A company that operates in at least one nation other than its own is known as a multinational corporation (MNC). It also generates at least 25% of its revenue outside of its home country, according to some definitions. In general, a multinational corporation has offices, factories, or other facilities in multiple countries around the world, as well as a centralized headquarters that coordinates global management. Multinational corporations are also known as international, stateless, or transnational corporations. Some countries may have larger budgets than others.
A multinational corporation (MNC), also known as a transnational corporation, is any company that is registered in and operates in more than one country at the same time. In the majority of cases, the company’s registered office is located in one country and it has subsidiaries, wholly or partly, in other countries. Its subsidiaries report to the corporate headquarters.
In economic terms, the benefits of establishing a multinational corporation include both vertical and horizontal economies of scale (cost reductions resulting from increased output and management consolidation) and increased market share. Although cultural differences can create unpredictability as companies establish offices and manufacturing plants around the world, a firm’s technical expertise, experienced personnel, and tried-and-true strategies can usually be transferred from country to country. Critics of multinational corporations typically see them as economic and, in some cases, political tools of foreign dominance. Developing countries, with a limited range of exports (often of primary goods), are particularly vulnerable to economic exploitation. Monopolistic practices, human rights violations, and disruption of more traditional economic growth mechanisms are among the threats that host countries face.
Characteristics of a Multinational Corporation
Different types of multinational corporations share certain characteristics, such as:
- A worldwide business presence
- Typically, large and powerful organizations
- Business conducted in various languages
- A complicated business model and structure
- Direct investments in foreign countries
- Foreign jobs, possibly with better pay than local jobs.
- Seeks improved efficiencies, lower production costs, larger market share
- Has significant costs associated with navigating foreign countries’ rules and regulations
- Pays taxes in the nations where it conducts business.
- IFRS (International Financial Reporting Standards)
- Accused of having detrimental effects on the environment or the economy in overseas markets on occasion
- Outsourcing jobs is sometimes accused of having a negative economic impact in the home country.
Types of Multinational Corporations
Multinational corporations can be classified into four types:
Decentralized Corporation: A decentralized company has branches in their home country, as well as independent offices and other locations around the globe. This type of multinational corporation can accomplish more in less time because it is decentralized. Each office manages and makes decisions for its own local business.
Centralized Global Corporation: A centralized global corporation has its headquarters in the country where it was founded. There, executive officers and management oversee both global and domestic operations. The key business decisions are made by them rather than managers in foreign offices. Offices must typically report to and obtain approval from headquarters personnel for major activities.
An International Division within a Corporation: An international division is the part of a multinational corporation in charge of all international operations. This structure facilitates business decisions and general activities in both domestic and international markets. When overall corporate consensus and action are required, operating independently can cause problems. Maintaining and presenting the multinational’s carefully cultivated, enterprise-wide brand image may also present difficulties.
Transnational Corporation: A transnational corporation has a parent-subsidiary structure in which the parent company oversees the operations of subsidiaries in both foreign and home countries. Subsidiaries can use parent company assets such as research and development data. Subsidiaries may also be different brands. Typically, the parent company retains a management role, overseeing the operations of its domestic and foreign subsidiaries.
Advantages and Disadvantages of Multinational Corporations
International operations have a number of benefits and drawbacks for multinational corporations, consumers, and workers.
Advantages
Developing an international presence can open up new markets and sales opportunities that would otherwise be unavailable or impractical if only operating domestically. A presence in a foreign country, such as India, for example, can enable a corporation to meet the widespread Indian demand for specific products without incurring the transaction costs associated with long-distance shipping. Corporations can establish operations in markets where their capital is best utilized and wages have less of an impact on the bottom line than in their home country. By producing the same quality goods at a lower cost, multinational corporations can lower prices and increase the purchasing power of consumers worldwide. Multinational corporations can also benefit from lower tax rates in countries eager for their direct investments and the jobs they will create. However, the European Union intends to implement a minimum tax of 15% on corporate profits beginning in 2023. Other advantages include direct financial investment in foreign countries and job creation in their respective economies.
Disadvantages
As a result of globalization, domestic jobs are being relocated overseas. This may increase domestic unemployment and make it difficult for long-term employees in outsourced industries to find new jobs. Those who oppose multinational corporations argue that monopolization is a possibility (for certain products). This can raise consumer prices, stifle competition, and stifle innovation. Multinational corporations are also blamed for environmental damage because their operations encourage land development and the depletion of local and natural resources. Multinational corporations may also be responsible for the demise of small, local businesses. Activists also claim that multinational corporations violate ethical standards. They accuse them of breaking the law in order to further their business interests.