What are multinational companies

multinational company

(transnational, international company) Company that is active in several countries, whereby aer rrozeis aer the provision and utilization of services takes place at the same time at home and abroad. A company usually goes through various phases of internationalization on the way to becoming a multinational company (foreign investment): (1) Import of production factors (e.g. raw materials), (2) Export and sale of production surpluses by independent dealers or their own sales organization, (3) Establishment of Centrally controlled subsidiaries, (4) autonomous in-house production of the subsidiaries, adapted to the respective market requirements, (5) cooperation of the subsidiaries with companies from third countries, (6) cross-border mergers, (7) formation of multinational groups in which the corporate strategy is designed across borders and the capital is spread around the world. The complexity and diversity of the environment place high demands on the organizational structure, information and communication systems and planning. In the control of multinational activities, financial policy and financial planning play a particularly prominent role.

Definition for companies that operate in several countries. Globally operating companies strive to achieve their corporate goals in the best possible way by choosing a suitable location and taking into account economic, legal and tax aspects. Advantages result, among other things, from the bypassing of trade barriers, the use of environmental and wage policy standards, the use of international human resources and sources of finance (global resourcing).

(English multinational enterprises) Multinational enterprises are companies that are active in several countries. Globally operating companies strive to optimally realize their corporate goals by choosing a suitable location (location theory) and taking into account economic, legal and tax aspects. Advantages result, among other things, from the bypassing of trade barriers, the exploitation of environmental and wage policy standards, the use of international human resources (human resource management, human capital) and sources of finance (see also globalization, internationalization).

are companies that are active in at least two countries (through subsidiaries, branches, permanent establishments).

See also: international company



(= transnational corporations) Companies with permanent establishments in more than one country that have arisen as a result of direct investments. In the theory of multinational companies, three ideal types are distinguished: Horizontally integrated multinational companies have an identical or similar production program in their operations at home and abroad; vertically integrated multinational companies handle various stages of the production process for the goods they manufacture in factories at home and abroad; Diversified multinational companies produce goods at home and abroad that are neither horizontally nor vertically related to each other in the sense defined above. The concept of intangible assets (company-specific advantages in the form of immaterial assets) is central to the analysis of the determinants of the existence of horizontally integrated multinational companies: In addition to variables such as labor and capital goods, immaterial factors such as knowledge, organizational and entrepreneurial skills and access to markets of a company can also be used Bring income. In order to maximize its profits, the company will endeavor to derive income from these company-specific advantages in foreign markets as well. If the market fails with the international exchange of intangible assets, this international use is organized in-house in the form of a multinational company. There are three reasons for a market failure: First, company-specific knowledge has the character of a public good in many respects (there is non-rivalry in consumption, a new type of production process, for example, can be used successfully in more than one place); Macroeconomic allocation efficiency would therefore require a price of zero (in the amount of marginal costs), but the company with the specific advantage is understandably not interested in this, given its development costs. Secondly, when intangible assets are exchanged on the market, there is a risk of opportunistic behavior, because a potential buyer can only be fully convinced of the value of an invention, for example, if the seller gives him all the details. If property rights (for example in the form of patents) cannot be enforced, there is a risk that the knowledge will be used free of charge by the other side of the market. Thirdly, there is uncertainty among the potential buyer as to whether the company-specific knowledge will also yield a return that justifies the required purchase price. If, due to the peculiarities of the market for intangible assets, licenses are not granted to foreign companies and import restrictions or transport costs prevent exports to these countries, then a horizontally integrated multinational company emerges. According to this internalization approach, a multinational corporation is an organization that uses its internal market to efficiently produce and distribute a type of goods where external markets fail; this allows the definition and safeguarding of property rights to knowledge through the control of its use and thus promotes its private cost production through investments in research and development activities. Vertically integrated multinational companies, as well as horizontally integrated ones, can be explained with considerations of transaction costs: Incentives to internalize the intermediate product market result from the costs associated with changing suppliers and the associated incentives for opportunistic behavior, along with the resulting tendencies to conclude long-term binding contracts precise specification of the consequences of possible future environmental conditions as well as the high costs associated with negotiating, concluding and monitoring such contracts. In addition, there is market failure in information about future prices and available quantities of important raw materials: this information can most cheaply (or even only) be produced by the owners of the deposits; However, they have no incentive to communicate them to the customers, since the price to be achieved can be higher if the customers build up higher production capacities due to a lack of information. Direct investments in companies that carry out vertical upstream or downstream production steps represent an in-house solution to these problems. Furthermore, vertically integrated multinational companies can be found in industries where production also includes labor-intensive sub-processes and where there can therefore be a strong incentive to use suitable sub-steps Relocate production to countries where (taking into account differences in productivity and transport and communication costs) production costs are lower due to lower wages. Diversified multinational companies can theoretically be explained by applying the diversification principle of portfolio theory, because a spread of activities over several production areas and over several countries will reduce the overall risk if the risks associated with the individual productions are not or negatively correlated. In reality, in addition to these three ideal types of multinational companies, there are also those that combine two or all three types and therefore exist for more than one of the reasons mentioned. Any empirical investigation of the viability of these theoretical considerations to explain the existence of multinational companies is very difficult, since central concepts (company-specific knowledge, transaction costs) cannot be measured directly. Existing econometric analyzes based on data for German industries and companies indicate, however, that the importance of direct investments increases with the technology intensity of the branch of industry (a proxy variable for the extent of company-specific knowledge). Literature: Wagner, J. (1991). Caves, R.E. (1982)

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