The term “multinational enterprise” refers to businesses which locate different components of their operations in more than one country. “Multinational” carries a different connotation than “international,” which can include businesses that export or license their products to foreign markets while locating all operations in a single country. Truly multinational companies realize significant advantages from their presence in multiple nations around the world.
The cost efficiency of multinational businesses is one of their most pronounced advantages. Multinational companies have a wider range of options related to the physical location of facilities and labor than their domestic competitors, allowing them to locate facilities in countries with the most favorable tax structures, interest rates and labor costs.
Multinationals can leverage the natural advantages of each of the countries they are located in as well. Certain countries feature ideal conditions for specific agricultural products or fuel sources, for example, while others feature high-tech economies with low-cost sources of highly educated workers.
Multinationals can do more to reduce or eliminate political influences on their bottom line than international businesses based in a single country. Multinational companies can position their facilities in such a way as to reduce or eliminate tariffs and avoid other trade barriers, for example, or to gain political concessions due to their contribution to local gross domestic product.
Consider a Chinese company with a production facility in the European Union (EU), for example. The company could manufacture products inside the EU for distribution to EU member countries, completely bypassing the import restrictions and other trade barriers faced by China-based exporters.
Employing people from multiple countries provides distinct human resources advantages. Different cultures produce different fundamental outlooks on business, management, society and life in general. Leveraging multiple cultural perspectives in research and development efforts can help multinational businesses to stay on the leading edge of innovation in their industry.
Products and services are not the only components of business which can benefit from a collaborative, multicultural approach to innovation. Multinationals can also benefit from diverse viewpoints on marketing strategies, workplace policies and production methods, to name a few areas.
All of the advantages mentioned above combine to provide multinationals with greater prospects for revenue and profit growth. Multinationals have a level of integration and identification with the markets they are involved and located in that exporters and licensors simply cannot match. Having operations on the ground around the world helps multinational businesses to achieve solid traction for growth in a range of international markets at once.