Benefits of turning your company into a multinational enterprise
Check out some of the major benefits of multinationals and find out how you can expand your business
A multinational company is a global enterprise that produces and distributes its products in several countries.
Multinationals often have different stages of the supply chain located in different countries. This allows the company to make the most of each location where it operates.
For being global, multinationals offer different benefits, and that’s what we are going to address below. Check it out:
The main benefits of multinational companies
1 – Specialized production
Global companies often have manufacturing operations in different countries.
In the automotive industry, for example, the production process is divided into several stages, with factories dedicated to engines, tires and bodies. A multinational company can produce different components in regions that are more suitable for the manufacturing process and then assemble vehicles in factories close to its sales market.
For example, BMW produces engines in Germany, imports tires from Asia and then has car assembly plants in many different places, such as the United Kingdom.
2 – Outsourcing
Outsourcing is a concept associated with specialization. A manufacturing company in a high labor cost economy can outsource intensive production to countries with cheaper options and have reduced costs.
3 – Economy
Many industries have high fixed costs. Expanding operations around the world often provides lower long-term average costs and greater efficiency.
The benefits of multinationals include a variety of different economies of scale, including:
Marketing: A multinational company can advertise on a global scale and have worldwide exposure. For example, at the Olympics, you see global brands like Coca-Cola, Visa, Samsung, McDonald’s, and General Electric;
Risk mitigation: A large multinational company is better able to survive a local crisis due to its diverse consumer base. If the Brazilian economy slows down, for example, a multinational business may react to that by increasing sales in Asia. A company that operates in one country only is more vulnerable to domestic problems.
4 – Skilled labor
A multinational company has a larger number of employees to employ. It can employ experts from around the world.
Having a larger talent bank allows the possibility to employ better managers or employees, which can boost company growth.
5 – Broader consumer base
Most companies achieve a saturated product in the market – during a product life cycle, a large company has a very limited scope to increase sales in a certain economy.
Selling abroad enables a much larger consumer base and opens up new possibilities to increase sales.
For example, in some countries in the West, cigarette sales have declined, but by shifting their focus to certain developing countries, tobacco companies have had new areas of growth and sales, reversing the negative performance in their “traditional markets”.
How to transform your company into a multinational enterprise?
If you believe that your company has grown and now has enough money to become a multinational, it is time to expand operations to other countries and make your brand known worldwide.
Here are some options you can choose from to expand your operations:
Branches are the most direct way to expand abroad. You would need capital, all relevant commercial licenses, hire a team, and open a branch in a foreign country.
If your company has a lot of money, acquisitions may be a better strategy than opening branches. Acquiring a local company for vertical or horizontal integration purposes is a quick and comparatively easy process, as long as you plan to leave the original business (management, infrastructure, etc.) intact.
By making the acquired company your subsidiary, you can count on instant location, name recognition, and an experienced team to be in charge.
However, plan every step carefully before purchasing a subsidiary to avoid problems with the acquisition. It’s important to pay close attention to contract wording and ensure it is translated effectively.
Therefore, you should look for an agency that provides professional and high-quality translations.
– Joint venture
You may not want to buy local businesses due to high prices. Perhaps a local competitor, which cannot be acquired, is already dominating the market.
In that case, the old saying “if you can’t beat them, join them” has never been more accurate.
A joint venture – a partnership with a foreign company in the same sector – can be an attractive option. Both companies reserve capital, resources and technology in a new, shared company that is separate from the main ones.
This is a popular option in countries like China, where laws are extremely strict when it comes to foreign affairs. Joint ventures have all the advantages of acquisitions abroad – such as location and brand recognition, for example – for a fraction of the cost. Most joint ventures share expenses and profits by 50/50.
A foreign affiliate will purchase a license from your company to use your brand in a foreign country.
While the foreign affiliate retains ownership of your brand, your company will receive royalties. Franchising is the cheapest option and the fastest way to build a presence in a foreign country with minimal risk.
Time to expand your operations
After learning about the benefits of multinationals and some options to go global, you may now be interested in expanding your borders.