Why do companies become multinationals?


Quick Answer

A corporation may pursue multinational status in order to increase market share, reduce production costs through the acquisition of cheap labor, avoid trade barriers and reduce its tax liability. A multinational entity is a company that maintains its headquarters in one country, but operates assembly or production facilities in other nations.

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Full Answer

A corporation that meets its domestic saturation point often establishes facilities or offices in foreign nations in order to penetrate a new market. Entering foreign markets provides the corporation with an entirely new market in which to sell its goods or services.

Establishing foreign markets allows a multinational corporation to penetrate a larger population of potential buyers. Multinational status also increases the corporation’s growth potential by eliminating geographical boundaries.

A corporation may seek multinational status to reduce costs and increase its global presence. American corporations often establish production or assembly facilities in developing nations where labor and land are significantly less expensive than in the United States. An American corporation may also opt for multinational status to take advantage of tax variations or to reduce its domestic tax liability and avoid trade barriers.

Multinational status is applied to any corporation that possesses offices, factories or processing plants in different nations. These corporations typically maintain a centralized headquarters to coordinate their global management initiatives. Nike, Intel, Coca Cola and Microsoft are examples of multinational companies.

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