A multinational company is one whose scope of action transcends other countries in which it carries out its productive or commercial activity. Looking for a correct definition of a multinational company, we found that in most cases the profits obtained by the parent company will return to the country of the main company. In particular, multinational companies have the central administration in the country of origin.
The characteristics of a multinational company
The main characteristic of multinational companies is that sales and productions will always be developed worldwide. In addition, we find other peculiarities of the multinational company that help to define it much better and understand its structure and operation:
- Multinational companies are geocentric precisely because they are decentralized.
- Multinational companies develop and expand through mergers and acquisitions with other companies.
- The final product that comes from multinational companies will be frequently transferred to other plants to complete its finish before being marketed.
- The integration of multinationals is both vertical and horizontal.
Classification of multinational companies
The classification of multinational companies is based on their activity, according to their structure and decentralization:
- When we talk about how multinational companies are classified according to their activity, we differentiate into extractive and manufacturing companies. The former are those that are dedicated to re-exporting the finished product. The second are those that will be industrialized in the destination country.
- Depending on its structure, we find horizontal, vertical and diversified multinationals. Horizontals are those that usually produce a similar finished product. The verticals are those whose products will undergo the final finish in the destination country. Finally, the diversified are those in which the final products are developed in different countries.
- Based on decentralization, multinationals will be geocentric (when decentralization is complete), ethnocentric (when centralization is dominated by the country where the main company resides) or polycentric (when subsidiaries are given more freedom of decision.
Is a multinational company the same as a transnational one?
No, and to see how a multinational company differs from a transnational one, below we will discover each aspect that defines its objective of action:
- The first of the differences between multinational and transnational companies is that a multinational company may choose to be a transnational, but never the other way around.
- In addition, there is a peculiarity, and that is that in the transnational companies the decisions that are made will always depend on the parent company. On the other hand, when we speak of a multinational company, the objectives set and the decisions made will be common to all companies.