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Multinational corporation

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A multinational corporation (or transnational corporation) (MNC/TNC) 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: the 'globally integrated enterprise'.

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 nor vertically nor straight, nor non-straight integrated. (example: Microsoft)

Others argue that a key feature of the multinational is the inclusion of back office functions in each of the countries in which they operate. The globally integrated enterprise, which some see as the next development in the evolution of the multinational, does away with this requirement.

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.

Tax Competition

Multinationals have played an important role in globalization. Countries and sometimes subnational regions must compete against one another for the establishment of MNC facilities, and the subsequent tax revenue, employment, and economic activity. 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.

Market Withdrawal

Because of their size, multinationals can have a significant impact on government policy, primarily through the threat of market withdrawal. 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 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 a core competitive technological advantage and withdrawing from a national market, they may choose the latter. 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.

Lobbying

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.

Government Power

In addition to efforts by multinational corporations to affect governments, there is much government action intended 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 can limit a multinational's power.

Micro-Multinationals

Enabled by Internet based communication tools, a new breed of multinational companies is growing in numbers. These multinationals start operating in different countries from the very early stages. These companies are being called micro-multinationals. What differentiates micro-multinationals from the large MNCs is the fact that they are small businesses. Some of these micro-multinationals, particularly software development companies, have been hiring employees in multiple countries from the beginning of the Internet era. But more and more micro-multinationals are actively starting to market their products and services in various countries. Internet tools like Google, Yahoo, MSN, Ebay and Amazon make it easier for the micro-multinationals to reach potential customers in other countries.

Some established companies in this category include:

See also

References

External links



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Last updated on Tuesday March 11, 2008 at 12:18:07 PDT (GMT -0700)
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