Multinational corporations play an important role in the world economy through the process of economic globalization; in other words, the increasing economic interdependence of national economies across the world through a rapid increase in cross-border movement of goods, services, technology and capital.
Multinational corporations have played a leading role in this globalization, establishing multiple links between the economies of various countries. Using capital from developed countries, MNCs establish factories and plants in developing countries, where they can access raw materials and labor more cheaply. The finished products are then shipped back to wealthy countries where there is a consumer market.
Multinational corporations sit at the intersection of production, international trade, and cross-border investment. A multinational corporation is “an enterprise that engages in foreign direct investment (FDI) and owns or controls value adding activities in more than one country”. MNCs thus have two characteristics. First, they coordinate economic production among a number of different enterprises and internalize this coordination problem within a single firm structure. Second, a significant portion of the economic transactions connected with this coordinated activity take place across national borders.