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What is a multinational company?
A multinational company (MNC) is a business that operates in multiple countries, extending its activities beyond its home nation. These companies have a significant global presence and impact on international trade.
For example, the majority of products imported into the United States are made by MNC’s (National Bureau of Economic Research). This includes everyday items like clothing, electronics, and vehicles. Additionally, more than a quarter of American workers are employed by one (U.S. Bureau of Economic Analysis).
Naturally, all the biggest and most valuable companies in the world are multinationals.
Market capitalisation, often referred to as a market cap, is a key indicator of a company’s size in the financial world. It represents the total value of all outstanding shares of a company’s stock. This includes both the shares that are publicly traded on stock exchanges and those that are restricted, like the shares held by company executives and insiders. it’s a good gauge to compare the sizes of different companies in financial terms.
What multinationals are UK-owned?
You might have heard of the FTSE 100 before, it’s full name the Financial Times Stock Exchange 100 Index but primarily known as the “footsie” 100. The FTSE 100 is an index consisting of the shares of the 100 biggest companies by market capitalisation on the London Stock Exchange (LSE). Click the link if you are interested in knowing a bit more:
Where are UK businesses looking to expand?
The HSBC surveyed 1,362 businesses in 2022 and 2023 as part of their ‘Going Global for Growth’ reports, which revealed the ambitions of UK businesses to expand internationally.
Of businesses already trading internally, 87% planned to expand their global operations in 2024, with a third of these firms aiming for significant growth - a 2% increase from 2022’s ambitions.
The target areas for these UK businesses surveyed are:
UK businesses are showing increased interest in global expansion, with Europe remaining the top choice for international growth, showing a 7% rise in 2023 compared to 2022.
Also, more firms are targeting North America, with a 9% increase in focus on the US and Canada.
China has seen the most significant uptick in interest, with an 11% increase.
Why are UK businesses expanding abroad?
You should now be starting to get familiar with these reasons after our globalisation chapter.
Market Opportunities and Growth Potential:
- By expanding abroad, companies can access new markets and increase their market share
- A report by the HSBC shows growing interest from UK companies in Europe, the US, Canada, China, and ASEAN countries
- Expansion allows firms to overcome the limitations of the domestic market (like market and size constraints) and achieve growth that might not be possible within the UK alone
- Additionally, locating closer to these markets can reduce transportation costs and improves responsiveness to local customer needs
Economics Benefits and Risk Mitigation:
- International expansion is seen as beneficial for both individual businesses and the overall UK economy, as it allows companies to diversify their revenue sources
- This reduces dependency on the domestic market and helps mitigate the risk associated with economic fluctuations in any single country
Cost Advantages and Economies of Scale:
- Many UK companies look abroad to benefit from lower costs of production, such as cheaper labour, rent, and land in certain countries
- By expanding operations abroad, businesses can also achieve economies of scale, spreading fixed costs over a larger production volume
- Furthermore, some countries offer sympathetic tax regimes, such as lower corporation tax rates, which can significantly reduce a company’s overall tax burden
Increased Competition:
- International trade can lead to increased competitiveness, as companies are forced to improve product quality and efficiency to succeed in global markets
- The HSBC report shows that 28% of companies are actively working to improve product quality in 2023, up 13% from 2022, in response to global competition
✈️ A Scottish Multinational - Skyscanner
Did you know Skyscanner was formed by 3 Scottish businessmen and is headquartered in Edinburgh?
It was founded in Edinburgh in 2003, and now has offices across Europe, Asia-Pacific and North America. Since it’s founding, the company now has hubs in Barcelona, London, Miami, Singapore, Tokyo, Shenzhen and Glasgow and around 1,500 employees. Their service also operates in over 30 languages and 70 currencies, making it a truly global business.
By expanding into different regions it allows Skyscanner to better understand and serve local markets. It also creates greater opportunities and business relationships with partnerships between Skyscanner and other travel companies.
