Chapter 4 · Question 2

How do multinational corporations spread production across countries?

Answer

Direct Answer

Multinational corporations spread production by setting up factories or offices where labour, raw materials, markets, or government policies are favourable. They may invest directly, buy local companies, place orders with small producers, or form partnerships.

Simple Explanation

MNCs set up production in countries with cheap labour, raw materials, or large markets. They do this through direct investment, buying local firms, placing orders with small producers, or forming partnerships.

Exam-Ready Structure

Multinational corporations (MNCs) are companies that own or control production in more than one country. They spread production across countries through several methods: • Foreign direct investment (FDI): An MNC sets up its own factories, offices, or service centres in another country. For example, a Japanese automobile company building a factory in India, or an American software company opening an office in Bengaluru. This involves capital investment, technology transfer, and employing local workers. • Acquiring local companies: An MNC buys a stake in (or takes over) a local company. This gives the MNC access to the local company's production capacity, distribution network, brand, and customer base. It saves the MNC the time and risk of building everything from scratch. • Placing orders (contract manufacturing/outsourcing): The MNC designs a product and places orders with small local producers to manufacture it according to the MNC's specifications. The products are then sold under the MNC's brand. This is common in garments, footwear, electronics, and toys. The MNC controls design, quality, and marketing; the local producer does the actual manufacturing. • Joint ventures and partnerships: An MNC partners with a local company, sharing investment, technology, and profits. This allows the MNC to navigate local regulations, use local knowledge, and share risk. Why MNCs spread production: • Lower costs: Labour is cheaper in many developing countries. • Proximity to raw materials or markets reduces transport costs. • Favourable government policies: Tax holidays, relaxed labour and environmental regulations, or special economic zones attract MNCs. • Larger customer base: Setting up production in a large, growing market (like India or China) makes the MNC's products cheaper and more accessible to those consumers. The result: A single product labelled 'Made in [X country]' may actually involve components and labour from many countries — a truly global production network.

Key Points

Multinational corporations spread production by setting up factories or offices where labour, raw materials, markets, or government policies are favourable.
They may invest directly, buy local companies, place orders with small producers, or form partnerships.