should have good communication links with the country where headquarters of the multinational firm is located. The country shouldn’t be that much meager and poverty-stricken that sales aren’t lucrative and corporation doesn’t prosper. Language, legal and cultural differences with local workers and government officials could lead to misunderstandings.
The host country or chosen country’s policies should be favorable and these ethnic and literary divergences are overcome. Consequently, a multinational organization should set up factory in that location which satisfies all these aspects. However, it is unlikely that all the factors will be available at any one particular location. So the location for a factory is to be chosen in such a way, that the total cost of bringing all the inputs together, producing the goods, and distributing the products to the market, are minimized and maximum profit is generated.