An enterprise that's generally involved in direct foreign investment, controls or owns assets that gather income in several countries, and produces goods or services beyond its country of origin.
How Transnational Companies Work
Transnational companies are formal businesses that operate in more than one country. Interestingly, some transnational companies retain ties with the home country. Many others don't recognize any nation as its headquarters or base. McDonald's, the US-founded fast-food chain, with more than 34,000 restaurants in 119 countries, is an excellent example of a company that maintains ties with its home country. On the other hand, Nestle represents the latter model of a transnational company.
Many transnational companies separate their production operations between several locations and different divisions. These comprise Research and Development, Sales, Assembly, Production, Administration, and Head Office. Indeed, most transnational companies are continentally or globally separated.
While some transnational companies register their head office in the country of origin, others prefer a low tax location. For example, a transnational company may choose to have its Research and Development department in a country with many highly-skilled engineers or scientists or those with world-class universities. The transnational company branch plant or manufacturing department may-likely-be located in a country where it's possible to produce a reliable product without putting its long-term or continuity prospects in jeopardy.
Real-World Examples of Transnational Companies
Decades ago, the world's largest transnational companies comprised energy companies and banks. Interestingly, tech companies today dominate the topmost transnational companies.
For example, Microsoft is a 42-year-old world-famous company with its headquarters in the US. The company employs over 114,000 workers. Microsoft ranks as Apple's most famous competitor. Steve Jobs developed the first Apple computer in a garage. Today, Apple has an estimated net worth of about $605 billion. Some describe it as the world's most valuable company. The company's headquarters is in the US. Apple is about 41 years old and employs 66,000.
Nestle, the Swiss food giant, is another leading transnational company. The company has 91% of its total assets, 98% of sales, and 97% of its workforce as foreign-based, according to the 1998 UNCTAD report.
Significance of Transnational Companies
Transnational companies have a unique ability to respond positively to the local markets' dynamics and demand wherever they have a presence. It doesn't matter their location globally; these companies typically demonstrate remarkable flexibility when dealing with emerging situations.
Further, transnational companies are well-placed to produce custom products. They provide various strategically distributed services across the target audiences. By venturing to establish facilities in multiple locations, such businesses can always take advantage of favorable tax regimes and lower labor costs to boost the world economy.
Also, most transnational companies invest heavily in development and research that improves people's lives. Some of these transnational companies provide services free of charge to boost their company goodwill. Many of these enterprises are renowned for charitable efforts to improve lives. For example, Johnson and Johnson recently donated millions of dollars in efforts to formulate a vaccine for the deadly Ebola virus.