What is a multinational company? Background of the rise and merits and demerits

In modern times, “multinational companies” that conduct corporate activities without staying in a specific country are no longer rare. The reason why many multinational companies have emerged and dominated the market is deeply related to the strengths and business model characteristics of multinational companies.

Here, we have summarized the characteristics of multinational companies, the differences between global companies and multinational companies, as well as the unique advantages and disadvantages of multinational companies.

Multinational companies are companies operating in more than one country

A multinational company is a company that operates in multiple countries, not just one country. As defined in the United Nations World Investment Report, a company owns assets in two or more countries.

There are many multinational companies in Japan, such as Toyota Motor, which sells vehicles in more than 170 countries and regions around the world, and Takeda Pharmaceutical Co., Ltd., which has business bases in more than 80 countries around the world. In addition, multinational companies may also include companies that make foreign direct investments, and multinational companies can be regarded as a general term for “companies with business bases in multiple countries” and “companies that make foreign direct investments.” I guess.

Advantages of multinational companies

Behind the rise of multinational corporations are the unique advantages of multinational corporations. Why does it become easier to promote business by working in various countries and regions? Explain four advantages of multinational corporations.

Reduce production costs

Many multinational companies have manufacturing bases in developing countries, and are hiring personnel and procuring raw materials locally. Developing countries have lower labor and material costs than developed countries, so it is possible to reduce the cost of production. In addition, by directly procuring raw materials at local branches, it is possible to secure a stable supply source.

When raw materials are procured from overseas and produced domestically, customs duties are imposed, but by procuring raw materials locally and producing them locally, it will be possible to avoid customs duties at the time of procurement.

Market expands

Expanding business not only in Japan but also in multiple countries overseas is also advantageous in terms of market expansion.

By providing products and services in the destination country, the market itself expands. As production and logistics become global scale, as mentioned above, production costs can be suppressed, so the average cost can be reduced, and as a result, consumer prices can be suppressed.

Greater recruitment opportunities

Multinational companies not only send employees from their own country to the country, but also hire people locally. Compared to securing human resources only in Japan, the chances of recruiting human resources will increase.

There is also the advantage of being able to recruit diverse and talented human resources on a global scale. Especially in Japan, where the population is aging and the working population is declining, the reality is that securing excellent human resources is becoming more difficult year by year. Expanding your employment overseas will increase your chances of hiring top talent.

Create employment in the destination

The increase in the number of multinational companies also brings benefits to the countries and regions where they operate. Large-scale local recruitment will create large-scale and continuous employment opportunities in the destination country, and more people will be able to work under better conditions.

An increase in the number of employees around the world also means that stakeholders for companies are becoming more diverse. By increasing the number of people involved with the company and increasing the number of people who are interested in it, it will eventually lead to a stronger brand image.

Disadvantages of multinational corporations

While multinational corporations offer many advantages, there are also disadvantages to be aware of. I would like to introduce the demerits of the expansion and development of multinational companies.

May lead to market monopoly

Multinational corporations establish many bases around the world and expand their business scale. There is also a risk that the scale of local businesses will be unmatched and that they will monopolize the market in each industry.

If a limited number of companies monopolize the market, it will be difficult for the principle of competition to work. Rules that are favorable to mega multinational corporations are likely to be established, and there is a possibility that it will be difficult for new companies to emerge. In addition, there is an expected risk that consumer options will be narrowed and innovation will be hindered.

There is a risk of hindering the industrial development of the destination country

The economies of scale of multinational corporations can help reduce purchasing costs, making it possible for consumers to purchase products at lower prices. However, these benefits can also put pressure on local businesses.

Consumers prefer “more famous” and “cheaper” products. There is a risk that multinational companies will be widely recognized locally, and by expanding their business with economies of scale as weapons, they will hinder the industrial development of the destination country.

There is a possibility of conflict due to differences in culture and customs

Multinational companies promote their overseas business based on their own philosophy and business plans. However, each region in which we operate has its own culture and customs, which are not necessarily compatible with multinational companies.

For example, many Japanese people tend to work more than their wages in order to improve their reputation, but there are many countries that are strict about the balance between wages and work content. Even if you ask for a job with a Japanese sense, there is a possibility that the work style will not work as expected by local employees.

Differences in culture and customs cannot always be filled with logical explanations. It is necessary to understand that it may cause conflict with the destination.

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