Meaning of transnational companies
What are transnational companies:
Transnational companies are companies constituted by a parent company, created by the legislation of their country of origin, which in turn is established in the form of subsidiaries or branches in other countries, through direct foreign investment.
Transnational companies or companies are also called as: multinational, international, plurinational, supranational, global, interterritorial or cosmopolitan.
Transnational companies are characterized by:
- Increase foreign investment flows.
- Expand your business abroad.
- Present free movement of consortia and monopolies.
- Have lower production costs.
- Supply world markets on an integrated basis.
- Implement policies determined by the corporate center or parent company.
- Generate activities on an international scale.
See also Market.
Transnational companies create subsidiaries or branches. Subsidiaries differ from branches because they do not share the same legal personality as the parent company.
Types of transnational companies
Transnational companies are defined according to the type of activity, the number and size of subsidiaries or branches abroad, as well as the proportion of assets and income, so the only way to classify them is according to their structure. According to their structure, there are three types of transnational companies:
Horizontally integrated transnational companies are those whose production plants are located in different countries, but follow the same lines of production of services or products established by the parent company. Some companies that we can find with this structure are, for example:
- Banking industry: ICBC (China), JPMorgan Chase (European Union), HSBC Holdings (UK), Citigroup (USA).
- Oil industry: Royal Dutch Shell (Holland), Chevron (USA).
Vertically integrated companies, also known as multinational companies, are characterized by the fact that each subsidiary or branch manufactures its own components (intermediate), but the production process is located in other countries. Some examples of vertically integrated companies are: General Electric (European Union-USA), Apple (USA), Volkswagen (Germany).
Diversified TNCs are local businesses connected only by common property. Diversification also applies to risks both in business and with respect to the political stability of countries. Some examples of diversified transnational companies are: Samsung (South Korea), Unilever (USA), Novartis (Switzerland).
Difference between transnational company and multinational company
Today, the concepts of transnational and multinational companies can be used synonymously. Both the transnational company and the multinational have a parent company that expands through subsidiaries or branches abroad.
The difference that is made between the transnational and the multinational lies mainly in the structure of their internationalization. The multinational company refers specifically to vertically integrated businesses, that is, those whose production line expands to different countries but always obeying the parent policy.