It’s perhaps the very nature of a multinational to continually grow whether naturally or as a result of planned expansion. A multinational’s activities can have significant effects on areas and markets in general.
For example, a multinational setting up a new operation into a new area – or moving an existing part of its business to a new location – can have a big effect on the local economy.
This usually translates into the creation of new jobs and thus more localized wealth.
A multinational moving into a new market can change the order of things. With their financial muscle they can often capture a significant market share especially if they buy into an organization already in that marketplace.
Entering new but related markets
A multinational can enter a new market in usually one of two ways:
- Develop a product or service and market it whether in a related field or a completely different one
- Buy a business already in the desired marketplace
Naturally, developing a new product means the multinational will grow. If all goes well, revenues increase and the organization physically grows in terms of perhaps building new facilities and employing more staff.
If the multinational enters a new market through acquiring an existing business operating in that particular market, then obviously their ownership of the new acquisition’s infrastructure and production contributes to growth.
A classic example is a car manufacturer entering a new car segment. They’ll likely set up new production facilities, create more jobs and generate more revenue once sales of the new model start.
The alternative is for the car manufacturer to buy out an existing manufacturer who produces cars not in their present product offering or marketplace. A good example of this is a manufacturer such as Volkswagen taking over Bentley or when Ford owned Aston Martin.
Diversification
It’s a common move for multinationals to diversify either to continue growth when certain core activities have plateaued.
Another reason to diversify is simply to move into new areas. Maybe the multinational’s basic infrastructure and skill sets suit a certain business type, or it’s simply been identified as a high growth area with the promise of increased revenues and perhaps high profits.
If the market is totally unrelated to the multinational’s core business – a car manufacturer moving into a specialism such as contact center recording as part of customer interaction monitoring activities as an extreme example – it’s simpler to take over an existing expert in that field. It’s far easier than trying to do it themselves.
A good example is companies like Microsoft buying certain specialist software vendors such as anti-virus developers rather than starting from scratch themselves.
Licensing and franchising
A classic business model that gives the parent company growth and moves them into new international territories. Fast food companies like McDonald’s and Burger King are a case in point.
A need to grow
Similar to a shark needing to keep moving to stay alive, multinationals need to keep finding ways of growing and diversifying. Business models change as does the market, so the need to grow and diversify is ever-present.
