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Topics: International economics, Investment, Corporation Pages: 8 (6900 words) Published: September 28, 2014
Multinational Corporations
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Multinational Corporations
The multinational corporation is a business organization whose activities are located in more than two countries and is the organizational form that defines
foreign direct investment. This form consists of a
country location where the firm is incorporated and of
the establishment of branches or subsidiaries in foreign
countries. Multinational companies can, obviously,
vary in the extent of their multinational activities in
terms of the number of countries in which they operate.
A large multinational corporation can operate in 100
countries, with hundreds of thousands of employees
located outside its home country.
The economic definition emphasizes the ability of
owners and their managerial agents in one country to
control the operations in foreign countries. There is a
frequent confusion that equates the ability to control
with the flow of capital across national borders. Since
Hymer’s thesis (1976), it is recognized widely that
capital flow is not the distinguishing characteristic of a
multinational corporation (see International Business).
Capital can flow from one country to another in
expectation of higher rates of return. However, this
flow may be invested in the form of bonds, or in equity
amounts too insignificant to grant control to foreign
owners. In this case, this type of investment is treated
as a ‘portfolio’ investment. The central aspect of
‘direct investment’ is the ownership claim by a party
located in one country on the operations of a foreign
firm or subsidiary in another. The multinational
corporation is, thus, the product of foreign direct
investment that is defined as the effective control of
operations in a country by foreign owners.

The economic definition, however, does not capture
the importance of the multinational corporation as the
organizational mechanism by which different social
and economic systems confront each other. The
multinational corporation, because usually it develops
in the cultural and social context of one nation, exports
its organizational baggage from one institutional
setting to another. In this regard, it plays a powerful
role as a mechanism by which to transfer organizational knowledge across borders. However, while being foreign implies that it might serve the valuable
role of importing new practices, its foreign status also
implies that its practices are likely to conflict with
existing institutions and cultural norms. Moreover,
since multinational corporations are often large, they
pose unusual challenges to national and regional
governments who seek to maintain political autonomy
and yet are often anxious to seek the investment,
technology, and managerial skills of foreign firms.
There are, thus, economic and sociological definitions of the multinational corporation that differ, and yet complement, each other. In the economic definition, the multinational corporation is...

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