Special private companies (Part I)
Yvonne Harvey, Contributor

Students of Central High School tour the Gleaner's North Street offices recently. Senior Research Officer Nicolia McDonald demonstrates the use of the Gleaner archives to the group. - Winston Sill/Freelance Photographer

Hi again. This week's lesson will revolve about some special types of private companies namely multinational corporations and conglomerates. Next week, we will cover two other special private companies, franchises and holding companies.

MULTINATIONAL CORPORATIONS

These are enterprises that engage in production in more than one country, that is, they have their headquarters in their own country and branches in other countries.

The multinational therefore owns, controls and operates businesses in several countries at the same time.

From the definition of a multinational, we can conclude that such companies are very wealthy enterprises.

Countries such as the United States, Britain and Canada have multinational companies.

Multinationals are big international companies and they are formed in order to increase market share and profits. The parent company makes all the decisions which are carried out by the branches. Multinational corporations are owned by mostly developed countries. The majority of trade in manufactured goods in developed countries can be accounted for by multinationals.

Examples of multinationals are Nestle, Cable and Wireless, General Motors, Texaco,Toyota, IBM, Woolworth and British Gas.

Advantages

1. Multinationals provide foreign investment for their subsidiaries.

2. The subsidiaries benefit from foreign expertise provided by the multinationals.

3. Multinational corporations help to train labour in the host country and create employment for locals.

4. Positive work ethics are encouraged in the work place.

5. The host country gains tax revenue and foreign exchange from the multinationals.

Disadvantages

1. Multinationals transfer profits to their own countries.

2. They are not concerned with the welfare of the subsidiaries.

3. They may practise production techniques that harm the environment.

4. Their presence often has a negative effect on the culture of the host country.

5. Multinationals tend to interfere in the political life of the host country.

CONGLOMERATES

These are formed by the merging or joining of two or more companies which are engaged in unrelated types of goods and services.

The main aim in forming conglomerates is to broaden the scope of production in order to increase profits.

Examples of conglomerates are Geddes Grant Ltd., Grace Kennedy Co. Ltd., and Stephen and Johnson Ltd.

Advantages

• The risk of failure becomes less as their 'eggs are not in one basket'.
• Better opportunities are provided in terms of employment and promotions.
• Companies can draw on each other's resources and expertise.

Disadvantages

• Some of these companies become so large that effective analysis is difficult.
• Friction often occurs between different lines of authority.
• Many managers resent being controlled by others outside of their own company.
• The majority of these companies wield such economic powers that governments try to cut down some of this power by legislation or persuasion.

Now consider this question:

1. Distinguish between a multinational and a conglomerate. (4 marks)

2. Explain TWO benefits that accrue to countries in the CARICOM region that allow multinationals to operate in them. (4 marks)

3. List TWO disadvantages of conglomerates. (2 marks)

Total marks: 10

In preparation for our lesson next week, you may wish to do some reading on franchises and holding companies. Make some jottings on their definitions and their advantages and disadvantages.

Take care, until next week.

Yvonne Hardy teaches at Glenmuir High School.