Multinational corporation

A multinational corporation or worldwide enterprise^[1] is a corporate organization that owns or controls production of goods or services in two or more countries other than their home country.^[2]

Names

A multinational corporation can also be referred to as an multinational enterprise (MNE), an international corporation, a transnational corporation, or a stateless corporation.^[3] There are subtle but real differences between these three labels, as well as those labels of multinational corporation and a worldwide enterprise.

Overview

Toyota is one of the world's largest multinational corporations with their headquarters in Toyota City, Japan.

A multinational corporation (MNC) is usually a large corporation incorporated in one country which produces or sells goods or services in various countries.^[4] The two main characteristics of MNCs are their large size and the fact that their worldwide activities are centrally controlled by the parent companies.^[5]

• Importing and exporting goods and services
• Making significant investments in a foreign country
• Buying and selling licenses in foreign markets
• Engaging in contract manufacturing—permitting a local manufacturer in a foreign country to produce their products
• Opening manufacturing facilities or assembly operations in foreign countries

MNCs may gain from their global presence in a variety of ways. First of all, MNCs can benefit from the economy of scale by spreading R&D expenditures and advertising costs over their global sales, pooling global purchasing power over suppliers, and utilizing their technological and managerial know-how globally with minimal additional costs. Furthermore, MNCs can use their global presence to take advantage of underpriced labor services available in certain developing countries, and gain access to special R&D capabilities residing in advanced foreign countries.^[6]

The problem of moral and legal constraints upon the behavior of multinational corporations, given that they are effectively "stateless" actors, is one of several urgent global socioeconomic problems that emerged during the late twentieth century.^[7]

Potentially the best concept for analyzing society's governance limitations over modern corporations is the concept of "stateless corporations". Coined at least as early as 1990 in Business Week, the conception was theoretically clarified in 1992: that an empirical strategy for defining a stateless corporation is with analytical tools at the intersection between demographic analysis and transportation research. This intersection is known as logistics management, and it describes the importance of rapidly increasing global mobility of resources. In a long history of analysis of multinational corporations we are some quarter century into an era of stateless corporations - corporations which meet the realities of the needs to source materials on a worldwide basis and to produce and customize products for individual countries.^[8]

One of the first multinational business organizations, the East India Company, arose in 1600.^[9] After the East India Company, came the Dutch East India Company, founded March 20, 1602, which would become the largest company in the world for nearly 200 years.^[10]

The main characteristics of multinational companies are:

• In general, there is a national strength of large companies as the main body, through the way of foreign direct investment or acquire local enterprises, established subsidiaries or branches in many countries;
• It usually has a complete decision-making system and the highest decision-making center, each subsidiary or branch has its own decision-making body, according to their different features and operating to make decisions, but its decision must be subordinated to the highest decision-making center;
• MNCs seek markets in worldwide and rational production layout, professional fixed-point production, fixed-point sales products, in order to achieve maximum profit;
• Due to strong economic and technical strength, with fast information transmission, as well as funding rapid cross-border transfer, multinational companies have, so it has stronger competitiveness in the world;
• Many large multinational companies have varying degrees of monopoly in some area, due to economic and technical strength or production advantages.

Theoretical background

The actions of multinational corporations are strongly supported by economic liberalism and free market system in a globalized international society. According to the economic realist view, individuals act in rational ways to maximize their self-interest and therefore, when individuals act rationally, markets are created and they function best in free market system where there is little government interference. As a result, international wealth is maximized with free exchange of goods and services.^[11]

To many economic liberals, multinational corporations are the vanguard of the liberal order.^[12] They are the embodiment par excellence of the liberal ideal of an interdependent world economy. They have taken the integration of national economies beyond trade and money to the internationalization of production. For the first time in history, production, marketing, and investment are being organized on a global scale rather than in terms of isolated national economies.^[13]

International business is also a specialist field of academic research. Economic theories of the multinational corporation include internalization theory and the eclectic paradigm. The latter is also known as the OLI framework.

The other theoretical dimension of the role of multinational corporations concerns the relationship between the globalization of economic engagement and the culture of national and local responses. This has a history of self-conscious cultural management going back at least to the 1960s. For example:

Transnational corporations

A transnational corporation differs from a traditional multinational corporation in that it does not identify itself with one national home. While traditional multinational corporations are national companies with foreign subsidiaries,^[15] transnational corporations spread out their operations in many countries to sustain high levels of local responsiveness.^[16]

An example of a transnational corporation is Nestlé who employ senior executives from many countries and tries to make decisions from a global perspective rather than from one centralized headquarters.^[17]

Another example is Royal Dutch Shell, whose headquarters are in The Hague, Netherlands, but whose registered office and main executive body are headquartered in London, United Kingdom.

