Three different ways to organize a multinational

A multinational enterprise is a kind of company that does business in two or more countries. They play an important role in the globalization process, take advantage of economies of scale and also use the different states to share its risks in several markets.

We often talk about multinationals, but we rarely talk about the different kind of these multinationals. For this reason, in this entry we are going to see different options to organize these companies, in particular: i) National multinational company/enterprise, ii) International multinational company/enterprise and iii) Nonmultinational company/enterprise.

L'espantaocells - Joaquim Vayreda

i) National multinational enterprise: In this case the multinational has a parent company in one country (precisely for this reason we call them national multinational), which operates in other states through branches and/or subsidiaries. We should remember that a branch is not a separate legal entity, while a subsidiary has a separate entity from the parent company. Nevertheless, the subsidiary is also controlled by the parent company. One advantage of this kind of organizations is the simplicity of its structure.

ii) International multinational enterprise: These kind of companies have more than one parent company established in two or more different states. So then, the structure is more complicated than the national multinational enterprise seen before. Additionally, these parent companies have to co-own more than one subsidiaries in two or more countries, because if not they cannot be treated as the same multinational.

In a International multinational enterprise one of the most important issues is the agreement (or agreements) between the parent companies, without this agreement the management would be chaotic. Furthermore, this agreement should be incorporated into the Articles of Association for safety of the parties.

iii) Nonmultinational enterprise: In this case the structure is quite simple, because the company (that is called the principal) operate in other countries from the headquarters through other professionals (usually an agent) operating on its behalf. As we have already seen, in fact these kind of companies are not a real multinational, because they do not act directly across different countries.

This type of “multinational” have to regulate carefully the rights given to the agent, in special way the IP rights, among others (like exclusive rights).