A Multinational Organization is Defined as a Business That

Corporation operating in multiple countries

A
multinational visitor
(MNC)^[a]
[1]
is a corporate organisation that owns and controls the production of goods or services in at to the lowest degree ane land other than its abode state.^[2]
[three]
Command is considered an important attribute of an MNC, to distinguish it from international portfolio investment organizations, such as some international mutual funds that invest in corporations abroad only to diversify fiscal risks. Blackness’s Law Lexicon suggests that a company or group should be considered a multinational corporation if information technology derives 25% or more of its revenue from out-of-home-country operations.^[iv]
A multinational corporation tin also exist referred to equally a
multinational enterprise
(MNE), a
transnational enterprise
(TNE), a
transnational corporation
(TNC), an
international corporation, or a
stateless corporation.^[5]
There are subtle but real differences between these terms.

Most of the largest and well-nigh influential companies of the mod age are publicly traded multinational corporations, including
Forbes Global 2000
companies. Multinational corporations are subject area to some controversy for lacking upstanding standards. They have besides become associated with tax and base erosion and profit-shifting tax avoidance activities.

History

[edit]

Colonialism

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The history of multinational corporations began with the history of colonialism. The showtime multinational corporations were founded to build fix colonial “factories” or port cities.^[6]
In improver to carrying on merchandise betwixt the mother country and the colonies, the British Eastward India Visitor became a quasi-authorities in its own right, with local government officials and its own army in India .^[7]
[viii]
The ii main examples were the British East India Company, and the Dutch East Republic of india Company (VOC). Others included the Swedish Africa Visitor, and the Hudson’southward Bay Company.^[9]
These early corporations engaged in international trade and exploration, and prepare trading posts.^[x]

The Dutch regime took over the VOC in 1799 and during the 19th century, other governments increasingly took over the individual companies, most notable in British India.^[11]
During the process of decolonization, the European colonial charter companies were disbanded, with the last colonial corporation, the Mozambique Visitor, dissolving in 1972.^[ten]

Mining

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Mining of gold, silver, copper, and peculiarly oil were major activities early and remains so today. International mining companies became prominent in Great britain in the 19th century, such as the Rio Tinto company founded in 1873, which started with the purchase of sulfur and copper mines from the Spanish government. Rio Tinto, now based in London and Melbourne Australia, has made many acquisitions and expanded globally to mine aluminum, iron ore, copper, uranium, and diamonds.^[12]
European mines in South Africa began opening in the belatedly 19th century, producing golden and other minerals for the world market place, jobs for locals, and business concern and profits for companies.^[13]
Cecil Rhodes (1853–1902) was one of the few businessmen in the era who became Prime Minister (of South Africa 1890-1896 ). His mining enterprises included the British South Africa Company and De Beers. The latter visitor practically controlled the global diamond marketplace from his base in southern Africa.^[fourteen]

Oil

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The “Seven Sisters” was a common term for the 7 multinational companies which dominated the global petroleum industry from the mid-1940s to the mid-1970s.^[15]

• Anglo-Iranian Oil Company (originally Anglo-Persian; now BP)
• Purple Dutch Shell
• Standard Oil Visitor of California (SoCal, afterwards Chevron)
• Gulf Oil (now merged into Chevron)
• Texaco (now merged into Chevron)
• Standard Oil Visitor of New Jersey (Esso, after Exxon, now role of ExxonMobil)
• Standard Oil Company of New York (Socony, later Mobil, now part of ExxonMobil)

Preceding the 1973 oil crisis, the Seven Sisters controlled around 85 pct of the world’due south petroleum reserves. In the 1970s most countries with large reserves nationalized their reserves that had been endemic by major oil companies. Since and so, manufacture dominance has shifted to the OPEC cartel and land-owned oil and gas companies, such as Saudi Aramco, Gazprom (Russia), China National Petroleum Corporation, National Iranian Oil Visitor, PDVSA (Venezuela), Petrobras (Brazil), and Petronas (Malaysia).^[16]
By 2012 simply 7% of the earth’s known oil reserves were in countries that immune private international companies complimentary rein. Fully 65% were in the hands of state-owned companies that operated in ane country and sold oil to multinationals such as BP, Beat, ExxonMobil and Chevron.^[17]

