A multinational corporation (MNC) or multinational enterprise (MNE)[1] is a corporation enterprise that manages production or delivers services in more than one country. It can also be referred to as an international corporation. The International Labour Organization (ILO) has defined an MNC as a corporation that has its management headquarters in one country, known as the home country, and operates in several other countries, known as host countries.
Some multinational corporations are very big, with budgets that exceed some nations' gross domestic products (GDPs). Multinational corporations can have a powerful influence in local economies, and even the world economy, and play an important role in international relations and globalization.
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Multinational corporations are important factors in processes of globalization. National and local governments often compete against one another to attract MNC facilities, with the expectation of increased tax revenue, employment, and economic activity. To compete, political entities may offer MNCs incentives such as tax breaks, pledges of governmental assistance or subsidized infrastructure, or lax environmental and labor regulations. These ways of attracting foreign investment may be criticized as a race to the bottom, a push towards greater autonomy for corporations, or both.
On the other hand, economist Jagdish Bhagwati has argued that in countries with comparatively low labor costs and weak environmental and social protection, multinationals actually bring about a 'race to the top.' While multinationals will certainly see a low tax burden or low labor costs as an element of comparative advantage, Bhagwati disputes the existence of evidence suggesting that MNCs deliberately avail themselves of lax environmental regulation or poor labor standards. As Bhagwati has pointed out, MNC profits are tied to operational efficiency, which includes a high degree of standardisation. Thus, MNCs are likely to adapt production processes in many of their operations to conform to the standards of the most rigorous jurisdiction in which they operate (this tends to be either the USA, Japan, or the EU). As for labor costs, while MNCs clearly pay workers in developing countries far below levels in countries where labor productivity is high (and accordingly, will adopt more labor-intensive production processes), they also tend to pay a premium over local labor rates of 10 to 100 percent.[2] Finally, depending on the nature of the MNC, investment in any country reflects a desire for a medium- to long-term return, as establishing plant, training workers, etc., can be costly. Once established in a jurisdiction, therefore, MNCs are potentially vulnerable to arbitrary government intervention such as expropriation, sudden contract renegotiation, the arbitrary withdrawal or compulsory purchase of licenses, etc. Thus, both the negotiating power of MNCs and the 'race to the bottom' critique may be overstated, while understating the benefits (besides tax revenue) of MNCs becoming established in a jurisdiction.
Because of their size, multinationals can have a significant impact on government policy, primarily through the threat of market withdrawal.[3] For example, in an effort to reduce health care costs, some countries have tried to force pharmaceutical companies to license their patented drugs to local competitors for a very low fee, thereby artificially lowering the price. When faced with that threat, multinational pharmaceutical firms have simply withdrawn from the market, which often leads to limited availability of advanced drugs. In these cases, governments have been forced to back down from their efforts. Similar corporate and government confrontations have occurred when governments tried to force MNCs to make their intellectual property public in an effort to gain technology for local entrepreneurs. When companies are faced with the option of losing a core competitive technological advantage or withdrawing from a national market, they may choose the latter. This withdrawal often causes governments to change policy. Countries that have been the most successful in this type of confrontation with multinational corporations are large countries such as United States and Brazil, which have viable indigenous market competitors.
Many multinational corporations hold patents to prevent competitors from arising. For example, Adidas holds patents on shoe designs, Siemens A.G. holds many patents on equipment and infrastructure and Microsoft benefits from software patents.[4] The pharmaceutical companies lobby international agreements to enforce patent laws on others.
A Transnational Corporation (TNC) differs from a traditional MNC in that it does not identify itself with one national home. Whilst traditional MNCs are national companies with foreign subsidiaries,[5] TNCs spread out their operations in many countries sustaining high levels of local responsiveness.[6] An example of a TNC is Nestlé who employ senior executives from many countries and try to make decisions from a global perspective rather than from one centralised headquarters.[7] However, the terms TNC and MNC are often used interchangeably.
The rapid rise of multinational corporations has been a topic of concern among intellectuals, activists and laymen who have seen it as a threat of such basic civil rights as privacy. They have pointed out that multinationals create false needs in consumers and have had a long history of interference in the policies of sovereign nation states. Evidence supporting this belief includes invasive advertising (such as billboards, television ads, adware, spam, telemarketing, child-targeted advertising, guerrilla marketing), massive corporate campaign contributions in democratic elections, and endless global news stories about corporate corruption (Martha Stewart and Enron, for example). Anti-corporate protesters suggest that corporations answer only to shareholders, giving human rights and other issues almost no consideration.[8] Films and books critical of multinationals include Surplus: Terrorized into Being Consumers, The Corporation, The Shock Doctrine, Downsize This, Zeitgeist: The Movie and others.