Business Dimensions, Multinational Corporations, and SMEs: A Comprehensive Overview

Posted on Oct 29, 2024 in Economy

Company Location and Size

1.4 Location and Size of Business

When establishing a company, two key questions arise: location and size. Location depends on several variables:

• Market demand
• Sourcing of raw materials (ease and cost)
• Labor market (availability of skilled workers)
• Transportation and communication (accessibility)
• Supply of utilities (electricity, water, gas, etc.)
• Cost of land and building or leasing
• Legislation and regulations
• Regional economic development and financing

These variables affect commercial and industrial enterprises differently. For commercial companies, the most important variables are market demand, supplies, regional economic development, and good communication. For industrial companies, the most important variables are raw materials sourcing, production costs, labor market, good communication infrastructure, and specialized supplies. Consequently, commercial enterprises are typically located in city centers or shopping areas, while industrial companies are usually situated in suburbs or industrial zones.

A company’s dimension refers to its productive or sales capacity, determined by the market, the number of employees, and technology. Companies aim for an optimal size that meets market demand. Throughout their lifespan, companies tend to increase their productive capacity through:

• Internal growth: Increasing production capacity through new investments (e.g., machinery).
• External growth: Increasing production capacity through acquisitions or cooperation with other companies.

Internationalization and Multinational Corporations

2.1 Employee Training and Social Responsibility

2.1.3 Environmental Training

Train employees on environmental aspects related to manufacturing. The SA 8000 standard measures social responsibility, outlining key criteria:

1. No child labor
2. Healthy and safe working environment
3. No discrimination based on race, sex, or religion
4. Maximum 48 working hours per week
5. Compensation compliant with regulations
6. Respect for the environment

By meeting these criteria, companies reduce social costs and demonstrate good business practices.

2.2 Internationalization Strategies

When the domestic market is saturated, companies can expand internationally through:

• Internationalization: Conducting operations in international markets (exporting).
• Relocation: Moving production activities from a developed country to a developing country.
• Creating multinationals: Establishing firms operating in multiple countries, consisting of a parent company and subsidiaries.

1.5 Multinational Corporations

Multinational corporations operate in multiple countries, comprising a parent company in the home country and subsidiaries elsewhere. Their emergence is driven by:

1. Company growth
2. The need for new markets beyond the domestic market
3. Globalization, unifying tastes and preferences across countries, facilitated by improved transport and communication

Key features of multinationals:

1. Large size and continuous growth
2. Market resilience through offsetting profits and losses between subsidiaries
3. Significant economic and social power
4. Decentralized organizational systems
5. Substantial investment in R&D and utilization of advanced technology

1.6 Small and Medium-Sized Enterprises (SMEs)

SMEs are defined as companies with fewer than 250 employees and annual sales under €10 million.

SMEs represent 90% of Spanish companies, playing a crucial role in job creation. Their characteristics include:

1. Few employees and low turnover
2. Limited business training
3. Low financial capacity
4. Limited staff training and use of basic technology

Despite these challenges, SMEs thrive globally due to:

1. Specialization in niche markets overlooked by large corporations
2. Close customer relationships
3. Strong staff integration and collaboration between employees and management
4. Adaptability and quick decision-making due to fewer management levels and rapid information flow