Manufacturing

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Downwardly through the 1930s virtually 4/5 of the international investments by the multinational corporations was full-bodied in the primary sector, specially mining (specially oil) and agriculture (safety, tobacco, carbohydrate, palm oil, java, cocoa, tropical fruits). Almost went to the Third World colonies. That inverse dramatically later on 1945 every bit the investors turn to industrialized countries, and invested in manufacturing (especially high-tech electronics, chemicals, drugs and vehicles) as well as trade.^[18]

Sweden’s leading manufacturing concern was SKF, a leading maker of bearings for machinery. In order to aggrandize its international business, it decided in 1966 information technology needed to use the English language linguistic communication. Senior officials, although more often than not still Swedish, all learned English in all major internal documents were in English, the lingua franca of multinational corporations.^[xix]

Unilever

[edit]

A prominent multinational manufacturer is Unilever, a consumer goods visitor headquartered in London. Its products include many foods, equally well as vitamins, supplements, tea, coffee, cleaning agents, water and air purifiers, pet food, and cosmetics. Unilever is the largest producer of soap in the world.^[twenty]
Unilever’s products are sold in 190 countries.^[21]

Unilever owns over 400 brands, with a turnover in 2020 of 51 billion euros.
^[22]
The company is organised into three main divisions: Foods and Refreshments; Home Care; and Beauty & Personal Care. It has research and evolution facilities in China, India, the Netherlands, the United kingdom, and the U.s.a..^[23]

Unilever was founded in 1929 by the merger of a Dutch margarine producer Margarine Unie and the British soap maker Lever Brothers. Later on 1950, information technology increasingly diversified its products and expanded its operations worldwide. Its numerous acquisitions included Lipton (1971), Brooke Bail (1984), Chesebrough-Ponds (1987), Best Foods (2000), Ben & Jerry’s (2000), Alberto-Culver (2010), Dollar Shave Gild (2016) and Pukka Herbs (2017).

Current condition

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A multinational corporation (MNC) is usually a large corporation incorporated in ane land which produces or sells goods or services in diverse countries.^[24]
Two common characteristics shared by MNCs are their big size and centrally controlled worldwide activities.^[25]

• Importing and exporting goods and services
• Making significant investments in a foreign land
• Ownership and selling licenses in foreign markets
• Engaging in contract manufacturing — permitting a local manufacturer in a strange land to produce its products
• Opening manufacturing facilities or associates operations in foreign countries

MNCs may gain from their global presence in a variety of ways. Outset of all, MNCs can do good from the economy of scale by spreading R&D expenditures and advertising costs over their global sales, pooling global purchasing power over suppliers, and utilizing their technological and managerial experience globally with minimal additional costs. Furthermore, MNCs can use their global presence to take advantage of underpriced labor services available in certain developing countries, and gain access to special R&D capabilities residing in advanced strange countries.^[26]

The trouble of moral and legal constraints upon the behavior of multinational corporations, given that they are effectively “stateless” actors, is one of several urgent global socioeconomic problems that has emerged during the late twentieth century.^[27]

Potentially, the best concept for analyzing society’s governance limitations over modern corporations is the concept of “stateless corporations”. Coined at least as early as 1991 in
Business Week, the conception was theoretically clarified in 1993: that an empirical strategy for defining a stateless corporation is with analytical tools at the intersection between demographic analysis and transportation research. This intersection is known as logistics management, and information technology describes the importance of rapidly increasing global mobility of resource. In a long history of analysis of multinational corporations, we are some quarter-century into an era of stateless corporations – corporations that encounter the realities of the needs of source materials on a worldwide basis and to produce and customize products for individual countries.^[28]

One of the get-go multinational business organizations, the East India Company, was established in 1601.^[29]
After the East India Visitor, came the Dutch Due east India Company, founded on March 20, 1603, which would go the largest visitor in the globe for nearly 200 years.^[thirty]

The main characteristics of multinational companies are:

• In general, in that location is a national forcefulness of large companies as the main body, in the way of strange directly investment or acquiring local enterprises, established subsidiaries or branches in many countries;
• It unremarkably has a complete controlling system and the highest determination-making centre, each subsidiary or co-operative has its ain decision-making body, according to its different features and operations to brand decisions, just its decision must be subordinated to the highest controlling centre;
• MNCs seek markets in worldwide and rational production layout, professional person fixed-point production, and stock-still-point sales products, in lodge to accomplish maximum profit;
• Due to strong economic and technical forcefulness, with fast information transmission, besides every bit funding for rapid cantankerous-border transfers, the multinational has stronger competitiveness in the world;
• Many big multinational companies have varying degrees of monopoly in some area, due to economic and technical forcefulness or production advantages.

