Multinational Corporations

Topics: Multinational corporation, Corporation, International economics Pages: 10 (2487 words) Published: December 10, 2008

• Multinational entities have played a role in international trade for several centuries. • Multinational operations can be traced back several centuries to the British and Dutch trading companies. • After the above declined, the European overseas investments, mainly in the extractive industries dominated international trade. • The phenomenon as it is known today is the result of the lead taken by U.S. based companies in the post World War II period. Western European and Japanese firms followed later. • By 1995 the total number of multinationals exceeded 37,000 with 206,000 affiliates around the world. They are engaged in activities ranging from extractive to manufacturing and they account for a significant share of the world's output.


Different terms abound for the multinational corporation. The most common of such terms are as follows:

• Global corporation
• World transnational corporation
• International corporation
• Supernational corporation
• Supranational corporation
• Multinationalcorporation
• The term enterprise is often substituted for "corporation" to refer to internationally involved entities that may not be using a corporate form. • Similarly, the multinational corporation has been defined in many different ways. • The United Nations has defined it as an enterprise which owns or controls production or service facilities outside the country in which it is based.

• Although the definition is inclined more towards the economist understanding, it captures the quantitative and qualitative dimensions of many of the other definitions. Quantitatively, the following minimal criteria have been proposed: • The number of countries of operation is typically two, although the Harvard multinational enterprise project required subsidiaries in six or more nations. • The proportion of overall revenue generated from foreign operations is usually proposed to be 25 to 30 percent, although here again there is no general agreement.

• The degree of involvement in foreign markets has to be substantial enough to make a difference in decision making.

Another study proposed that several nations should be owners of the corporation. • In spite of the above quantitative criteria, production abroad does not necessarily indicate a multinational corporation.

• Qualitatively, the behavior of the firm is the determining factor. If the firm is to be categorized as a multinational corporation, its management must consider it to be multinational and must act accordingly.

Firms can be categorized as follows:
• Ethnocentric firms are those that are home-market oriented. • Polycentric firms are those that are oriented towards individual foreign markets. • Regiocentric or geocentric firms are those that are oriented toward larger areas, such as, the global market place.

If production abroad were the sole criterion, then even ethnocentric firms would qualify as multinational corporations. • The term, multi-national corporation should be reserved for firms that view their domestic operation as part of worldwide or regionwide operations and which direct an integrated business system. • The definition excludes polycentric firms, which may be comparable to holding companies. • Both quantitative and qualitative criteria are important in defining a multinational corporation. • Regardless of the definition, the key criteria are that the firm controls its production facilities abroad and manages them (and its domestic operations) in an integrated fashion in pursuit of global opportunities.

The following factors have frequently been cited by firms as their major reasons for engaging in foreign direct investment: Marketing Factors:
1. Size of market.
2. Market growth.
3. Desire to maintain share of market.
4. Desire to advance...
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