Multinational firms usually arise when the capital is more mobile for the firm than the labour and raw material that it is able to collect in its established country. This is the starting point for a firm’s evolution as the firm will start looking for subsidiaries in other nations. The firm then evolves to an initial export stage where they export products or services using assembly operations set up in other nations. Then the firm goes through another stage of expansion where the production will be set up in the foreign country. Licensing off products to other businesses in foreign nations and direct investments are the next step and a company that finally traverses theses stages so as to have foreign sales that are 25% or more than that of its total sales will then be in operating in a fully multinational context. The company by this time will be co-coordinating planning and organization of production, marketing, R&D, financing, and staffing. This paper will discuss four reasons behind why firms become multinational enterprises.
The body of the paper is structured into five sections; four of the section is the four reasons behind why firms become multinational enterprises. The fifth section is a discussion that draws in all four and discusses them in a comparative setting.