We explain what a multinational company is, its advantages and disadvantages. Also, the differences with a transnational company and more.
A multinational company is headquartered in its home country and also operates in other countries.
What is a multinational company?
A multinational company is a type of organization that develops its commercial activity in different nations of the foreign market, in addition to acting in the local market.
A company is a productive entity in which two or more people join together to create a business and achieve a common goal, which is to make a profit. In the case of a multinational company, it is a type of entity that is registered in the territory of a nation and is authorized to trade in the foreign market. However, in addition to national legislation, it must adapt to the laws of each foreign market.
Multinational companies emerged with globalization, which is a process of interaction and interdependence between nations, resulting from the implementation of new technologies, such as the Internet, and the development of telecommunications. The scope of globalization encompasses economic, political, social and technological issues.
Frequent questions
What does it mean for a company to be multinational?
It is a commercial company based in its country of origin and, in addition, it has managed to expand its business with at least two subsidiaries in different countries around the world.
Why can a company become a multinational?
Because the phenomenon of globalization and technological advances allow us to operate in the global free market, through the movements of digital capital and innovations in logistics.
What is the difference between multinational and transnational?
Multinational companies concentrate control and management of subsidiaries through their parent company, while transnationals can decentralize certain work processes, the location of plants or marketing in different nations.
Differences between a multinational and transnational company
A multinational company It arises with a central headquarters in its country of origin and expands to foreign nations, but maintains the main headquarters as the center of management of strategic decisions and the administration of all subsidiaries abroad.
- For example: A banking entity that centralizes at its headquarters the preparation of institutional communication and advertising materials that are then sent to each office abroad.
Instead, one transnational company It arises with a headquarters in its country of origin and expands with subsidiaries in foreign nations in which it decentralizes its administration and production process. Each subsidiary must adapt to the conditions and legislation of each market.
- For example: A technology company that makes mobile devices and distributes manufacturing to different foreign locations due to low labor costs. This happens, for example, with batteries produced in a factory in India and motherboards manufactured in China, a country where the final assembly of certain electronic devices also takes place. Despite the logistics costs, it can be profitable for a company to decentralize production.
Examples of multinational companies
- Femsa (Mexican Economic Development SA). It is a beverage company for businesses and restaurants, of Mexican origin.
- National Chocolate Company SA. It is a chocolate company and snacksof Colombian origin.
- Google Inc. It is an information technology company, of American origin.
- PfizerIt is a pharmaceutical company of American origin.
- Visa Inc. It is a financial services company, of American origin.
Examples of transnational corporations
- Ikea. It is a chain of furniture and home objects stores, of Swedish origin.
- General Motors Company. It is an automotive company of American origin.
- Nestle SA. It is a food and beverage company, of Swiss origin.
- Walmart Company. It is a supermarket chain of American origin.
- Zara-Inditex. It is a clothing and fashion company of Spanish origin.
Advantages of a multinational company
Among the main advantages of multinational companies, the following stand out:
- They are sources of employment in the different countries in which they carry out their commercial activity.
- They generate a high level of income and profits.
- They gain prestige, influence over the public and negotiating power in the stock market.
Disadvantages of a multinational company
Among the main disadvantages of multinational companies, the following stand out:
- They tend to promote labor exploitation with the subcontracting of third parties, through cheap labor, with the sole objective of increasing their own profits.
- They tend to degrade natural resources and the environment, due to the intensity of the mass production system and poor waste management.
- They can displace small local businesses that cannot compete with the prices of large corporations and manage to homogenize a large part of the market.
Importance of multinational companies
Multinational companies represent a group of power and influence.
Today, it is estimated that two-thirds of world trade is accounted for by multinational companies, which represents power and influence on the part of business groups. Many multinational organizations are involved in decision-making in economic matters, government negotiations and social conflicts. For example: oil or mining companies.
The development of multinational companies is possible due to the phenomenon of globalization and the exponential growth of the media, the free market, digital capital movements and innovations in logistics. The growth and evolution of multinationals goes hand in hand with technological advances, political decisions and laws in each region.
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References
- Villamuera, J. (2021}. Transnational companies, from: SdelSol
- Torres Reina, D. (2011). Globalization, multinational companies and history. Thinking & Managementfrom: Redalyc
- Jaffe, J.F., Ross, S.A., & Westerfield, R.W. (1997). Corporate Finance. 9th edition. Mc Graw Hill.