Some of their current partners are:
- Turkish Airlines
- Emirates
- British Airways
- Booking.com
- Expedia
- Trip.com
They’re service is committed to putting travellers first, improve sustainability in collaboration with partners and prioritise accessibility for everyone.
🇬🇧 Why do foreign multinationals locate in the UK?
Business Friendly Environment:
- UK offers a streamlined process for setting up businesses, with company registration possible within 24 hours
- It has a well-respected legal system based on English law, providing certainty and familiarity for international businesses
- All trade done in English
- The UK also offers various tax incentives and reliefs
- The current corporation tax rate is 25%, the lowest in the G7
- UK offers attractive venture capital schemes to help small and medium enterprises grow
- generous incentives for companies investing in research and development
Strategic Location:
- The UK’s geographical position and time zones make it ideal for global business operations
- It’s reasonably straightforward to have a call with New Zealand, Australia and the US on a reasonable time-zone
- It’s possible to connect with Asia and the America’s in either the morning or afternoon
Talent:
- The UK has one of Europe’s largest and most diverse labour forces
- The UK workforce is more qualified than any major economy in Europe and ranks in the top 10 globally (Department for Business and Trade)
- It also has lower labour costs than Italy, France or Germany
Market Access:
- Despite Brexit, the UK maintains close ties with EU neighbours
- TCA agreement allows for zero tariffs and quotas on all qualifying goods trade between the UK and EU
- The UK market gives access to a mature, high-spending consumer market of over 60 million people
Infrastructure:
- UK has Europe’s largest air transport system, advanced road and rail networks, and numerous seaports
- With the country’s transition to sustainable energy, the UK is home to the world’s largest offshore windfarm
- The UK is now the most attractive clean energy investment market in Europe and is projected to become the dominant area for investment in the UK in the near future
- Shift is largely attributed to the government’s ambitious targets for wind and nuclear power expansion
Innovation:
- The UK has established itself as a preferred location for major global corporations to set up their European headquarters
- Google, Facebook, Amazon and Coco-Cola
- The UK has a robust entrepreneurial system, seen with the launch of approximately 590,000 new businesses in 2017 alone (Department for Business and Trade)
- The UK is home to four of the world’s top ten universities attracting businesses to the expertise available in these academic and research facilities
🏴 More specifically, why operate in Scotland?
Now there’s also a lot of specific reasons why Scotland is an attractive place to set up operations for multinationals.
Let’s have a look at some of these reasons:
Cost Effective:
- Scotland offers lower operating costs compared to many other European cities, with expenses up to 40% less than London
- Lower property costs, competitive labour costs and lower cost of living
Skilled and educated workforce:
- Scotland boasts a highly skilled workforce, with over 50% of the working population having further education qualifications (Scottish Development International)
- Four Scottish Universities make the top 250 in the world rankings according to the 2024 Times Higher Education World University Rankings
Innovation:
- Scotland excels in diverse fields from thermal imaging to renewable energy such as offshore wind
- Since 2011, the Universities of Edinburgh, Glasgow and Strathclyde have consistently appeared in the UK top 10 for the total number of spinouts created
- Spinouts are private companies created by one or more academics or research staff with the aim of commercialising research carried out at the university
Strategic location:
- Same with the rest of the UK, Scotland geographical location provides a strategic time zone advantage for global business communications
- The country is well equipped with air routes, road and rail networks and ports
- Scotland provides a familiar English speaking environment with close ties to the EU
Infrastructure:
- Over £20 billion invested in transport links including roads, rail, airports, and seaports
- Scotland’s commitment to a net-zero economy by 2045 is driving further investments in green technologies and sustainable infrastructure
Quality of Life:
- Scotland boasts a rich cultural heritage, natural landscapes and vibrant cities
- Lower living costs compared to many other European cities
- Progressive approach to flexible working and emphasis on work life balance aligns well with corporate values