Multinational companies do not need to be large, but can be small businesses that operate in several countries at the same time. Because of the variety of types of multinational companies, which differ in industry, size and other elements, not all multinational companies engage in the same business strategies. Insourcing and purchasing foreign competition are two strategies commonly used by multinational companies of all types.
Insourcing takes place when a multinational company moves a certain business practice or set of practices to another country. Instead of contracting with another company in a foreign country, as in outsourcing situations, the company keeps the business activity within the company. The company either uses an established subsidiary in another country, or sets up a subsidiary in a specific country. The other country must present certain advantages for the company to participate in these certain business practices there and not in the multinational company’s home country.
Benefits of Insourcing
Insourcing provides a variety of benefits, depending on the company, business practices and where the company locates the business practices. Some areas of the world provide less expensive labor, making the production of products such as textiles or electronic components less costly. A multinational company may locate some activities within a certain country to avoid paying tariffs or other penalties imposed on goods imported from outside of the country, or to benefit from tax incentives offered to businesses operating in the country. A company may also want to tap into the unique skill sets found in a particular area, leveraging those skills for certain business practices.
Purchasing Foreign Competition
A multinational company may not operate in all of the countries in the world, choosing instead to operate and even sell its goods and services in only certain parts of the world. This decision may be due to lack of interest in the products or services in certain areas, the company’s knowledge of market conditions and cultural forces in certain parts of the world, or the presence of competition and barriers to entry in some foreign markets. An international company may decide to purchase foreign competition to overcome some of these challenges.
Benefits of Foreign Purchases
When an international company purchases a foreign company that is a competitor, the international company benefits in several ways. One of the most obvious benefits is that the company removes a competitor from the marketplace, even if the two were not directly competing at that point in time. If the company did not previously have a presence in the country or region where the newly purchased company operates, the international company expands its sphere of influence as well. The international company also stands to learn from the business practices of the newly purchased company, including how to best conduct business in the cultures of certain parts of the world.