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What is a Multinational Corporation?

Malcolm Tatum
By
Updated May 17, 2024
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Multinational corporations (MNCs) are business entities that operate in more than one country. A typically one normally functions with a headquarters that is based in one country, while other facilities are based in locations in other countries. In some circles, this type of corporation is referred to as a multinational enterprise (MBE) or a transnational corporation (TNC).

The exact model for an MNC may vary slightly. One common model is the positioning of the executive headquarters in one nation, while production facilities are located in one or more other countries. This model often allows the company to take advantage of benefits of incorporating in a given locality, while also being able to produce goods and services in areas where the cost of production is lower.

Another structural model for a multinational organization or MNO is to base the parent company in one nation and operate subsidiaries in other countries around the world. With this model, just about all the functions of the parent are based in the country of origin. The subsidiaries more or less function independently, outside of a few basic ties to the parent.

A third approach to the setup of an MNC involves the establishment of a headquarters in one country that oversees a diverse conglomeration that stretches to many different countries and industries. With this model, the corporation includes affiliates, subsidiaries and possibly even some facilities that report directly to the headquarters.

The idea of a multinational corporation has been around for centuries. Some trace the origins of the concept back to the Dutch East India Company of the 17th century, as the corporate structure involved a presence in more than one country. During the 19th and 20th centuries, the idea of a company that functioned in more than one nation became increasingly common. In the 21st century, this business model continues to be highly desirable.

There are several ways that an MNC can come into existence. One approach is to intentionally establish a new company with headquarters in one country while producing goods and services in facilities located elsewhere. In other instances, the multinational corporation comes about due to mergers between two or more companies based in different countries. Acquisitions and hostile takeovers also sometimes result in the creation of these corporations.

In a world that continues to become more interconnected each day, a multinational corporation sometimes has a greater ability to adapt to economic and political shifts that corporations that function in a single nation. Along with decreasing costs associated with producing core products, this business model also opens the door for diversification, which often makes it possible for a company to remain solvent even when one division or subsidiary is posting a temporary loss.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including WiseGeek, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
By anon357902 — On Dec 08, 2013

What are the disadvantages of MNCs?

By anon314914 — On Jan 21, 2013

What is the meaning of an international corporation's role and the importance of multinational corporations in international business?

By anon295703 — On Oct 08, 2012

How do multinational companies adapt their product to different countries?

By anon156438 — On Feb 27, 2011

how is a MNC different from a TNC? What is the key difference and how does each functioning affect the world?

By anon141327 — On Jan 10, 2011

what are the disadvantages of a multinational corporation?

By anon131664 — On Dec 03, 2010

how have multinanational corporations added to the development of nigeria as a country?

By asyafa — On Feb 05, 2010

Who is supposed to be responsible for MNC especially when the country is considered poor, politically unstable and corrupted?

How can multinational corporations be effectively regulated without infringing upon national sovereignty?

By ahmetsari — On May 24, 2009

Advantages:

Possible advantages of a multinational corporation are:

1.Multinational Companies are able to sell far more than other type of company.

2.Multinational companies can avoid transport costs.

3.Multinationals can take advantage of different wage levels in different countries(as in some countries only women and children work, so the wages can be low)

4.Multinationals can achieve great economies of scale.

5.Multinationals have less chance of going bankrupt than small companies.

6.Multinationals can carry out a lot of research and development.

By anon26991 — On Feb 22, 2009

what are the advantages of multinational coronations of globalization?

Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
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