Multinational corporations (MNC) are usually the biggest form of a business. In Malaysia, there are many MNCs across various industries and the government aims to attract more MNCs in the coming years. For those who plans to incorporate a MNC in Malaysia, it is important to understand the pros and cons of doing so.
What is a multinational corporation (MNC)?
As described in the name, a multinational corporation (MNC) is technically a Company that owns or control production of goods or services in multiple countries besides its home country.
According to Black’s Law Dictionary, a multinational corporation (MNC) is a Company or group that derives 25% or more of its revenue from out-of-home-country operations. It is also known by several names such as multinational enterprise (MNE), a transnational enterprise (TNE), a transnational corporation (TNC) as well as international corporation.
How does Multinational corporations (MNC) work?
It is common for multinational corporations to expand their operations into other countries by incorporating a foreign branch or subsidiary. Normally, developing countries such as Malaysia aims to attract multinational corporations (MNC) because it is known to have positive economic effect.
The head office will send out a team of specialists to help build the newly incorporated Company with a team of local. This way, they are not only able to implement the standard operations and culture into the Company but also ensure the local team adhere to the local authority and regulations.
Advantages of incorporating a Multinational Corporation (MNC) in Malaysia
It is a norm for multinational corporations (MNC) to have different stages of supply chain located in different countries to fully utilise its specialisation and raw materials.
Those who venture into multinational corporations (MNC) in Malaysia gain many benefits of being global – economies of scale in production, a global brand recognition as well as employing skilled labours from across the world.
1. Specialisation in production
Being an MNC gives the opportunity for firms to split its production into different countries. It can produce different components in regions which best suited to manufacturing before assembling the plants close to their target market for sale.
MNCs often utilise their benefit in outsourcing, especially those which requires high-labour cost. They will outsource the labour-intensive production to cheaper labour cost countries and enable a reduction in cost.
3. Economies of scale
A Company often aim for maximum revenue with minimal cost of production. By expanding their production into other developing countries, it enables them to form lower long-run average costs with greater efficiency.
4. Tax avoidance
MNCs often benefit in terms of tax schemes offered by developing countries such as Malaysia when they incorporate a Company there. This is one of the many ways for them to attract foreign investors into their countries to boost its economies. Hence, it is not shocking for these Companies to expand their business in the Southeast Asia region.
5. Wide consumer base
Instead of focusing on traditional markets within a country which in the end will limit the grow of sales of the product in the economy, selling abroad enables much greater target market and opens up possibilities to increase sales.
Disadvantages of incorporating a Multinational Corporation (MNC)
While there are many advantages gained by a multinational corporation (MNC), there are also a list of downturns they need to be aware of.
1. Loss of sovereignty
This is one of the most well-known disadvantages faced by MNCs. They might be economically powerful, but at the end of the day, they are required to stick to the host countries rules and regulations.
The policy makers will be protecting their own interest and, in the end, resulting for MNC to lose their sovereignty and independency.
Unless the Company is producing something no one can replicate such as Tesla, Inc. then of course there are competition in every country. Once the Company has opened the opportunity for the local to learn about their products, there is a high chance for them to replicate it and rebrand it within the local market for cheaper price.
This results in MNC requiring to invest more on their market developments, promotions, and R&D.
3. Economic exploitation
A Company is incorporated with the aim to gain profit. No one wants to invest into something that does not gives them anything in return. Hence, economic exploitation of host countries is often the case by excessive use of natural resources and raw materials.
They pay low wages to local employees with the exchange of selling their products at high price to exploit consumers. This indirectly make policy makers to lower the bar of their national minimum wage to keep attracting foreign investors such as what happens in Philippines, India and Indonesia.
Types of Multinational Corporations (MNC) available
There are typically four (4) types of multinational corporations available:
1. Multinational decentralised corporation
This type of MNC normally maintain their prominent existence in its home country. The organisational structure does not have management or administrative centers. Hence, each offices implement unique management structure making it separate entity within a local market.
2. Global centralised corporation
It is common for global centralised coprorations have its own centralized global corporation with chief administrative and management offices. The corporation may outsource its production for lower costs, but the culture is normally the same as its head office. The aim is to optimise for affordable resources and acquire cost advantages.
3. International company
One of the main objectives by incorporating an international Company is by expanding its research and development (R&D) institute from its parent Company. Effective R&D allows creation of new products or value add their existing products. It also leads to increase of market participation as well as better cost management.
4. Transnational Enterprise
This type of MNC generally implement the decentralised organisational structure. It aims to do businesses in several countries without one location as the head office. It normally engages to value creation in various countries while sustaining high level of responsiveness.
Malaysia aims to attract 10 more Multinational Corporations (MNC) by 2030
As per reported in the Star newspaper, Muhammad Azmi Zulkifli, CEO of InvestKL shared that the country is aiming to attract at least another 10 multinational companies (MNC) to set up base and operations in Malaysia. Malaysia is expected to earn at least a minimum of MYR 1 billion investment from this plan.
The aim is to boost the country’s economy as well as expand the job market for local after the pandemic hit the world in year 2020. They expect at least those from the insurance industry which normally utilize a lot of big data analytics.
List of successful Multinational Corporations (MNC) available in Malaysia
Malaysia has become of the favorite destination for foreign investors to expand their business. Not only does it offer numerous tax schemes that gives tax advantages, but also high skill labor with considerable wage rate and cheaper raw materials. Some of the successful MNC available in Malaysia are:
How to Expand a Multinational Corporation (MNC) to Malaysia?
The easiest way for an MNC to expand into Malaysia is through an incorporation and cross-border specialists. As Bahasa is the preferred communications in Malaysia, having a local service provider would be advantageous for any companies setting up in the country.
To find out more about the company registration steps and requirements, you can read our articles here:
They normally benefit in term of transfer of skills and expertise, helping to develop quality of host labor force.
There are over 80,000 multinational corporations spread worldwide which drives the 21st century economy.
The MNCs will provide money in terms of investments such as purchasing machineries or technologies which will assist to boost local supplier profit.
A Multinational Corporations (MNC) are known as corporate organizations who owns or controls the productions of goods / services in multiple countries besides its home country