Multinational corporations are less affected by localized recessions than companies that only operate in one nation. Additionally, companies that operate in several nations have a wider pool of potential customers which means more opportunity to generate profits. However, multinational corporations also have to contend with a variety of risks that can threaten the profitability and even the continued existence of the business.
Every nation has its own government and and establishes its own laws related to business. Multinational corporations have to ensure that company policies are in compliance with local laws, which usually means establishing a different set of operating practices for each nation that the company conducts business in. Changes in the law or the political system can put a business in jeopardy if the controlling government decides to nationalize certain industries or ban the production of certain goods. Political disputes between nations can also lead to increased taxes on imports and exports. This can have an adverse effect on a multinational corporation.
A multinational corporation has to pay wages and taxes in the local currency of each nation that it operates in. Currency valuations are subject to constant change, which means that if the value of the currency in the corporations base country loses value, its costs overseas suddenly rise. Currency fluctuations particularly impact companies that import and export goods as it can suddenly become prohibitively expensive to import goods from a particular nation if its currency rises in value. Multinational corporations try to predict how future currency movements impact business costs. Miscalculations can prove very costly.
Multinational corporations often produce goods in one nation and sell those goods through retailers in other nations. The cost of transporting goods between nations can rise suddenly if the price of oil rises. This often happens when oil production slows or when investors flock to buy oil as a safe haven investment during stock market crashes. The cost of fuel to transport goods by sea or air can severely dent a multinational corporation's profitability. However, companies must balance the risk of energy prices against the cost of producing goods in countries where wages and taxes are high.
Many businesses gain a competitive edge over rivals in a particular industry by embracing technological advancements. However, communications systems vary from nation to nation. Consequently, a multinational corporation cannot necessarily take advantage of technological advancements in a particular nation if that nation does not have the necessary infrastructure in terms of telephone systems and satellite communications systems to support this new technology. A multinational corporation could fall behind its foreign competitors if it cannot keep up with the latest technology.
How Does Political Risk Affect International Business?
Better times. It’s what companies seek when opportunities in domestic markets are limited and sales are trending downward. At these times, companies...
Importance of Technology in International Business
Technology has revolutionized the lives of consumers and businesses alike. The increased array of products on the shelves, the lowered cost of...
Apple Corporation's Impact on Technology
Apple Inc. began in 1976 as a small business run by a couple of college dropouts who liked to hang out at...
How Does Globalization Affect a Manager's People Skills?
Economic and technological globalization has allowed for a greater exchange of goods, technology, information and people across borders. Globalization has affected the...
How to Form a Multinational Corporation
A multinational corporation is often thought to be a giant business entity with operations in dozens of countries. However, the minimum requirement...
Definition of Multinational Company
A multinational is a company headquartered in one country with operations and investments in two or more host countries.
Economic Effects of Multinational Corporations
A multinational corporation is a company with established branches in more than one country. As of 2006, there were 63,000 multinational corporations...
What Are the Six Key Differences Between Multinational and Domestic Financial Management?
Multinational corporations operate in two or more countries while domestic companies restrict their operations to a single country. The reasons companies expand...
What Are the Currency Exchange Risks for Multinational Corporations?
Multi-national corporations buy and sell products that are priced at functional currencies used in the countries where business transactions have originated. If...