Multinational corporation

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A multinational corporation (MNC) is a corporation or enterprise that manages production establishments or delivers services in at least two countries. Very large multinationals have budgets that exceed those of many countries. Multinational corporations can have a powerful influence in international relations and local economies. Multinational corporations play an important role in globalization; some argue that a new form of MNC is evolving in response to globalization—e.g. the 'globally integrated enterprise'.

1 History
2 Multinational corporate structure
3 International power
4 Examples
5 References
6 See also
7 External links

[edit] History

There is a dispute as to which was the first MNC. Some have argued that the Knights Templar, founded in 1118, became a multinational when it stumbled into banking in 1135. However, others claim that the British East India Company or the Dutch East India Company were in fact the first proper multinationals.

[edit] Multinational corporate structure

Multinational corporations can be divided into three broad groups according to the configuration of their production facilities:

Horizontally integrated multinational corporations manage production establishments located in different countries to produce the same or similar products. (example: McDonalds)
Vertically integrated multinational corporations manage production establishment in certain country/countries to produce products that serve as input to its production establishments in other country/countries. (example: Adidas)
Diversified multinational corporations manage production establishments located in different countries that are neither horizontally or vertically integrated. (example: Microsoft)

Others argue that a key feature of the multinational is the inclusion of back-office functions (e.g. supply, procurement, finance and human resources) in each of the countries in which they operate. Effectively the multinational creates a small version of itself in each country. The globally integrated enterprise, which some see as the next stage in the evolution of the multinational, does away with this requirement.

[edit] International power

Large multinational corporations can have a powerful influence in international relations, given their large economic influence in politicians' representative districts, as well as their extensive financial resources available for public relations and political lobbying.

Multinationals have played an important role in globalization. Prospective country locations for MNC production establishments, and sometimes regions within countries, must compete with each other to have MNCs locate their facilities (and subsequent tax revenue, employment, and economic activity) within a region. To compete, countries and regional political districts offer incentives to MNCs such as tax breaks, pledges of governmental assistance or improved infrastructure, or lax environmental and labor standards. This process of becoming more attractive to foreign investment can be characterized as a race to the bottom, a push towards greater freedom for corporate bodies, or both.

An innacurate claim is that out of the 100 largest economies in the world, 51 are multinational corporations.^[1] This claim is based on a miscalculation, where two numbers describing totally different things are compared: the GDP of nations to gross sales of corporations. The problem with the comparison is that GDP takes into account only the final value, whereas gross sales don't measure how much was produced outside the company. According to Swedish economist Johan Norberg, if we were to compare nations and corporations, we should be comparing GDP to goods only produced within the particular company (gross sales do not take into account goods purchased from 3rd party vendors and resold, just as GDP does not take into account imported goods). That correction would make only 37 of 100 largest economies corporations and all of them would be in bottom box: only 5 corporations would be in top 50.

Because of their size, multinationals can have a significant impact on government policy, primarily through the threat of market withdrawal.^[2] 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 pharmaceuticals firms have simply withdrawn from the market, which often leads to limited availability of advanced drugs. In those cases, governments have been forced to back down from their efforts. Similar corporate and government confrontations have occurred when governments tried to force companies to make their intellectual property public in an effort to gain technology for local entrepreneurs. When companies are faced with the option of losing their core competitive advantage (technology) and losing a national market, they may choose to withdraw from the national market. This withdrawal often causes governments to change policy. Countries that have been most successful in this type of confrontation with multinational corporations are large countries such as India and Brazil, which have viable indigenous market competitors.

Multinational corporate lobbying is directed at a range of business concerns, from tariff structures to environmental regulations. There is no unified multinational perspective on any of these issues. Companies that have invested heavily in pollution control mechanisms may lobby for very tough environmental standards in an effort to force non-compliant competitors into a weaker position. For every tariff category that one multinational wants to have reduced, there is another multinational that wants the tariff raised. Even within the U.S. auto industry, the fraction of a company's imported components will vary, so some firms favor tighter import restrictions, while others favor looser ones.

In addition to efforts by multinational corporations to affect governments, there are many actions taken by governments to affect corporate behavior. The threat of nationalization (forcing a company to sell its local assets to the government or to other local nationals) or changes in local business laws and regulations limit a multinational's power.

The mobility of capital brought by multinational corporations can create "a race to the bottom". This refers to efforts by governments to change their laws and regulations to become more corporate friendly in order to attract multinational investment. As they become more responsive to the interests of multinational corporations, there is the risk that governments can become less responsive to local constituents. Examples of this are laws that bar unionization or permit lax environmental standards. Those laws are often chosen because governments also find the corporate-friendly rules comfortable. China, for example, bars unionization in most cases, but it also bars almost every other civil society organization above the very local level that is not government controlled.