Define "Multinational Corporations"

By Melanie Jo Triebel

When most people think of a multinational corporation, they think of a huge corporate entity with billions of dollars in profits. Although that is often the case, it is sometimes a false perception. Very small corporations can be multinational if their management or operations span two or more nations.

When most people think of a multinational corporation, they think of a huge corporate entity with billions of dollars in profits. Although that is often the case, it is sometimes a false perception. Very small corporations can be multinational if their management or operations span two or more nations.

Standard Definition

A corporation is multinational if its headquarters are located in one nation and its facilities, operations or assets in at least one other nation. This could include factories or offices outside the corporation's home country. In addition, some experts believe that a corporation should only qualify as multinational if one-quarter of its revenue comes from operations outside its home country.

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Alternative Definitions

Some economists and lawyers argue that a corporation is only multinational if it is owned by individuals or entities from more than one nation. Sometimes, this excludes companies otherwise considered multinational. Another definition categorizes multinational corporations as those whose managers, at its headquarters, come from more than one nation. Again, this excludes larger companies that fall within the standard definition but may include smaller multinational corporations with a mix of managers.

Locations

Multinational corporations can be located anywhere. However, these types of businesses are most common in the United States, Western Europe and Asia.

Types

There are four basic types of multinational corporations. The first type has a strong presence in its home country but a decentralized structure. The second has centralized operations but cuts costs by basing production and operations wherever resources such as supplies and labor are inexpensive. The third type operates internationally using technology or research from a centralized, single-nation parent company. The fourth type uses some combination of the first three models.

Implications

The question of whether a corporation qualifies as multinational does not impact the requirements for incorporation. A company must still incorporate in its home nation -- within the United States, within its home state -- and follow any applicable laws in other nations where it conducts business.

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The Differences Between Transnational & Conglomerate Corporations

References

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