Special private companies
Yvonne Harvey, Contributor

Hi again. This week's lesson will revolve around some special types of private companies, namely multinational corporations, conglomerates, franchises and holding companies.

Multinational corporations (transnational corporations)

This female student asks how well her classmate did on a test recenlty at Bridgeport High School. - Anthony Minott/Freelance Photographer

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

Multinationals are giant 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.

Examples of multinationals are:

Nestlé, Cable and Wireless, General Motors, Texaco, Toyota IBM 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 together of two or more companies which are engaged in unrelated types of goods and services.

The main aim in forming conglomerates is to increase profits.

Examples of conglomerates are:

Geddes Grant Ltd., GraceKennedy Co. Ltd., and Stephen and Johnson Ltd.

Advantages

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

Disadvantages

1. Some of these companies become so large that effective analysis is difficult.
   
   
2. Friction often occurs among different lines of authority.
   
   
3. Many managers resent being controlled by others outside of their own company.

Franchises

A franchise is a right sold by one company or individual to another and it allows them to make a profit by selling goods and services under the franchiser's name. The franchise owner and the franchisee enter into an agreement. The franchisee must abide by the guidelines and regulations of the franchiser. The franchise is usually set for a specific period of time and the franchisee must pay the franchiser a fee known as a royalty for operating under his name. Many fast food outlets in Jamaica are franchises, e.g. Kentucky Fried Chicken, Burger King and McDonalds.

Advantages

1. A great amount of profits can be made by the franchisee.
   
   
2. The franchisee receives assistance from the parent company in terms of advice and training.
   
   
3. The franchisee benefits from the franchiser's marketing which boosts his sales and revenue.
   
   
4. They normally sell goods and services of high quality.

Disadvantages

1. The franchisee must meet most of the losses incurred.
   
   
2. The line of products is restricted.
   
   
3. The franchisee often cannot afford to pay the high royalties required by the franchiser.

Holding companies

These are joint stock companies that arise from mergers and take-overs and are formed for the sole purpose of having shares in other companies. They do this in order to increase their profits by increasing the size of their enterprise, diversifying and achieving economies of scale. Many holding companies are formed in order to eliminate competition.

Holding companies publish one set of consolidated accounts and report one combined level of profits. However, the parent company has its own memorandum of association and articles of association and so, separate registration is done for each company in the group.

The company taken over by the parent company is known as the subsidiary company and it may retain its original name or identity and its original board of directors. An example of a holding company is Neal and Massey Holding Limited who assemble and sell motor vehicles.

Advantages

The size of the parent companies' enterprise is increased. Also, economies of scale can be achieved and the company can diversify its production and be able to compete externally.

Disadvantages

The chief disadvantage of holding companies is that the mergers and take-overs which take place in order to form holding companies, often eliminates healthy competition.

Now for your assignment:

(a)(i) Define the term 'private company'. (2 marks)

(ii) What is meant by the term, 'shareholder'? (2 marks)

(b)State TWO characteristics of each of the following:

(1) Multinational corporations

(2) Conglomerates

(3) The franchise

(4) Holding companies (8 marks)

(c) State ONE advantage and ONE disadvantage of EACH

of the companies listed in (a) above.(8 marks)

Total marks: 20

Next week's lesson will be on public limited companies. Take care friends.

Yvonne Harvey teaches at Glenmuir High School.