A multinational corporation may be defined company that operates in more than one country. According to the United Commission, Multinational Corporations or Global Corporation is a corporation, which operates in addition to the addition in which; it is incorporated, in one or more other, countries. Such a corporation owns and controls, business in two or more countries.
In the words of W H Moreland, “Multinational Corporations or Companies are those enterprises whose management, ownership and controls are spread in more than one foreign country”.
In common usage, multinational corporations are also called global corporations and international corporations. While in general these terms may be used interchangeably, there are actually subtle differences between them. Global corporation and multinational corporation represent two extremes whereas International corporation falls somewhere between these two. In a global corporation production facilities are generally centralized. These are located in oneor two countries to get the advantage of economy of scale and cost. The products are exported from these countries to the others depending on demand. On the contrary, in a -multinational corporation, production facilities are decentralized and located in each country. Operations in each country totally Independent in organization. However; within such interdependence, there is always a need for integrating the operations of local subsidiaries with a view to achieve overall optimality for the parent company. Such optimality may be in terms of economy, monetary repatriation, surplus, growth, etc.
An international corporation shall move towards becoming a Global Corporation or Multinational Corporation depending on the relative strengths a global pull factors and regional Pull factors. When the global pull factors the international corporation shall tend to, become a global corporation. On the other hand, if regional pull factors are stronger, the corporation will become a multinational corporation.
Stages in the Development of a Multinational Corporation
Typical stages in the growth of a multinational corporation are as follows
- The domestic firm begins to export its products abroad through middlemen in the home country.
- As sales of products increase abroad, the firm begins to sell directly to an importer located abroad. The firm establishes an export department or division in the home country.
- The firm establishes a sales branch abroad to handle sale:, and promotional work in a given foreign market. The manager of the sales branch is directly responsible to the home office.
- An overseas sales subsidiary is established. It is incorporated in a foreign country and hence enjoys, greater autonomy than a sales branch.
- The firm starts production in the, foreign country through contract, manufacturing or assembly operations.
- A manufacturing facility is established abroad. Now the fain has a subsidiary abroad that, manufactures and sells the product in the foreign -market.
- The subsidiaries or operating units abroad are integrated, the parent company takes strategic, or, policy decisions, for all subsidiaries. The subsidiaries operation under capitalized planning and control.
Globalization and Growth of Multinational Corporations
Globalization via the development and spread of the MNCs through direct foreign investment is a more recent phenomenon. The earliest MNCs were mainly European firms, setting up manufacturing facilities in the colonies to extract primary resources for conversion to finished goods back home. However, by the mid-nineteenth century, many US firms began to globalize – for example, Singer Sewing Machines set up a joint venture in France in 1855, Westing House, which set up a plant in Paris in 1878, and Kodak set up a plant in London in 1889. The expansion of US firms was furthered after World War II when both European and Japanese industrial infrastructure was largely destroyed by the war. Resource transfers for rebuilding these economies through programs such as the “Marshall plan” gave US firms the ability to consolidate their position even more firmly. Japanese firms were relatively late entrants into the world of MNCs. Although they were major exporters prior to World War II, most did not begin to set up subsidiaries abroad until well into the second half of this century.
The process of globalization propelled by the MNCS as an organizational from had broken free; it had acquired a life of its own and become irreversible. In terms of its ability to move knowledge, people, capital, goods and service, and technology access borders, the process of globalization, led by MNCs, had done far beyond the reach of any national sovereign government or international agreement. To borrow a phrase from scholar of international business, Raymond Vernon, the MNCs had reached a level of maturity and influence worldwide whereby it could keep “sovereignty at bay”.
Until recently, nearly all major multinationals were either American, Japanese or Western European, such as Nike, Coca-Cola, Wal-Mart, AOL, Toshiba, Honda and BMW. Now, the emerging economies are adding home grown MNCs into the scene. With the development of a truly global economy by the 1990s, opinion with respect to the multinational corporations in home and host countries varied considerably. Multinationals have often been viewed abroad as purveyors of technology and business efficiencies and as bearers of products meeting an insatiable appetite for American goods. But a more negative image also developed. The growing competitiveness of the new world economy and a heightened emphasis on cost efficiencies, job reductions, retooling, and relocation led to complaints in home and host nations about declining market shares and lost jobs.
The transnational character of the multinationals proved irksome to the Government officials who sensed a loss of their sovereignty because of the ability of these corporations to move their operations, transactions, and profits upstream or downstream as their self-interests dictated. By the beginning of the twenty-first century more and more of the national economies were dominated by a relatively few multinational giants. Transfers of technology were another issue pitting MNCs and host and home governments against one another, as they jockeyed to maintain or gain control of technological breakthroughs for reasons of national security and profits.
Despite, the jurisdictional disputes, cultural differences, nontariff barriers to trade, international agreements among the multinational corporations, and conflicting political agendas on such matters of principle as the environment, energy, human rights, accessibility to proper medical treatment and high-cost pharmaceuticals, sweatshops, and child labor laws, MNCs are galloping their clout over the economy of the world.