Multinational organizations are divided into three broad groups as per the configuration of their production facilities. Horizontally integrated multinational corporations manage production establishments located in different countries to produce the same or similar products, as for instance McDonald’s.
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Vertically integrated multinational corporations manage production establishment in certain country/countries to produce products that serve as input to its production establishments in other country/countries. Adidas is an example of this kind of integrated multinational cooperation. Diversified multinational corporations do not manage production establishments located in different countries. They need not be horizontally or vertically integerated (example, Microsoft or Siemens A.G.).
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There is no single agreed-upon definition of the multinational (or transnational) enterprise. MNCs are companies or enterprises that operate in a number of countries and have production or service facilities outside the country of its origin. A commonly accepted definition of an MNC is that it is an enterprise producing at least 25 per cent of its output outside its country of origin.
A multinational corporation (MNC) is a body that has an integrated philosophy encompassing domestic and global operations. The term is interchangeably used with multinational enterprise (MNE) or transnational corporation (TNC).
It is an organization that has its facilities and other assets in at least one country other than its home country. Such companies have offices and/or factories in different countries and usually have a centralized head office where they coordinate the global management. Very large multinationals have budgets that exceed those of many small countries.
Most of the multinational corporations are based in developed countries. They try to maintain their domestic identity, maintaining their central office in their country of origin, while functioning their back offices functions in countries where they operate. Using such model they become globally integrated enterprise.
Advantages of MNCs:
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1. With more investment and increase in economic activity, MNCs generate more employment. In the process, an MNC enhances the new production facilities and brings positive changes in the local economy.
2. MNCs improve the balance of payments of a country. Balance of payments, i.e., positive foreign exchange position, occurs with the direct inflow of capital, which leads to import substitution and export promotion.
3. MNCs facilitate transfer of technology and in the process benefit the local economy to enjoy efficiency and effectiveness in the factors of production.
4. Helps in generating revenues for the government of the beneficiary countries through taxation. MNCs’ tax payouts benefit the country to spend more on public expenditures on infrastructure development and bring positive changes in the economy.
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5. Substantially help in saving precious foreign exchanges.