bibliography-icon

7 Advantages and Disadvantages of Multinational Corporations …

Skip to main content.

Advantages & Disadvantages of a Multinational Firm

by Gregory Hamel

Multinational companies operate in several countries.

Multinational companies operate in several countries.

Jupiterimages/Photos.com/Getty Images

Related Articles

  • 1 The Advantages of Multinational Organizations
  • 2 Advantages & Disadvantages of a Global Strategy
  • 3 The Advantages of Transnational Organizations
  • 4 What Makes a Company a Multinational Corporation?

The ultimate goal of every for-profit business is to sell more products and services to bring in more revenue and generate more income for the owners. Small businesses often start by opening operations in a certain town, state or country, but as a business grows, managers might decide to start doing business in other countries. Businesses that conduct operations and sell to customers in multiple countries are considered multinational firms.

Access to Consumers

One of the primary advantages that multinational companies enjoy over companies that limit their operations to smaller geographical regions is that they have a larger pool of potential customers. For instance, a restaurant chain that has a strong presence in U.S. cities might not be able to expand effectively within the U.S., but opening new locations in other countries allows it to tap into new, unsaturated markets. According to the U.S. Small Business Administration, about 96 percent of consumers and two-thirds of the world’s purchasing power resides outside the U.S. Sources of revenue from other countries help businesses survive periods of low domestic sales.

Laws

A potential disadvantage that multinational companies face is that they are subject to more laws and regulations than other companies. Certain countries do not allow a company to run its business the way it operates in other countries, and each country has different labor and business laws. Multinational companies can also face intellectual property issues that do not impact purely domestic firms. For example, a company in the U.S. that uses a certain brand symbol might not be permitted to use the symbol in a different country if a business in that country uses a similar one.

Access to Labor

Access to labor is another advantage that multinational companies enjoy over other companies. A firm that has operations in many countries can set up its production operations in China or India to take advantage of cheap labor and then sell products in more affluent countries in North America and Europe. Companies that have operations only in the U.S. have difficulty competing with multinational companies if they have to pay workers more to produce similar products.

Taxes and Other Costs

While multinational companies can take advantage of cheap labor, they might also be subject to higher taxes and have to pay more for other things such as transporting goods. Many countries impose taxes called duties or tariffs on imports and exports, making it more costly to sell goods to consumers in other countries.

References (4)

  • “Harvard Business Review”; Think Global, Not Emerging Markets; Anil Gupta and Haiyan Wang; May 2011
  • Harvard Business School: Globalization Feature – Why Being Multinational Is No Longer Enough
  • National Bureau of Economic Research: Effects of Multinational Company Investments
  • U.S. Small Business Administration: Exporting & Importing

About the Author

Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.

Photo Credits

  • Jupiterimages/Photos.com/Getty Images
icon for annotation tool Cite this Article

Choose Citation Style

Hamel, Gregory. “Advantages & Disadvantages of a Multinational Firm.” Small Business – Chron.com, http://smallbusiness.chron.com/advantages-disadvantages-multinational-firm-20243.html. Accessed 01 December 2018.
Hamel, Gregory. (n.d.). Advantages & Disadvantages of a Multinational Firm. Small Business – Chron.com. Retrieved from http://smallbusiness.chron.com/advantages-disadvantages-multinational-firm-20243.html
Hamel, Gregory. “Advantages & Disadvantages of a Multinational Firm” accessed December 01, 2018. http://smallbusiness.chron.com/advantages-disadvantages-multinational-firm-20243.html

Note: Depending on which text editor you’re pasting into, you might have to add the italics to the site name.