Understanding a Multinational Corporation (MNC)

When discussing a Multinational Corporation (MNC), terms like Multinational Enterprise (MNE) and Transnational Corporation (TNC) are also commonly used. While they are all involved in international operations, there are some distinctions between these terms.

An MNC is a firm that is involved in the production of goods or services in at least one country other than its home country. MNCs tend to have a centralized management structure.

A TNC is a more evolved version of an MNC with more decentralized structure and the subsidiaries in the various countries have more autonomy. Such companies operate like a global network and there is less emphasis on home country.

The term MNE is used interchangeably for MNC and TNC.

Definitions of MNC/MNEs

Multinational Corporation (MNC) refers to an organization that does manufacturing and marketing in many different countries.

“A firm that owns and controls activities in two or more different countries” (Buckley and Casson, 1976; 2009: 1564)

“A coordinated system of cross-border value-creating activities, some of which are carried out within the hierarchy of the firm, and some of which are carried out through informal social ties or contractual relationships” (Dunning and Lundan, 2008; Cantwell et al., 2010:569)

“An enterprise that has operating subsidiaries, branches, or affiliates located in foreign countries” (Eiteman et al., 2010:2)

Multinational Enterprise (MNE) refers to a firm that owns business operations in more than one country.

“A company that has headquarters in one country but has operations in other countries” (Wall and Rees, 2004: 23)

“A coordinated system of cross-border value-creating activities, some of which are carried out within the hierarchy of the firm, and some of which are carried out through informal social ties or contractual relationships” (Dunning and Lundan, 2008; Cantwell et al., 2010:569)

“An enterprise that has operating subsidiaries, branches, or affiliates located in foreign countries” (Eiteman et al., 2010: 2)

Transnational Corporations (TNC)

Transnational corporations (TNCs) are incorporated or unincorporated enterprises comprising parent enterprises and their foreign affiliates.

A parent enterprise is defined as an enterprise that controls assets of other entities in countries other than its home country, usually by owning a certain equity capital stake. An equity capital stake of 10% or more of the ordinary shares or voting power for an incorporated enterprise, or its equivalent for an unincorporated enterprise, is normally considered as the threshold for the control of assets.

A foreign affiliate is an incorporated or unincorporated enterprise in which an investor, who is a resident in another economy, owns a stake that permits a lasting interest in the management of that enterprise (an equity stake of 10% for an incorporated enterprise, or its equivalent for an unincorporated enterprise).

Types of foreign Affiliates

A subsidiary is an incorporated enterprise in the host country in which another entity directly owns more than half of the shareholder’s voting power, and has the right to appoint or remove a majority of the members of the administrative, management or supervisory body.

An associate is an incorporated enterprise in the host country in which an investor owns a total of at least 10%, but not more than half, of the shareholders’ voting power.

A branch is a wholly or jointly owned unincorporated enterprise in the host country which is one of the following:

• a permanent establishment or office of the foreign investor;
• an unincorporated partnership or joint venture between the foreign direct investor and one or more third parties;
• land, structures (except structures owned by government entities), and /or immovable equipment and objects directly owned by a foreign resident; or
• mobile equipment (such as ships, aircraft, gas- or oil-drilling rigs) operating within a country, other than that of the foreign investor, for at least one year.

Read: Foreign Direct Investment (FDI) Concepts