What this lesson teaches
I can explain how the growth of multinational corporations has driven globalisation.
Syllabus K230, Issue 3, Guiding Question 1. Growth of Multinational Corporations
Make a guess
A small Singapore bakery sells cakes to customers in Malaysia online. Do you think this makes it a multinational corporation?
- Yes, because it uses the internet to reach other countries.
- Yes, a business with overseas customers counts as an MNC.
- No, an MNC must own or run operations in other countries.
Show the answer
No, an MNC must own or run operations in other countries.
Selling to overseas customers is trade. An MNC, such as Shell on Jurong Island, runs factories or offices abroad.
A multinational corporation (MNC) owns or runs business operations in more than one country, creating links across borders.
A multinational corporation, or MNC, owns or controls operations in more than one country. Operations are the activities and facilities a company runs, such as factories, offices, research centres or services. An MNC might design equipment in one country, make it in its own factory in another, and run a service centre in a third. For example, oil companies such as ExxonMobil and Shell run refineries on Singapore's Jurong Island.
Selling to overseas customers, or buying from an independent overseas supplier, does not make a company an MNC. It must own or control operations abroad.
MNCs set up abroad to reach customers, use particular skills or resources, lower costs or be near other businesses. As they grow, they move money, staff, knowledge and goods between countries.
A supply chain is everyone who produces and delivers a product. It can include independent firms as well as the MNC's own facilities. Not every supplier is owned by the MNC.
- MNC
- A company that owns or controls operations in more than one country.
- Why MNCs go abroad
- Customers, skills, lower costs, being near other firms.
- Not an MNC
- A company that only exports or buys from abroad.
Real examples to use
Jurong Island
Energy companies such as Shell and ExxonMobil run large plants on Jurong Island. They link Singapore to global supply chains and employ many workers.
Apple's supply chain
Apple designs its iPhones in the United States and buys parts from several countries. The phones are assembled mainly in China, then sold worldwide.
Worked example: Opening an overseas service centre
A Singapore company that makes laboratory equipment opens its own service centre in Germany, hires technicians there and trains them. It also buys packaging from an independent Malaysian supplier.
- Running its own centre in Germany makes it an MNC.
- The Malaysian supplier is a partner, not part of the company.
- Its operations link Singapore, Germany and Malaysia.
Watch out for this
Any business with overseas customers or suppliers is an MNC.
An MNC must own or control operations in more than one country.
Check your understanding
Which business is a multinational corporation?
- A shop that sells online to customers in several Asian countries.
- A Singapore firm that owns factories in Singapore and Indonesia.
- A local bakery chain that buys its flour from farms in Australia.
Show the answer
A Singapore firm that owns factories in Singapore and Indonesia.
Right. It runs operations in two countries.
Check your understanding
A Singapore firm sells software to clients in 30 countries, but all its staff and offices are in Singapore. Is it an MNC?
- No. It trades abroad, but it does not run operations in another country.
- Yes, because selling to clients in many countries makes it multinational.
- Yes, because its software runs on computers in offices around the world.
Show the answer
No. It trades abroad, but it does not run operations in another country.
An MNC must operate in more than one country.