KH buddy must know the company Google, right? Or the famous American shoe brand, Nike? Well, these two companies are examples of what a multinational company is. Surely this term is familiar to you, right? Yes, multinational companies often refer to large companies that exist in the world. This type of company operates in many countries due to its vast reach. Supported by globalization and digitalization, multinational companies play a very important role in export and import activities, international transactions, and even foreign investment in certain destination countries. Companies from any country can sell their products to consumers from other countries. In the end, these companies will be able to influence the economic conditions in a country. So, what is a multinational company? How do they work and what are the characteristics of this type of company? Let’s see the full explanation below!
What is a Multinational Company?
According to investopedia, a multinational company is a company that has facilities and assets in other countries. In general, these companies are developed with Limited Liability Company (PT) status in different countries, but the shares held in them will be controlled by the parent company. The company’s shares will not be listed on local stock exchanges. At a minimum, a multinational company must have one asset, factory, or subsidiary in a country other than its home country. Later, the parent company will coordinate the policies, management, capital, and shares of the subsidiaries or branches located outside its home country. So it is not uncommon, the existence of multinational companies will affect the social and political conditions of a country where its subsidiary stands. These companies also certainly have large capital with high revenues, or even at least have the title of unicorn.
How does a Multinational Company Work?
The organizational structure and operational mechanisms of multinational companies may vary depending on the country in which they are located. However, everything is still controlled by the head office in the country of origin. Usually, subsidiaries in other countries have full freedom to carry out promotional strategies, advertisements, and even create new products. This is done so that the subsidiary can adjust to the needs of the country and can dominate the market. Therefore, it is not uncommon to find product variations that are only found in one country. This is because these products are the result of innovations made by subsidiaries in the country concerned.
Characteristics of Multinational Companies
There are several features or characteristics that distinguish multinational companies from other types of companies. Reporting from the Corporate Finance Institute (CFI), here are the characteristics of multinational companies:
Has High Assets and Turnover
The first characteristic of this company is definitely having high value assets and turnover. Yes, to be able to open assets in other countries, of course, it costs a lot of money. That is why this company at least holds the title of unicorn. When you open an office in another country, this office will then become a high-value asset. This is because the presence of a company in another country opens up new opportunities for greater profits.
Business Network
Multinational companies have many business networks in various countries. This business network can be in the form of a main company or its subsidiaries. Production and marketing activities will be carried out in each country by being managed by branch offices or subsidiaries.
Head Office Controlled
Due to its many subsidiaries in other countries, the company has its own headquarters. This head office is usually located in the company’s home country. The function of the head office is to manage the business and coordinate with the branch offices in other countries.
Keep Growing
Multinational companies will continue to grow, even when they already have several branches in other countries. These companies will usually continue to improve their business by trying to expand into other countries or make acquisitions of local companies.
Using Advanced Technology
Companies that successfully expand to other countries must have sophisticated technology, both in terms of production and marketing activities. This is because the use of technology is one of the advantages of this company compared to national companies in related countries.
Have the Best Human Resources, Marketing, and Product Quality
One of the strategies implemented by multinational companies in order to survive in a new country is to utilize the best quality of human resources, marketing, and products. This becomes a quality standard and strategy carried out so that the company is able to dominate the market in that country.
Pros and Cons of Multinational Companies
Although classified as a large type of company, multinational companies also have their own advantages and disadvantages. Here is the explanation:
Advantages of Multinational Companies
- Reduce foreign exchange requirement activities for import activities in the industrial sector
- Modernize every line sector
- Support domestic development
- Increase community income
- Help fulfill the needs of the domestic community
Disadvantages of Multinational Companies
- Could kill local companies due to its capital strength
- Executive level filled with foreign employees
- Low quality of occupational health and safety
- May cause environmental damage
What are some examples of multinational companies in Indonesia?
In Indonesia alone, many multinational companies have been established, ranging from subsidiaries to foreign factories. The following are some examples of multinational companies in Indonesia:
Who doesn’t know this American technology company? Yes, Google is famous as a company that has branches all over the world. The company itself has established its branch in Indonesia, precisely in Jakarta. As a multinational company, Google offers a variety of services, ranging from the internet, web computing, search engines, advertising, and software that have been used in almost all parts of the world.
Nike
Nike is an American shoe, apparel, and sporting goods company. Nike itself is the largest sportswear company in the world and has unquestionable popularity. In Indonesia itself, Nike has opened its factory in collaboration with PT Adis Dimension Footwear as a company that produces Nike brand shoes. later, the output of this production will have a “Made in Indonesia” label.
Gojek
If previously it was a foreign multinational company, now we turn to a multinational company owned by the nation’s son, Gojek. This startup company engaged in technology has successfully expanded its business to transportation and fintech services to various countries in Asia. The expansion of this motor vehicle-based transportation business has successfully opened its subsidiaries to Thailand, Vietnam, Singapore, by adjusting the policies of each country.
Ruangguru
Ruangguru is an Indonesian technology company that focuses on education-based services. Ruangguru has become a multinational company with subsidiaries in Vietnam and Thailand.
Garudafood
Another multinational company from Indonesia is Garudafood. The company has successfully exported its products to foreign countries such as India, Korea, China, and Southeast Asian countries. Currently, Garudafood also has a subsidiary company called Golden Pacific Trading Pte. Ltd, which was established in Singapore.
KH Contact
This is a complete explanation of what a multinational company is, starting from understanding, how it works, characteristics, advantages and disadvantages, to examples in Indonesia. If your business also wants to develop into one of the multinational companies, then one of the things you must pay attention to is the establishment of a business entity, especially PT.
READ ALSO: Here’s a Complete Guide and Business Plan Example for Beginners
Because as explained above, multinational companies do have PT status in various countries. Of course, you also have to fulfill other legality documents such as company establishment deed, NIB, NPWP Agency, to tax and capital affairs. Because in addition to being a form of legal compliance, PT business entities and legality can also help boost sales turnover and investment so as to facilitate business development into a multinational company, you know! So, let’s develop your business into a multinational company with the establishment of PT and legality with Kontrak Hukum! For more information, please visit the KH Services – Establishment of PT page. In addition, you can also consult about multinational companies for free anytime and anywhere with professional experts at Ask KH and via direct message (DM) to Instagram @kontrakhukum.
