Assess a business becoming a multinational company
Compare firm-level growth opportunities with the cost, control and coordination challenges of operating across countries.
Section 6 · External influences on business activity
Cambridge IGCSE (9–1) Business 0774, 2027–2029 Version 2, Topic 6. Trace each external change through the business and state which effects depend on its market, costs or response. Candidates are not assessed on exchange-rate calculations. Written practice is self-checked and does not certify exam readiness
Before you begin
- No previous study of external influences is assumed. Identify who is affected, which business decision changes and what evidence or condition would affect the outcome.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
Which is a possible advantage to a business becoming an MNC?
What you will learn
- Explain potential advantages to a business
- Identify cross-border risks
- Recommend a condition-aware expansion
Operating in more than one country can create opportunities
A business becoming a multinational company (MNC) may reach more customers, increase sales, spread some risks across markets or gain access to suppliers and workers.
Larger operations may support scale economies, but expansion requires finance, management capacity and knowledge of different customer needs, laws, tax rules, labour practices and logistics.
Growth increases complexity
Foreign sales can expose a business to exchange-rate changes, cultural differences, unfamiliar competition and regulatory requirements. A problem in one country may also affect the wider brand or supply chain.
A recommendation should consider the company's product, resources and route into the market. A partner or gradual trial may reduce some uncertainty, but brings its own costs and control trade-offs.
Pause and explain
Why should a business assess management capacity before expanding abroad?
Worked example
A local cosmetics company considers selling in three countries at once. Explain one potential advantage and two risks to assess.
Show the worked solution
- More markets may increase potential sales and spread reliance across customers.
- The business must learn different consumer preferences and rules.
- It needs finance and coordination for distribution and support.
Answer Selling in additional countries may expand sales and reduce reliance on one market. The company should assess differences in product rules and customer preferences and whether it has enough finance and management capacity to coordinate distribution; wider reach does not guarantee profit.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A furniture maker has strong domestic sales and wants to open a factory abroad. Explain one opportunity and two factors to investigate.
Give me a hint
A factory can improve access or cost, but location decisions affect the whole operation.
Compare my reasoning
- It may be closer to customers or suppliers in the new market.
- Compare skills, infrastructure, legal requirements and total cost.
- Assess quality control and management capacity across sites.
A foreign factory may improve access to customers or inputs. The maker should compare workforce skills, infrastructure, regulation and total cost and confirm it can coordinate quality and operations across locations; setup investment and unfamiliar rules can reduce expected gains.
Look for these in your work
- Opportunity stated
- Two location factors
- Coordination risk included
An MNC spreads sales across three countries. Explain how this could spread risk and why it cannot remove risk.
Give me a hint
Different markets may not move together, but common shocks and firm-specific problems remain.
Compare my reasoning
- A downturn in one market may be partly offset by another.
- The markets may still share risks such as supply disruption or currency changes.
- Compare the markets' products, customers and costs.
Different markets may reduce reliance on one customer base if their conditions differ. They can still share currency, supply or brand risks, and diversification costs money; it does not guarantee that losses in one country are offset elsewhere.
Look for these in your work
- Risk-spreading mechanism
- Shared risk named
- No guarantee claimed
A company can enter a neighbouring country using a local distributor or open its own stores. Compare one benefit and one trade-off of each route.
Give me a hint
A distributor offers local reach; owned stores offer more control but require investment.
Compare my reasoning
- A distributor may bring local knowledge and lower initial fixed investment.
- The company may have less control over presentation and customer data.
- Owned stores can give control but need capital, staff and local compliance.
A local distributor may bring market knowledge and reduce the company's initial investment, but can limit control of service and presentation. Owned stores give more direct control but require capital and local management; choose according to resources and objectives.
Look for these in your work
- Both routes explained
- Trade-offs balanced
- Decision condition stated
Common mistakes
- Assuming an MNC earns a profit in every country
- Ignoring management and compliance costs
- Treating cultural or legal differences as identical across markets
What can you explain now?
Which is a possible advantage to a business becoming an MNC?
Compare with the explanation
Access to additional customer markets
International operations can expand potential reach.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
Name one opportunity and one challenge a business may face when it becomes an MNC.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.