A multinational company, also commonly known as a multinational corporation or transnational corporation, deals with a business that has branches, offices or production facilities in various countries of the world.

Multinationals are companies that own or control the production in more than one nation. Likewise, their objectives may be to install offices and factories for production where they can obtain cheap labor and other resources. In addition, they choose this multinational location to take advantage of the low production cost and thus obtain more significant profits.

The headquarters of each multinational company is located in its country of origin. In fact, the activities are controlled and operated from the parent company worldwide. The products and services of multinational companies are sold in several countries that require global management.


Characteristics of multinationals

Regarding the main characteristics of corporations or multinational companies, are the following:

  • Location: As previously mentioned, the multinationals have their headquarters in the country of origin, and their operating division extends to other countries in order to minimize production costs.
  • Capital assets: Most of the capital assets of the parent company are owned by citizens of the company’s home country.
  • Board of Directors: the majority of the board of directors are citizens of the country of origin.

Continuous growth within multinational corporations is all the time booming. Even as they operate in other countries, they continue to strive to increase their economic size by constantly updating themselves.

It is a little difficult to become a multinational company. However, the goal can be achieved. Because they use modern capital-intensive technology, they come to have good quality products. Therefore they grow economically to the top.

The multinational companies in the top 10 today are known thanks to that that they can produce first-line products. Likewise, it is well known that multinationals are large and very important corporations within the global economy since they exercise a high degree of dominance in the world.

Among some of the most important are:

  • Coca Cola
  • Sony
  • Intel
  • Unilever
  • Nestle
  • Apple, among others

Advantages and Disadvantages of multinational companies

Advantages

  • Access to consumers on companies with operations limited to a smaller region. Increasing accessibility to broader geographic regions allows multinational companies to have a broader group of leads and help them expand and grow at a faster rate compared to others.
  • It allows access to work, as they enjoy access to cheap labor, which is a great advantage over other companies. A company with operations in different geographic areas may have its production unit established in countries with cheap labor. Some of the countries where cheap labor is available are China, India, Pakistan, etc.
  • Taxes and other costs: Many countries offer reduced taxes on exports and imports to increase their exposure to foreign markets and international trade. Furthermore, countries impose lower excise duties and customs duties, resulting in a high-profit margin for multinationals. Therefore, taxes are one of the areas of earning money, but again it depends on the country of operation.
  • General development: the level of investment, the level of employment, and the level of income of the country increase due to the operation of multinationals. The level of industrial and economic development increases due to the growth of multinational companies.
  • Technology: the industry obtains the latest technology from foreign countries through multinational companies that help them improve their technological parameters.
  • Exports and imports: the operations of multinationals also help to improve the balance of payments. This can be achieved by increasing exports and decreasing imports.

Disadvantages

  • Laws: One of the main disadvantages is the strict and strict laws applicable in the country. Multinational companies are subject to more laws and regulations than other companies. It is seen that certain countries do not allow companies to execute their operations as they have been doing in other countries, which results in a conflict within the country and creates problems for the organization.
  • Intellectual property: Multinational companies also face problems related to intellectual property that are not always applicable in the case of purely national companies.
  • Political risks: Since multinational companies’ operations extend widely across the national borders of various countries, they can result in a threat to the economic and political sovereignty of host countries.
  • Loss of local businesses: The products of multinational companies sometimes lead to the death of the national company’s operations. Multinationals establish their monopoly in the country where they operate, thus killing local companies that exist in the country.
  • Loss of natural resources: Multinational companies use the country of origin’s natural resources to obtain great profits, which results in the depletion of resources and, therefore, a loss of natural resources for the economy.
  • Money flows: As multinationals operate in different countries, a large sum of money flows to foreign countries as payment for profit results in less efficiency for the host country where the multinationals’ operations are based. The transfer of capital is made from the country of origin abroad, which is unfavorable to the economy.

Types of multinational corporations

Three different models of multinational companies can be achieved, among them are:

  • The centralized model: is when corporations establish an executive headquarters in their home country and then build multiple manufacturing plants and production facilities in other countries. Its most important advantage is being able to avoid import tariffs and quotas and take advantage of lower production costs.
  • Regional: These are known when a company maintains its headquarters in a country that oversees a collection of offices located in other countries. Unlike the centralized model, the regionalized model includes subsidiaries and affiliates that all report to headquarters.
  • Multinational: In the multinational model, a parent company operates in the country of origin and establishes subsidiaries in different countries. The difference is that subsidiaries and affiliates are more independent in their operations.
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