Foreign direct investment

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When a corporation invests in a land which it is not domiciled, it is called foreign direct investment (FDI).^[31]
Countries may place restrictions on directly investment; for example, People’s republic of china has historically required partnerships with local firms or special approval for certain types of investments by foreigners,^[32]
although some of these restrictions were eased in 2019.^[33]
Similarly, the United States Committee on Foreign Investment in the United States scrutinizes strange investments.

In addition, corporations may be prohibited from various business transactions past international sanctions or domestic laws. For example, Chinese domestic corporations or citizens take limitations on their ability to brand foreign investments outside of China, in part to reduce capital outflow.^[34]
Countries tin can impose extraterritorial sanctions on strange corporations fifty-fifty for doing business with other foreign corporations, which occurred in 2019 with the United States sanctions against Islamic republic of iran; European companies faced with the possibility of losing access to the US market by trading with Iran.^[35]

International investment agreements also facilitate directly investment betwixt two countries, such as the North American Costless Trade Agreement and most favored nation condition.

Legal home

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Raymond Vernon reported in 1977 that of the largest multinationals focused on manufacturing, 250 were headquartered in the United States, 115 in Western Europe, seventy in Japan, and 20 in the rest of the world. The multinationals in banking numbered 20 headquartered in the United States, thirteen in Europe, nine in Nippon and iii in Canada.^[36]
Today multinationals can select from a variety of jurisdictions for various subsidiaries, but the ultimate parent visitor tin can select a single legal habitation;
The Economist
suggests that kingdom of the netherlands has go a popular selection, as its company laws have fewer requirements for meetings, compensation, and audit committees,^[37]
and Corking Uk had advantages due to laws on withholding dividends and a double-taxation treaty with the United states.^[37]

Corporations can legally engage in tax avoidance through their choice of jurisdiction, but must exist careful to avoid illegal tax evasion.

Stateless or transnational

[edit]

Corporations that are broadly agile across the globe without a concentration in 1 surface area have been chosen stateless or “transnational” (although “transnational corporation” is also used synonymously with “multinational corporation”^[38]), but every bit of 1992, a corporation must be legally domiciled in a particular land and engage in other countries through foreign direct investment and the creation of strange subsidiaries.<sup>[39]

: 115</sup>

Geographic diversification tin be measured across diverse domains, including ownership and command, workforce, sales, and regulation and taxation.^[39]

Regulation and tax

[edit]

Multinational corporations may exist bailiwick to the laws and regulations of both their domicile and the additional jurisdictions where they are engaged in business.^[xl]
In some cases, the jurisdiction can aid to avert burdensome laws, only regulatory statutes often target the “enterprise” with statutory language around “command”.^[40]

equally of 1992^[update], the The states and most OECD countries take the legal authorization to tax a domiciled parent corporation on its worldwide acquirement, including subsidiaries;<sup>[39]

: 117</sup>

as of 2019^[update], the United states of america applies its corporate tax “extraterritorially”,^[41]
which has motivated tax inversions to modify the home state. By 2019, nigh OECD nations, with the notable exception of the Usa, had moved to territorial tax in which only acquirement within the border was taxed; even so, these nations typically scrutinize foreign income with controlled foreign corporation (CFC) rules to avoid base erosion and turn a profit shifting.^[41]

In practice, even nether an extraterritorial system taxes may be deferred until remittance, with possible repatriation tax holidays, and field of study to foreign tax credits.<sup>[39]

: 117</sup>

Countries by and large cannot revenue enhancement the worldwide revenue of a strange subsidiary, and taxation is complicated by transfer pricing arrangements with parent corporations.<sup>[39]

: 117</sup>

Alternatives and arrangements

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For small corporations, registering a foreign subsidiary can be expensive and circuitous, involving fees, signatures, and forms;^[42]
a professional employer organization (PEO) is sometimes advertised as a cheaper and simpler alternative,^[42]
only not all jurisdictions have laws accepting these types of arrangements.^[43]

Dispute resolution and arbitration

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Disputes betwixt corporations in dissimilar nations is oftentimes handled through international mediation.

