Multinational Corporation
Essay Preview: Multinational Corporation
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multinational corporation
Company or enterprise operating in several countries, usually defined as one that has 25% or more of its output capacity located outside its country of origin.
The worlds four largest multinationals in 2000, were Exxon Mobil, Wal-Mart Stores, General Motors, and Ford Motor – their joint revenues were more than the combined gross national product of all African countries. 22 multinationals made more than $6 billion profit in 2000, and Exxon Mobil made $17.7 billion profit, a 124% increase over the previous year. The value of mergers and acquisitions in 2000 was estimated at $3.2 trillion, the most notable being Pfizer with Warner-Lambert in a $116 billion deal, and Glaxo Wellcomes purchase of SmithKline Beecham for $76 billion (to create GlaxoSmithKline).
Multinationals are seen in some quarters as posing a threat to individual national sovereignty, and as using undue influence to secure favourable operating conditions. In 1992, it was estimated that the worlds 500 largest companies controlled at least 70% of world trade, 80% of foreign investment, and 30% of global GDP. The 100 largest had assets of $3,400 billion, of which 40% were located outside their home countries. Unsuccessful efforts were made in 1992, through the UN, to negotiate a voluntary code of conduct for multinationals, but governments and corporations alike were hostile to the idea. In June 2000, the Organization for Economic Cooperation and Development (OECD) issued guidelines for multinational enterprises. The guidelines, drawn up with the aid of non-governmental organizations (NGOs) and trade unions, aimed to promote better relationships between multinational companies and the societies within which they worked; similar guidelines introduced in 1976 had proved ineffective. The OECD also called on multinationals to respect human rights and work to eliminate child labour.
In Europe, Daimler-Chrysler (Germany), Royal Dutch-Shell (Netherlands-UK), and BP (UK) were the top performing companies. In May 2001, BP reported profits of Ј2.86 billion in the first quarter of the year, a sum estimated to be enough to give almost 50p to everyone in the world.
[edit] Market Withdrawal
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 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.
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.
Effects of mncs investments
While critics of globalization view the foreign ventures of multinational corporations as damaging exports, jobs, and wages at home and abroad, an exhaustive review of research into the effects of “foreign direct investment” credits multinationals with being far more beneficial than detrimental — for both their “home” and “host” countries. In Home and Host Country Effects of FDI (NBER Working Paper No. 9293), NBER Research Associate Robert Lipsey asserts that there is little evidence that multinationals are guilty of the “many evils that are alleged.”
Lipseys study reviews economic research that has delved into various aspects of what happens when companies based in one country decide to expand their operations to a foreign country. Specifically, Lipsey is interested in whether foreign investments by multinational firms do what opponents of globalization claim they do: that is, lead to unemployment and reduced exports in the companys home country while depressing wages and exploiting workers in the host country.
Lipseys analysis suggests that, if anything, both home and host countries would be worse off in a world without globe trotting multinationals. For example, examining the critique that a companys foreign operations inevitably will hurt domestic jobs and wages, Lipsey notes that among those who have studied the situation, such fears have “mostly dissipated.”
Lipsey does not deny that problems, such as job losses at home, can occur when a domestic company invests in foreign production facility. But he notes that critics of globalization often fail to consider the broader picture. For example, in the United States, while there has been considerable attention to jobs lost because of a domestic firm shifting production abroad, less attention has been paid to how this may be offset by foreign