Multinational Corporations (MNC) in Malaysia

Multinational corporations (MNC) are usually the biggest form of 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 plan to incorporate an 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 controls the 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), transnational enterprise (TNE), a transnational corporation (TNC) as well as international corporation.

How do 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 aim to attract multinational corporations (MNC) because it is known to have positive economic effects.

The head office will send out a team of specialists to help build the newly incorporated Company with a team of locals. This way, they are not only able to implement the standard operations and culture into the Company but also ensure the local team adheres 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 chains located in different countries to fully utilize their specialization and raw materials.

Those who venture into multinational corporations (MNC) in Malaysia gain many benefits of being global – economies of scale in production, global brand recognition as well as employing skilled labourers from across the world.

1. Specialisation in production

Being an MNC gives the opportunity for firms to split their 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.

2. Outsourcing

MNCs often utilise their benefit in outsourcing, especially those that require high labour costs. They will outsource the labour-intensive production to cheaper labour-cost countries and enable a cost reduction.

3. Economies of scale

A Company often aims for maximum revenue with minimal cost of production. Expanding their production into other developing countries, 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 their 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 growth of sales of the product in the economy, selling abroad enables a 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 policymakers will be protecting their own interests and, in the end, result in MNCs losing their sovereignty and independence.

2. Competition

Unless the Company is producing something no one can replicate such as Tesla, Inc. then of course there is competition in every country. Once the Company has opened the opportunity for the locals to learn about their products, there is a high chance for them to replicate it and rebrand it within the local market for a cheaper price.

This results in MNCs requiring to invest more in their market developments, promotions, and R&D.

3. Economic exploitation

A Company is incorporated to gain profit. No one wants to invest in something that does not give 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 in exchange for selling their products at high prices to exploit consumers. This indirectly makes policymakers lower the bar of their national minimum wage to keep attracting foreign investors such as what happened in the 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 maintains their prominent existence in its home country. The organisational structure does not have management or administrative centres. Hence, each offices implement a unique management structure making it a separate entity within a local market.

2. Global centralised corporation

It is common for global centralised corporations to have centralized global corporations 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 of incorporating an international Company is to expand its research and development (R&D) institute from its parent Company. Effective R&D allows the creation of new products or value add their existing products. It also leads to an increase in market participation as well as better cost management.

4. Transnational Enterprise

This type of MNC generally implements a decentralised organisational structure. It aims to do business in several countries without one location as the head office. It normally engages in value creation in various countries while sustaining a high level of responsiveness.

Malaysia aims to attract 10 more Multinational Corporations (MNC) by 2030

As 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 bases 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 utilizes a lot of big data analytics.

List of successful Multinational Corporations (MNC) available in Malaysia

Malaysia has become of the favourite destination for foreign investors to expand their business. Not only does it offer numerous tax schemes that give tax advantages, but also high-skill labour with considerable wage rates and cheaper raw materials. Some of the successful MNCs available in Malaysia are:

• Petroliam Nasional Berhad (PETRONAS)
• Sime Darby Berhad
• Axiata Group Berhad
• Honda Motor Co.
• Panasonic Corporation
• Exxon Mobile Corporation

How to Expand a Multinational Corporation (MNC) to Malaysia?

The easiest way for an MNC to expand into Malaysia is through incorporation and cross-border specialists. As Bahasa is the preferred communication 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:

1. How to register a company in Malaysia: Step-by-step Guide
2. Setting up a private limited company in Malaysia
3. Should you set up a branch or subsidiary in Malaysia?
4. Types of Business Entities in Malaysia