Multinational Company (MNC)

Multinational Company (MNC) Meaning

A multinational company (MNC) is defined as a business entity that operates in its country of origin and also has a branch abroad. The headquarter usually remains in one country, controlling and coordinating all the international branches.

Depending on the size of the MNC, there could be several branches and subsidiariesSubsidiariesA subsidiary company is controlled by another company, better known as a parent or holding company. The control is exerted through ownership of more than 50% of the voting stock of the subsidiary. Subsidiaries are either set up or acquired by the controlling company.read more in multiple nations. For example, Amazon started in 1995 from a garage near Seattle and today, as a multinational company, it operates in over 30 countries. 

Key Takeaways
Multinational Company

How Does Multinational Company Work?

A company is called a multinational if it functions in its country of origin and has a branch in at least one foreign country. A business merely conducting exports without any offices in a global market will not fall under the definition of a multinational company. MNCs can have several international branches and subsidiaries depending on their size.

Usually, MNCs extend themselves into other nations by introducing products suited to the local needs and culture. If Amazon had offered goods central to Seattle buyers, it could have hardly tapped in potential buyers from other continents such as Asia, which has distinct needs.

Features of a Multinational Company

What differentiates an MNC from other corporates? We will take you through some features that set a multinational company apart from others.

Examples of MNCs

Gradually, MNCs have expanded globally, especially in Asian countries. Many multinational companies identify immense growth opportunities in South Korea, India, Philippines, Malaysia, Bangladesh, etc. As per a report issued by the Confederation of Indian Industry (CII) and Ernst & Young (EY), India is highly desirable amongst multinational companies due to the abundant labor and policy reforms.

Coming to performance, in 2020, Walmart, Saudi Aramco, Apple Inc., Microsoft were listed as some of the top-performing multinational corporations as per Fortune Global 500 ranking. The list features worlds best multinational companies. In 2019, together they generated $33.3 in revenues and employed 69.9 million people around the globe.

One of the world’s largest payment system, Visa Inc., came into existence in 1958. Headquartered in San Francisco, California, the company revolutionized digital payments with enhanced safety and user-friendly features. Resultantly, it extended business in 200+ countries.

Types of MNCs

Given below are the four main kinds of multinational corporations we across every day:

  1. Multinational Decentralized Corporation: Every branch office has a decentralized management structure with no central chain of command for decision making.
  2. Global Centralized Corporation: A centralized firm manages and controls the international units from the headquarter in the home country.
  3. International Company: In this, the global branches adhere to the parent company’s technology or R&D. All the research work for new product development and improvisations occurs in the headquarter.
  4. Transnational Enterprise: It is a blend of all the above three forms of MNCs. The parent company guides but not controls the functioning of its global branches.

Advantages of a Multinational Company

  1. Goods and Services: MNCs bring goods and services to the foreign country, thus giving the local customers variety. Besides, they also bring in innovative products suited to local needs that serve their requirements better.
  2. Job creation: multinational companies create jobs whenever they enter new borders as they employ the local workforce. Top multinational companies in the US, such as Apple, Amazon, Microsoft, etc., gave jobs to over 1 million people between 2000-2018.
  3. Growth and Development: Especially due to CSR requirements, MNCs also uplift the societal makeup by contributing to the country’s income, development and growth. Developing countries and MNCs often team up with foreign direct investmentsForeign Direct InvestmentsA foreign direct investment, or FDI, is a financial investment made by an individual or an organization in a business based in another country. In such investment, an organization or an individual owns a minimum of ten percent of the shares of a foreign firm.read more (FDIs). It has financed many development projects to eliminate poverty and job shortage.  
  4. Cost Efficiency: Companies eye foreign countries where the labor and raw materials are cheap. Some countries have lower tax rates; together, it brings down the cost.
  5. Business Expansion: The obvious benefit for the company is the massive business extension by allowing access to a willing new market. Coupled with cost-efficiency, it makes their empire grow immensely.
  6. Global Brand Recognition: The presence across several countries improves brand image and identity among the worldwide consumers. With higher product demand, consumer satisfaction and wide acceptability, the price of the product rises.
  7. Diversified Work Culture: An MNC has a cosmopolitan work culture since the employees belong to different parts of the world but work together for attaining the company’s goals and vision.

Criticisms of MNCs

Many multinational companies are often criticized for exploiting the cheap labor in foreign countries by paying meagre wages. Moreover, back home, it causes a shortage of jobs.

There have been accusations of flouting workplace safety and environment protection norms. Some researchers say MNCs account for nearly a fifth of carbon emissions globally. A few years ago, many American companies shifted their headquarters to a country with a lower tax rate to pay fewer taxes. It had troubled policymakers, urging them to find a quick solution.

From the company’s perspective, many of them struggle to flourish if the foreign land has high duties and tax rates. Moreover, any political and economic disturbances could shake their foundations too. Besides, if there is volatility in the currency of the two countries, the company could face loss.

FAQs

What is a multinational company example?

Google Inc. is an example of a multinational company. The company originated in the US, with its headquarter in Mountain View, California. However, it operates in 50+ countries throughout the world.

What are the top 10 multinational companies?

The Fortune 500 Global, 2020, ranked Walmart, Sinopec Group, State Grid, China National Petroleum, Royal Dutch Shell, Saudi Aramco, Volkswagen, BP, Amazon and Toyota Motor as the top 10 multinational companies.

What are types of MNC?

Multinational corporations can be categorized into four different types: decentralized multinational corporations, centralised global corporations, international companies, and transnational enterprises.

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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This has been a guide to what is the multinational company and its definition. Here we discuss types and examples of the multinational company (MNC’s) along with limitations, advantages, and disadvantages. You can learn more about financing from the following articles –

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