Theoretical background

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The actions of multinational corporations are strongly supported by economic liberalism and free market system in a globalized international society. Co-ordinate to the economic realist view, individuals human activity in rational ways to maximize their self-interest and therefore, when individuals act rationally, markets are created and they function best in a free market place system where there is lilliputian authorities interference. As a result, international wealth is maximized with free substitution of goods and services.^[44]

To many economic liberals, multinational corporations are the vanguard of the liberal order.^[45]
They are the embodiment par excellence of the liberal ideal of an interdependent globe economy. They accept taken the integration of national economies across trade and money to the internationalization of product. For the first time in history, production, marketing, and investment are existence organized on a global scale rather than in terms of isolated national economies.^[46]

International business is also a specialist field of bookish research. Economic theories of the multinational corporation include internalization theory and the eclectic epitome. The latter is also known as the OLI framework.

The other theoretical dimension of the role of multinational corporations concerns the relationship between the globalization of economic date and the civilization of national and local responses. This has a history of self-conscious cultural management going dorsum at least to the 60s. For example:

Ernest Dichter, architect, of Exxon’s international entrada, writing in the Harvard Business Review in 1963, was fully aware that the means to overcoming cultural resistance depended on an “agreement” of the countries in which a corporation operated. He observed that companies with “foresight to capitalize on international opportunities” must recognize that “cultural anthropology will exist an of import tool for competitive marketing”. However, the projected event of this was non the absorption of international firms into national cultures, but the creation of a “world customer”. The idea of a global corporate village entailed the management and reconstitution of parochial attachments to i’s nation. It involved not a denial of the naturalness of national attachments, but an internationalization of the way a nation defines itself.^[47]

Multinational enterprise

[edit]

“Multinational enterprise” (MNE) is the term used by international economist and similarly defined with the multinational corporation (MNC) as an enterprise that controls and manages production establishments, known every bit plants located in at to the lowest degree two countries.^[48]
The multinational enterprise (MNE) will engage in foreign direct investment (FDI) as the firm makes direct investments in host state plants for equity ownership and managerial control to avert some transaction costs.^[49]

Criticism

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Sanjaya Lall in 1974 proposed a spectrum of scholarly analysis of multinational corporations, from the political right to the left. He put the business organisation school how-to-do-it writers at the extreme right, followed by the liberal laissez-faire economists, and the neoliberals (they remain correct of center but do allow for occasional mistakes of the marketplace such as externalities). Moving to the left side of the line are nationalists, who prioritize national interests over corporate profits, then the “dependencia” school in Latin America that focuses on the evils of imperialism, and on the far left the Marxists. The range is so wide that scholarly consensus is hard to discern.^[50]

Anti-corporate advocates criticize multinational corporations for being without a footing in a national ethos, being ultimate without a specific nationhood, and that this lack of an ethos appears in their ways of operating as they enter into contracts with countries that have low man rights or environmental standards.^[51]
In the world economic system facilitated by multinational corporations, capital will increasingly be able to play workers, communities, and nations off against 1 another every bit they demand tax, regulation and wage concessions while threatening to movement. In other words, increased mobility of multinational corporations benefits capital while workers and communities lose. Some negative outcomes generated past multinational corporations include increased inequality, unemployment, and wage stagnation.^[52]
For the debate from a neo-liberal perspective see Raymond Vernon,
Tempest over the Multinationals
(1977).</ref>

The aggressive use of tax avoidance schemes, and multinational revenue enhancement havens, allows multinational corporations to gain competitive advantages over small and medium-sized enterprises.^[53]
Organizations such as the Revenue enhancement Justice Network criticize governments for allowing multinational organizations to escape tax, particularly by using base erosion and turn a profit shifting (BEPS) revenue enhancement tools, since less money tin be spent for public services.^[54]

