economy

transnational company - definition, concept and what it is

Those large companies dedicated to the production of goods or services that have subsidiaries in different countries are known as transnational companies. This type of company is characterized by its international expansion and its global dimension.

What is the fundamental requirement for a company to be transnational?

For a company to be considered transnational or multinational, it is necessary that 10% of the capital of the parent entity is invested in a foreign subsidiary. According to international criteria, a transnational company is constituted by a parent company located in a specific country and is governed by the legislation of that country, but is established in other countries through direct investments without creating local companies.

These companies are private and financially supported by investors and shareholders.

They are multifaceted and versatile companies and tend to operate economically in several lines (financial speculation, production of goods, international trade, services, etc.).

They have a business strategy based on offshoring, that is, the search for territories where labor is as cheap as possible and where labor legislation is most beneficial to their interests.

The most common economic sectors are energy, new technologies and communication

These companies are associated with the big oligopolies and monopolies, so some of them are a threat to the free market. By having a high level of production, they have a lower cost for each product and this implies that their potential competitors (small and medium-sized companies) cannot offer the same prices and end up disappearing.

Transnational companies use cutting-edge technology and thus can create high-quality products at a good price compared to smaller companies.

They have a great financial capacity, that is, their access to credit is greater than that of a medium-sized company

The characteristics of these companies make their power not simply economic, but also have a political and social influence.

From a historical point of view, the first transnational companies took their first steps in the second industrial revolution in the 19th century and after World War II they began to consolidate in the context of the globalized economy.

Photos: Fotolia - canbedone / ontsunan

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