A multinational company (MNC) is a corporate organization that owns or controls the production of goods or services in at least one country other than its home country. Black’s Law Dictionary suggests that a company or group should be considered a multinational corporation if it derives 25% or more of its revenue from out-of-home-country operations. A multinational corporation can also be referred to as a multinational enterprise (MNE), a transnational enterprise (TNE), a transnational corporation (TNC), an international corporation, or a stateless corporation. There are subtle but real differences between these terms.
Most of the largest and most influential companies of the modern age are publicly traded multinational corporations, including Forbes Global 2000 companies. Multinational corporations are subject to criticisms for lacking ethical standards. They have also become associated with multinational tax havens and base erosion and profit shifting tax avoidance activities.
A multinational corporation (MNC) has facilities and other assets in at least one country other than its home country. A multinational company generally has offices and/or factories in different countries and a centralized head office where they coordinate global management. Some of these companies, also known as international, stateless, or transnational corporate organizations, may have budgets that exceed those of some small countries.
HOW A MULTINATIONAL CORPORATION WORKS
A multinational corporation, or multinational enterprise, is an international corporation whose business activities are spread among at least two countries. Some authorities consider any company with a foreign branch to be a multinational corporation; others limit the definition to only those companies that derive at least a quarter of their revenues outside of their home country.
Many multinational enterprises are based in developed nations. Multinational advocates say they create high-paying jobs and technologically advanced goods in countries that otherwise would not have access to such opportunities or goods. However, critics of these enterprises believe these corporations have undue political influence over governments, exploit developing nations, and create job losses in their own home countries.
The history of the multinational is linked with the history of colonialism. Many of the first multinationals were commissioned at the behest of European monarchs in order to conduct expeditions. Many of the colonies not held by Spain or Portugal were under the administration of some of the world’s earliest multinationals. One of the first arose in 1600: the British East India Company, which took part in international trade and exploration, and operated trading posts in India. Other examples include the Swedish Africa Company, founded in 1649, and the Hudson Bay Company, which was incorporated in the 17th century.
TYPES OF MULTINATIONAL
There are four categories of multinationals that exist. They include:
- A decentralized corporation with a strong presence in its home country.
- A global, centralized corporation that acquires cost advantage where cheap resources are available.
- A global company that builds on the parent corporation’s R&D.
- A transnational enterprise that uses all three categories.
There are subtle differences between the different kinds of multinational corporations. For instance, a transnational—which is one type of multinational—may have its home in at least two nations and spread out its operations in many countries for a high level of local response. Nestlé S.A. is an example of a transnational corporation that executes business and operational decisions in and outside of its headquarters.
Meanwhile, a multinational enterprise controls and manages plants in at least two countries. This type of multinational will take part in foreign investment, as the company invests directly in host country plants in order to stake an ownership claim, thereby avoiding transaction costs. Apple Inc. is a great example of a multinational enterprise, as it tries to maximize cost advantages through foreign investments in international plants.
According to the Fortune Global 500 List, the top five multinational corporations in the world as of 2019 based on consolidated revenue were Walmart ($514 billion), Sinopec Group ($415 billion), Royal Dutch Shell ($397 billion), China National Petroleum ($393 billion), State Grid ($387 billion).
WHAT MAKES A CORPORATION MULTINATIONAL ?
A multinational corporation (MNC) is one that has business operations in two or more countries. These companies are often managed from and have a central office headquartered in their home country, but with offices worldwide. Simply exporting goods to be sold abroad does not make a company a multinational.
WHY SHOULD A COMPANY WANT TO BECOME A INTERNATIONAL ?
A company may seek to become an MNC in order to grow its customer base around the globe and increase its market share abroad. The primary goal is therefore to increase profits and growth. Companies may want to introduce their products in ways that are modified or tailored to specific cultural sensibilities abroad. MNCs may also benefit from certain tax structures or regulatory regimes found abroad.
MULTINATIONAL CORPORATION VS. DOMESTIC CORPORATION
While a multinational corporation is one with a physical presence in two or more countries, domestic corporations have operations in only one country. These companies may still import supplies or sell their products internationally, but they don’t have corporate offices or management located in other countries.
|Multinational Corporations||Domestic Corporations|
|Physical presence in multiple countries||Physical presence in one country|
|More complicated business model||Simpler business model|
|Does business in multiple languages||Does business primarily in one language|
|Subject to International Financial Reporting Standards (IFRS)||Subject to Generally Accepted Accounting Principles (GAAP)|
|Ability to outsource to foreign markets for more favorable labor costs and taxation||Subject to the labor costs and taxation of its home country|
|Often criticized for outsourcing jobs and for negative impacts on the countries in which they do business||May be celebrated for keeping jobs in their home country|
WHAT MULTINATIONAL CORPORATIONS HAVE TO DO WITH INDIVIDUAL INVESTORS
According to the Securities and Exchange Commission, investing in multinational corporations is a way for U.S. investors to diversify their investment portfolios and gain international exposure without direct investment in foreign stocks.
Some investors may not realize that they have international exposure if invested in household-name MNCs like Nestle or Coca-Cola.
ADVANTAGES OF MULTINATIONAL COMPANIES
As one can imagine, there are a lot of merits of having a multinational corporation exist and function in an economy. They also bring many advantages to the consumers as well. Let us see some merits of an MNC in both the host country and the home country.
Merits of a Multinational Companies in a Host Country
- One of the main advantages to the host country is that MNCs boost their economic growth. They bring with them huge investments and capital. And then through subsidiaries, joint ventures, branches, factories they promote rapid industrial growth. In fact, MNCs are known as the messengers of progress.
- A multinational corporation helps the technological growth of the country as well. They bring new innovations and technological advancements to the host country. They help modernize the industry in developing countries.
- MNCs also reduce the host countries dependence on imports. Imports reduce while exports from the country see a rise.
- All MNCs have enormous capital and resources at their disposal. A good portion of such resources is invested in R&D. This can be very beneficial to the host countries where they set up their R&D facilities.
- Multinational corporations also promote maximum utilization of the country’s resources. This, in turn, leads to economic development.
Merits of Multinational Companies in the Home Country
- MNCs make their home countries (country of origin) very rich by their revenues. The corporation will collect fees, royalties, profits, charges from all their host countries and bring them back to the home country. This huge inflow of foreign exchange is very beneficial to the home country.
- MNCs provide a means of co-operation between developed countries and developing or underdeveloped countries. This allows both to benefit from the partnership.
- And these multinational corporations also help promote bilateral trade relations between countries. This is beneficial to both the countries and the global market and economy.
What are some risks that MNCs face?
While operating on an international level, the companies have to deal with the following uncertainties:
• Exchange rate fluctuations
• Domestic protest
• Legal and regulatory barriers
• Economic crisis
• Socio-political unrest
• Cultural unacceptance.
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