Types of Multinational CorporationsExplained, Advantages & Disadvantages, and Examples
The label of multinational corporation, or MNC for short, is a category that is applied to a business that operates in more than one country.
This could mean their home county and just one additional country, or it could mean that they operate in many different countries around the world.
When you hear “multinational corporation” you might be imagining a massive conglomerate that owns countless other companies and is worth billions of dollars, but that’s not always the case.
A multinational corporation simply needs to be a corporation that operates internationally, in at least 1 other country along with their home country.
Generally speaking, their headquarters will be in their home country, and they will have an office or a branch in another country.
That’s the only requirement that needs to be met in order to fall into the category of MNC, but there are a handful of different types of multinational corporations to consider.
4 Types of Multinational Corporations
Here are the four types of MNC that you’ll encounter.
Can you think of any businesses or companies in your city or town that fall into these groups, whether your locale is their home base, or they’re headquartered elsewhere?
When you walk around a grocery store, or most other stores for that matter, most of the brands you see will fall under the umbrella of a multinational corp.
1. Transnational Enterprise
Transnational enterprises allow subsidiary companies to benefit from their parent company’s resources, technology, processes, and other advantages.
Rather than one multinational corporation operating the same business in other countries, a transnational enterprise creates a parent-subsidiary relationship between businesses.
The subsidiary will benefit from a variety of resources and access afforded to it by its parent corporation, which will depend on what industry they’re in, but could include things such as:
- Research and development,
- Networking connections,
- Beneficial relationships with other subsidiaries,
- And more.
2. International Division
A large corporation may want to separate their domestic operations from their international operations for a variety of reasons.
The international division will handle their international affairs, and the domestic branch of the company will handle things in their home country, with both divisions working together when needed.
It’s the same company, but these divisions allow for staff who specialize in the necessary areas.
Instead of hiring people domestically who are supposed to be able to understand and handle things on an international scale, the company can instead hire experts in international business to deal with specific regions.
This includes things like understanding and navigating local cultures and customs instead of having everyone from the main headquarters trying to scramble to adapt the business for the rest of the world.
The international division will specialize in that, so the domestic division can keep things running smoothly at home while sharing their expertise and knowledge to support the international teams in managing things elsewhere.
These divisions will have unique teams and work on different projects with different sets of managers.
3. Global Centralized
A global centralized multinational corporation will have their main headquarters and base of operations, typically in their home country, who will handle domestic and international affairs alike, rather than having domestic and international roles divided into different divisions.
These types of companies will seek opportunities worldwide.
These opportunities could be chances to drive higher revenue by finding more affordable resources, or setting up factories in other countries, or processing certain parts of their business in places where it’s more affordable to do so.
Many different strategies will be employed by a global centralized corporation.
They’re willing to go where the money is while maintaining central control of the company back at home.
The main core management team will usually oversee everything, however there can be other teams and staff working internationally, but it’s centralized at the company’s main headquarters in their home country.
A decentralized corporation differs from a centralized corporation in that it will usually have different management structures in different countries in which it operates.
It’s likely that their main place of business will be their home country, but that isn’t necessarily the case.
With this type of MNC there is going to be less centralization around a single headquarters, with operations in each country having more room to adapt to their local markets rather than the top-down approach of one core management team handling everything from one country.
The benefits of a decentralized corp are the ability to grow and scale more quickly, and to replicate it in other countries.
Once the blueprint is in place, it’s easier to essentially copy/paste the business into more places, rather than trying to scale with a single management team whose responsibilities would grow with each new venture into a new nation.
A downside could be that there’s also more room for things to go off the rails, when there are a lot more moving parts and they don’t necessarily have a centralized vision that can be implemented as easily.
What Are The Advantages of Multinational Corporations?
Multinational corporations can take advantage of diverse economic factors in order to organize themselves in an optimal way.
This could mean lowering costs, reaching new markets, better access to inputs, all of the above, and much more!
Advantages of an MNC:
- More opportunities to grow market share around the world,
- Access to more labor markets,
- Potential for higher revenue margins,
- Opportunity for beneficial tax strategies,
- Lower production cost (labor, materials, etc),
- Meeting demand from consumers around the world,
- Optimizing economic factors in a beneficial way.
When a corporation operates in one single market, they are beholden to that market’s forces.
For example, if labor is more expensive in that market and demand for their products or services are lower, this limits them compared to if they operated in multiple markets and could optimize themselves in a way to take advantage of lower labor costs and greater demand for what they offer.
A business that operates in multiple countries has the ability to optimize their operations in ways that aren’t feasible for a competitor that does business in one single location.
There are disadvantages and struggles with multinational companies, too, and advantages to operating in one spot.
Things can become complex for an MNC and expensive to manage, so there’s a certain level of scale that’s required before the benefits outweigh the challenges of setting it up.
For a small business, it probably doesn’t make as much sense, but for a big corp that can navigate the process, it can be very fruitful.
The disadvantages of an MNC include things like dealing with complicated regulations across borders, the economic factor of currency exchange rates, an environmental impact, foreign contracts, staffing issues, and more.
In addition to all of that, larger companies tend to have a tougher time with innovation and staying nimble, and the ability to move and adapt quickly can be a big advantage for smaller businesses.
Final Thoughts on Multinational Corporations
After looking at the 4 types of multinational corporations, and the different variations and versions that can exist within those main categories, are you able to identify them more easily?
Think about some of the products you have in your home and the companies who make them, and try to figure out which type of multinational corporation those companies are.
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