A multinational business has assets in more than one country, generating at least 25% of its revenue from operations outside the home country.
There are different models of multinational corporations. Multinational corporations typically have a central office in the home country, coordinating and managing other branches and assets.
Below, we look at these four business types and the financial benefits of each.
Multinational Decentralized Corporation
A decentralized multinational corporation maintains a prominent presence in its home country. With decentralization, the corporation’s organizational structure doesn’t have management or administrative centers. Instead, each office or asset hosts a unique management structure.
Decentralization allows for rapid expansion. Each new unit can operate as a separate entity within a local market.
Branch managers also have the freedom to respond to opportunities or emergencies without constrictions from a tedious chain of command.
Global Centralized Corporation
The organizational structure of a centralized global corporation has a chief administrative and management office or head office. The corporation may outsource production to developing economies to lower costs, for example.
These businesses may also develop production infrastructure in these countries to optimize affordable resources and acquire cost advantages.
A centralized international organization facilitates proximity to its international target markets. The main advantage of affiliates and subsidiaries in target markets is distribution cost reduction. It also makes potential consumers and their information more accessible.
One of the objectives of an international company is to build on the research and development of its parent company. Effective R&D allows for the creation of new products or the addition of features to existing successes.
Building on existing R&D gives these global companies a competitive edge in local markets, too. Other benefits include an increase in market participation and better cost management.
Transnational enterprises generally have a decentralized organizational structure. These corporations do business in several countries without one location as a corporate home.
Transnational enterprise structures engage in value creation in various countries while maintaining high levels of responsiveness. It is a flexible and efficient approach that is gaining popularity.
International enterprises face a complex tax reporting system, whether expanding operations in the United States or using local entities to set up businesses in foreign countries.
MKS&H is a leading provider of international tax and accounting services. Contact our experts today to ensure compliance with all relevant accounting standards and tax legislation for your international venture.