Main Difference – Multinational vs. Transnational
Both multinational and transnational are more or less similar in meaning, and some scholars use these two terms interchangeably. However, there is a small difference between multinational and transnational. Multinational, as the term suggests, operates in many countries. The main difference between multinational and transnational enterprises is that multinational enterprises have a centralized management system which cannot be seen in transnational enterprise. However, both multinational and transnational companies have foreign affiliates and operate around the world. Let us look at the difference between multinational and transnational, in detail here.
What is Multinational
Multi means many and national means the state. Many states mean that these types of companies operate in more than one country at the same time. Multinational enterprise is strongly supported by the emergence of free liberalism and free market concepts. A company may start in one country, and may spread to other foreign countries, expanding their investments. Thus, a national industry becomes a multinational company. The significance of this type of companies is that though it spreads to many other countries, there will be a centralized management system, and the main decisions will always be taken by the home company. The other foreign corporations will be subsidiaries of the home company. When we think of the business environment of a multinational company, it may engage in exporting and importing goods and services, buying and selling license in foreign markets, contract manufacturing, etc.
What is Transnational
Transnational corporations are something similar to multinational companies, but there is a small difference. Transnational corporations also operate in many countries, and there isn’t a centralized management system. These companies might start in one country, and later on they might expand to other nations as well. However, they do not have a home company to manage them and will start as a new company. So, a transnational company does not have subsidiaries. Since there isn’t a centralized management system, a transnational company may take decisions suitable to the operating context. They also may not be loyal to the operating country’s value system but only will look into their expansion of businesses, since they may have no connection with the particular country. Transnational companies are there all around the world, and they operate truly at the global level.
Difference between Multinational and Transnational
Multinational companies operate in more than one country and have a centralized management system.
Transnational companies have many companies around the world but do not have a centralized management system.
Multinational companies own a home company and its subsidiaries.
Transnational companies do not have subsidiaries but just many companies.
Since multinational companies have a centralized management system, there will be some barriers in decision making.
Transnational companies are able to gain more interest in the local markets where they maintain their own systems.