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Chapter 3

Multinational companies and

international trading

1.1 Introduction

A multinational company (MNC) is one that generates at least 25% of
its sales from activities in countries other than its own.

The practical reasons for international trading are:

 Choice – the diversity of goods available is increased through the
import of goods that could be uneconomic or impossible to
produce at home.

 Competition – likely to lead to a reduction in prices, and increasing
pressure for new products and innovation.

 Economies of scale – producing both for the home and
international markets enables companies to produce at a larger
scale.

 Specialisation – if a country specialises in producing the goods
and services at which it is most efficient, it can maximise its
economic output.

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