Multinational enterprise

The multinational enterprise (MNE) is the term used by international economist and similarly defined with the multinational corporation (MNC) as an enterprise that controls and manages production establishments, known as plants located in at least two countries.^[18] The multinational enterprise (MNE) will engage in foreign direct investment (FDI) as the firm makes direct investments in host country plants for equity ownership and managerial control to avoid some transaction costs.^[19]

A few examples of MNEs are Apple Inc. and Nike Inc. who maximize economies of scale through foreign direct investments in international plants to manufacture value chain stages of production.

Multinational corporation and colonialism

The history of multinational corporations is closely intertwined the history of colonialism, with the first multinational corporations founded to undertake colonial expeditions at the behest of their European monarchical patrons.^[20] Prior to the era of New Imperialism, a majority European colonies not held by the Spanish and Portuguese crowns were administered by chartered multinational corporations.^[21] Examples of such corporations include the British East India Company,^[22] the Swedish Africa Company, and the Hudson’s Bay Company.^[23] These early corporations facilitated colonialism by engaging in international trade and exploration, and creating colonial trading posts.^[24] Many of these corporations, such as the South Australia Company and the Virginia Company, played a direct role in formal colonization by creating and maintaining settler colonies.^[24] Without exception these early corporations created differential economic outcomes between their home country and their colonies via a process of exploiting colonial resources and labour, and investing the resultant profits and net gain in the home country.^[25] The end result of this process was the enrichment of the colonizer and the impoverishment of the colonized.^[26] Some multinational corporations, such as the Royal African Company, were also responsible for the logistical component of the Atlantic slave trade,^[27] maintaining the ships and ports required for this vast enterprise. During the 19th century formal corporate rule over colonial holdings largely gave way to state-controlled colonies,^[28][29] however corporate control over colonial economic affairs persisted in a majority of colonies.^[24][28]

During the process of decolonization the European colonial charter companies were disbanded,^[24] with the final colonial corporation, the Mozambique Company, dissolving in 1972. However the economic impact of corporate colonial exploitation has proved to be lasting and far reaching,^[30] with some commentators asserting that this impact is among the chief causes of contemporary global income inequality.^[26]

Contemporary critics of multinational corporations have charged that some present day multinational corporations follow the pattern of exploitation and differential wealth distribution established by the now defunct colonial charter corporations, particularly with regards to corporations based in the developed world that operate resource extraction enterprises in the developing world,^[31] such as Royal Dutch Shell, and Barrick Gold. Some of these critics argue that the operations of multinational corporations in the developing world take place within the broader context of neocolonialism.^[32]

However, multinational corporations from emerging markets are playing an ever-greater role, increasingly impacting the global economy.^[33]

Criticism of multinationals

Anti-corporate advocates criticize multinational corporations for entering countries that have low human rights or environmental standards.^[34] In the world economy facilitated by multinational corporations, capital will increasingly be able to play workers, communities, and nations off against one another as they demand tax, regulation and wage concessions while threatening to move. In other words, increased mobility of multinational corporations benefit capital while workers and communities lose. Some negative outcomes generated by multinational corporations include increased inequality, unemployment, and wage stagnation.^[35]

The aggressive use of tax avoidance schemes allows multinational corporations to gain competitive advantages over small and medium-sized enterprises.^[36] Organizations such as the Tax Justice Network criticize governments for allowing multinational organizations to escape tax since less money can be spent for public services.^[37]

The 5 Cons of Multinational Corporations

1. The Market Dominance of Multinational Corporations - The market dominance of multinational corporations makes it hard for the local small firms to succeed and thrive. For instance, there are arguments stating that the larger supermarkets squeeze out a notable margin of the local corner stores that lead to lesser diversity.

2. Consumer’s Expenses - Companies are usually interested at the consumer’s expense. The multinational companies commonly have the power of monopoly that gives them the chance of making excess profit.

3. Pushing Local Firms Out Of Business - In the developing economies, these giant multinationals use the economies of scale for pushing the local firms out of their businesses.

4. Criticized For Using "Slave Labor" - Multinational corporations are being criticized for using the so-called slave labor wherein the workers are paid with very small wages.

5. Environment Threat - For the sake of profit, these global companies commonly contribute to pollution as well as make use of the non-renewable resources that can be a threat to the environment.

See also

• Corporation
• Economic liberalism
• Free market
• Globalization
• Global workforce
• List of multinational corporations
• World economy

References

External links

• Data on transnational corporations
• UNCTAD publications on multinational corporations