Multinational companies

A multinational company is a business that owns or controls production in more than one country. It is not enough to sell abroad or be well known abroad: it must control production, such as a factory or assembly plant, in at least two countries. Most multinationals keep a centralised head office in their home country, where senior managers make the main decisions for all the countries they operate in. This helps keep the brand and overall strategy consistent.

Why become a multinational?

One reason is to sell in many locations. Being in more countries raises brand exposure, so more customers see the business, and this can increase sales volume — the number of products sold. Higher sales volume can raise total revenue.

Another reason is to move manufacturing to a low-cost country. Lower wages and cheaper raw materials can reduce unit costs — the cost of making one item. If unit costs fall while the selling price stays similar, the profit margin on each sale rises. Together, these choices let a multinational take advantage of low labour costs, obtain materials at lower prices and sell where customers can pay more, so profit can rise.

Worked example

Suppose a UK firm, BottleBright, makes reusable sports bottles. It opens a factory in Vietnam where labour is cheaper and buys plastic locally at a lower price. It sells the bottles in Germany and Canada, where customers can pay higher prices. The Vietnam factory lowers unit costs, while selling where customers can pay higher prices raises revenue, so total profit can increase. By controlling production in both the UK and Vietnam, BottleBright is a multinational.