MNCs can have a major impact on the economies of each country in which they operate. They create jobs and add money to the local tax base. Both at home and abroad, these companies often face critics, who perceive that the impact they have on these countries may do more harm than good.
Definition and Examples of Multinational Corporations
To be considered a multinational corporation (MNC), a company must derive at least 25% of its revenue from operations outside of its home country. Many MNCs outsource manufacturing and labor to developing economies, in order to take advantage of lower tax rates or to move products closer to new markets. Alternative names: multinational firm, multinational enterprise
How Multinational Corporations Work
Aside from having its main headquarters in its home country, an MNC makes a direct investment in a foreign country by setting up operations there. Some MNCs might have a presence in just one other country, while others have subsidiaries all over the world. MNCs aren’t limited to the U.S.
Types of Multinational Corporations
Multinational corporations can be grouped into many types based on their different objectives, phases of growth, and management structures.
International Division
An MNC that separates its international operations from its domestic ones may have a designated “international division” that handles all operations in foreign markets. That can allow the managers of those offshoots, who may have better knowledge of international markets, greater autonomy in making choices for their branch. On the other hand, it may also cause issues like lack of cohesion or a loose sense of corporate direction.
Decentralized Corporation
This type of MNC maintains a strong presence in its home country, but it does so without a central headquarters there. Instead, the company has many locations, both at home and abroad, that each have their own management structure. This design allows MNCs to grow at a faster pace, without the bureaucracy that comes along with having to route all of their moves and choices through a central office.
Global Centralized Corporation
A centralized global MNC has a main headquarters in its home country. The CEO and other higher ups in the chain of command tend to live here as well. A global MNC handles domestic and international operations under the same umbrella, both with respect to management structure and decision-making. Offshoots in other countries may need to get prior approval from the home office before making any major moves or decisions.
Transnational Corporation
A transnational MNC is marked by a parent-subsidiary relationship in which the parent company directs the operations of the subsidiary company or companies. Leadership structure tends to be centralized, but not always. It can also take on many less formal shapes as well.
Multinational Corporations vs. Domestic Corporations
While an MNC has a physical presence in two or more countries, domestic corporations have operations in only one country. They may still import supplies or sell their products around the world, but they don’t have corporate offices or management located in countries other than their home base. In fact, you may not realize that you have international exposure if you invest in certain household name MNCs like Nestle or Coca-Cola.
