There are few types of companies when a person wishes to incorporate one. Two such companies are multinational and transnational. Both these companies are operated worldwide.
Some scholars say that multinational and transnational companies are very similar to each other and that they can be used in place of each other. But this is not fully true since they do have some differences in them.
Multinational vs Transnational
The main difference between multinational and transnational is that the management system in a multinational company is always centralized, which makes the functional working smoother when it comes to communicating with each other, and on the other hand, the management system in a transnational company does not always follow a centralized management system.
In the word multinational, multi means many, and national means state. So initially, it means many states. This defines that the companies which handle their business in more than one country at the same time are known as multinational companies. Multinational companies usually have a working which has full liberty to carry its business having no barriers to entry or exit in the market.
In a transnational company, there is one company which starts its business with one name, and then this company would also get expanded in other countries but, they do not have any main company which would keep a track and hold of it. This means that when a new company is started in any country would have to operate as a brand new company.
Comparison Table Between Multinational and Transnational
| Parameters of Comparison | Multinational | Transnational |
| Home company | In a Multinational company, there exists a main company. | In a transnational company, there is no existence of any kind of main company. |
| Management | There is a centralized system of management that is followed in a multinational company. | There is no centralized system of management that is followed in a transnational company. |
| Barriers | In Multinational companies, they may undergo some barrier, when it comes to decisions to be made for their company. | In transnational companies, they are free to make decisions as per their needs of the operating company. |
| Subsidiary companies | A multinational company has many subsidiary companies under it. | A transnational company does not have any subsidiary company under it. |
| Working | In a multinational company, the working is carried out for all the companies as a whole. | In a transnational company, the working is carried out for that specific operating country only. |
What is Multinational?
In the word multinational, multi means many, and national means state. So initially, it means many states. This defines that the companies which handle their business in more than one country at the same time are known as multinational companies. Multinational companies usually have a working which has full liberty to carry its business having no barriers to entry or exit in the market.
A company becomes a multinational company when it Incorporates its businesses in any one country and later expands its company in many other countries. This forms a national territory in the world of that specific company. Though this type of company spreads throughout the world, this type of company will always have a centralized management system.
Having a management system that is centralized means that all the important decisions regarding the functioning of all the companies under that name are taken by the main company. All the other companies act as a subsidiary company of the main company. All these types of companies carry out imports and export in foreign markets.
What is Transnational?
In a transportation company, there is one company which starts its business with one name, and then this company would also get expanded I’m other countries but, they do not have any main company which would keep a track and hold of it. This means that when a new company is started in any country would have to operate as a brand new company.
These type of companies do not have a management system which is in a centralized form. Therefore they act as all different companies, and the decisions taken regarding the functioning of every transnational company are taken according to the objective of that specific company and not all the companies as a whole.
It is also often observed that the company operated under a transnational company isn’t loyal when it comes to maintaining and carrying the same type and amount of budget as the main company. This happens as they do not have any string attached to the company of that other country.
Main Differences Between Multinational and Transnational
- In a Multinational company, there exists the main company, and on the other hand, in a transnational company, there is no existence of any kind of main company.
- There is a centralized system of management that is followed in a multinational company, and on the other hand, there is no centralized system of management that is followed in a transnational company.
- In Multinational companies, they may undergo some barrier when it comes to decisions to be made for their company, and on the other hand, in transnational companies, they are free to make decisions as per their needs of the operating company.
- A multinational company has many subsidiary companies under it, and on the other hand, and a transnational company does not have any subsidiary company under it.
- In a multinational company, the working is carried out for all the companies as a whole, and on the other hand, in a transnational company, the working is carried out for that specific operating country only.
Conclusion
Both multinational as well transnational companies operate all over the world, having foreign investors. The only difference is that one has a centralized system of management and the other videos not. One has a barrier in making decisions regarding its enterprise, and the other does not.
For one to make their company have a national-level reach, they need to understand the concept of a multinational as well as a transnational company and manage their functioning as per that. Multinational companies are more loyal as a whole as compared to transnational companies when it comes to working together. It is essential fr one to know the differences between them.
References
- https://heinonline.org/hol-cgi-bin/get_pdf.cgi?handle=hein.journals/colhr37§ion=13
- https://www.jstor.org/stable/1339838