Definition: A multinational company is a business that operates in many different countries at the same time. In other words, it’s a company that has business activities in more than one country.
Today’s international markets are almost unavoidable even for smaller companies. The influx of Chinese manufacturing and less expensive Asian labor has pushed large and small companies to invest in operations and expansions overseas.
The true definition of a multinational company isn’t that it manufactures in other countries, however; the true meaning is that the business has operations in multiple countries. This can take form in many different ways besides manufacturing. Take McDonalds for example. They have almost 35,000 restaurants located in 119 countries around the world. This means that not only operate the physical restaurants, they also operate supply chains to deliver the beef and other products required to keep their locations working properly.
As you can see, operating in another country could be running a supply chain, having physical store locations or manufacturing plants, or even providing services abroad. The modern internet age has brought about the ability for individuals and companies to easily communicate and start multi-national companies easier than every before in history.
What Does Multi-National Company Mean?
With this ease of formation and establishment, there come accounting complexities and problems. One of the main complications in dealing with multinational corporations is accounting for and planning around foreign currency exchange rates. Most countries have their own form of currency that fluctuates with the market and political climate in their country. Multinational companies must keep these changes in mind when doing any type of business abroad.
Financial statement reporting is also more complex for businesses operating in multiple countries. FASB dictates the US dollar must be used for all domestic companies’ financial statements, but other countries often require IFRS statements for their markets.