See likewise

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• Globalization
• Global workforce
• List of multinational corporations
• Transnational Corporations Observatory
• World economy
• Multinational tax oasis

Notes

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References

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Further reading

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• Cameron, Rondo, V. I. Bovykin, et al. eds.
  International banking, 1870-1914
  (1991)
• Chandler, Alfred D. and Bruce Mazlish, eds.
  Leviathans: Multinational Corporations and the New Global History
  (2005). online

• Chandler, Alfred D. et al. eds.
  Large Business organization and the Wealth of Nations
  (Cambridge University Press, 1999) extract
• Chernow, Ron.
  The Firm of Morgan: An American Banking Dynasty and the Rise of Modern Finance
  (2010) excerpt
• Davenport-Hines, R. P. T., and Geoffrey Jones, eds.
  British Business in Asia since 1860
  (2003) excerpt
• Dunning. John H. and Sarianna Chiliad. Lundan.
  Multinational Enterprises and the Global Economy
  (2nd ed. 2008), major textbook 1993 edition online

• Habib-Mintz, Nazia. “Multinational corporations’ part in improving labour standards in developing countries.”
  Periodical of International Business and Economy
  ten.2 (2009): ane-20. online
  ^{[
  expressionless link
  ]}
  
• Chase, Michael H. “Americans in the China Market: Economic Opportunities and Economic Nationalism, 1890s-1931.”
  Business History Review
  51.3 (1977): 277–307. online

• Jones, Geoffrey.
  Multinationals and Global Capitalism: From the Nineteenth to the 20-showtime Century
  (2005)
• Jones, Geoffrey.
  Merchants to multinationals : British trading companies in the nineteenth and twentieth centuries
  (2000) online
• Jones, Geoffrey, and Jonathan Zeitlin, eds.
  The Oxford Handbook of Business History
  (2008)
• Jones, Geoffrey, et al.
  The History of the British Bank of the Middle East: Vol. 2, Banking and Oil
  (1987)
• Jones, Geoffrey.
  The Evolution of International Business organization
  (1995) online
• Lumby, Anthony. “Economic history and theories of the multinational corporation.”
  South African journal of economical history
  iii.2 (1988): 104–124.
• Martin, Lisa, ed.
  The Oxford Handbook of the Political Economy of International Trade
  (2015) excerpt

• Munjal, Surender, Pawan Budhwar, and Vijay Pereira. “A perspective on multinational enterprise’s national identity dilemma.”
  Social Identities
  24.5 (2018): 548–563. online
• Stopford, John K. “The origins of British-based multinational manufacturing enterprises.”
  Business History Review
  48.3 (1974): 303–335.
• Tugendhat, Christopher.
  The multinationals
  (Penguin, 1973) online.
• Vernon, Raymond.
  Storm over the Multinationals: The Real Issues
  (Harvard Upwards, 1977). online
• Wells, Louis T.
  Third globe multinationals: The rise of foreign investments from developing countries
  (MIT Press, 1983) on companies based in 3rd World
• Wilkins, Mira. “The history of multinational enterprise.” in
  The Oxford handbook of international concern
  vol 2 (2009). online
• Wilkins, Mira.
  The Emergence of Multinational Enterprise: American Business organisation Away from the Colonial Era to 1914
  (1970)
  • Wilkins, Mira.
    Maturing of Multinational Enterprise : American Concern Abroad from 1914 to 1970
    (1974)
• Wilkins, Mira.
  American business organisation away: Ford on half-dozen continents
  (1964) online

Corporate histories

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• Ciafone, Amanda.
  Counter-Cola: A Multinational History of the Global Corporation
  (U of California Printing, 2019) on Coca-Cola.
• Fritz, Martin and Karlsson, Birgit.
  SKF: A Global Story, 1907-2007
  (2006). ISBN 978-91-7736-576-i
• Scheiber, Harry Northward. “Earth War I as Entrepreneurial Opportunity: Willard Straight and the American International Corporation.”
  Political Science Quarterly
  84.3 (1969): 486–511. online

Historiography

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• Hernes, Helga.
  The Multinational Corporation: A Guide to Information Sources
  (Gale, 1977). online

External links

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• Data on transnational corporations
• UNCTAD publications on multinational corporations