What Is A Multinational Corporation?
Definition: A multinational corporation is a firm with facilities, assets and operations in more than one country. While such corporations maintain a centralized head office, the robust nature of their operations sees them maintain and operate bases in a number of countries. Consequently, such corporations are often referred to as stateless, transnational, or international companies.
A multinational can be a decentralized corporation with a strong operation in one country. Similarly, it can be a global centralized corporation, which accrues a cost advantage by setting base in a country with cheap resources. It can also be a global company, which builds on a parent company’s research and development.
Multinational corporations derive more than a quarter of their revenues away from home. Such companies also create high paying jobs as well as technologically advanced goods.
One of the reasons why companies seek to become multinationals is to gain access to lower production costs. Consequently, it is common to find companies setting base in countries with lower production costs.
A company may also set base in more than one country in a bid to be close to the target market. Such a move allows such companies to cut back on transportation costs in addition to accessing consumer feedback and information with ease.
Expansion and maintaining operations in more than one country also allows companies to avoid tariffs. By manufacturing and selling products in a given country, a company would be exempt from import quotas as well as tariffs
Characteristics of Multinational Corporations
Just because a company exports its products does not mean it is a multinational. There are certain traits that must be met if a company is to be considered a multinational. Such traits include:
Valuable Assets and Turnover
Multinational corporations are synonymous with large and valuable assets, both physical and financial. Given the size of the assets as well as their distribution in various counters, such companies boast of high turnover
Network of Branches
A multinational must have a network of branches around the world. Such networks could be involved in the production as well as the marketing of products produced. Similarly, the head office would have to oversee operations of several branches or subsidiaries
Continued Growth
Given the nature and size of the business, multinational is synonymous with rapid growth. Expansion into more countries allows such companies to take advantage of an expanded target market, consequently generate significant returns in terms of revenues.
Sophisticated Technology
Multinational corporations are also synonymous with unique, sophisticated technology that allows them to protect their competitive edge on the global scene. Such companies also invest vast sums of money on new technology in a bid to accelerate the production process.
Pros and Cons of Multinational Companies
Advantages of Being Multinationals
Multinational companies boast of high levels of efficiency, as they are able to reach the target market with ease and at lower costs. Such companies also tend to accelerate the development of an area where they set base, given their ability to create better-paying jobs.
Likewise, such companies are associated with high levels of innovation as they employ the best when it comes to technical expertise.
Disadvantages of Being A Multinational
Given the size of the companies as well as their influence on the economy, multinationals have been criticized for having significant political influence in domestic and foreign governments. In addition to political influence, multinationals are at times subject to increased scrutiny given their influence on competition.
The fact that such companies wield too much power is oftentimes attributed to monopolistic kind of behavior that only goes a long way to hurt the final consumer. Exploitations of developing nations is another major drawback associated with such companies.
Summary
Multinationals are simply corporations registered and with operations in more than one country. Expansion into more than one country allows such companies to be closer to the target market as well as access lower costs of production.