Production across country

PRODUCTION ACROSS COUNTRY

• Until the middle of the twentieth century, production was largely organized within countries. What crossed the boundaries of these countries were the raw materials, foodstuff and finished products.
• Colonies such as India exported raw materials and foodstuff and imported finished goods. Trade was the main channel connecting distant countries.
• This was before large companies called multinational corporations (MNCs) emerged on the scene.
• An MNC is a company that owns or controls production in more than one nation. MNCs set up offices and factories for production in regions where they can get cheap labor and other resources. This is done so that the cost of production is low and the MNCs can earn greater profits.
• The MNC not only sells its finished products globally but more importantly, the goods and services are produced globally. As a result, production is organized in increasingly complex ways.
• The production process is divided into small parts and spread out across the globe.

Interlinking products across the border

• MNCs set up production where:
• It is close to the markets
• There is skilled and unskilled labor available at low costs
• The availability of other factors of production is assured
• Government policies look after their interests.

• Having assured themselves of these conditions, MNCs set up factories and offices for production.
• The money that is spent to buy assets such as land, building, machines and other equipment is called investment.
• The investment made by MNCs is called foreign investment. Any investment is made with the hope that these assets will earn profits.
• At times, MNCs set up production jointly with some of the local companies of these countries. The benefit to the local company of such joint production is two-fold.
• First, MNCs can provide money for additional investments, like buying new machines for faster production. Second, MNCs might bring with them the latest technology for production.
• However, the most common route for MNC investments is to buy up local companies and then to expand production.

• There is another way in which MNCs control production. Large MNCs in developed countries place orders for production with small producers. Garments, footwear, sports items are examples of industries where production is carried out by a large number of small producers around the world. The products are supplied
• to the MNCs, which then sell these under their own brand names to the customers.
• These large MNCs have tremendous power to determine price, quality, delivery, and labor conditions for these distant producers.
• Hence, by setting up partnerships with local companies, by using the local companies for supplies, by closely competing with the local companies, or buying them up, MNCs are exerting a strong influence on production at these distant locations.
• As a result, production in these widely dispersed locations is getting interlinked