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Multinational corporation

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A Multinational corporation (MNC) or multinational enterprise (MNE)[1] is a corporation that is registered in more than one country or that has operations in more than one country. It is a large corporation which both produces and sells goods or services in various countries.[2] It can also be referred to as an international corporation. They play an important role in globalization. The first multinational company was the British East India Company, founded in 1600.[3][4] The second multinational corporation was the Dutch East India Company, founded March 20, 1602.[5]

Strategies

Corporations may make a foreign direct investment. Foreign direct investment is direct investment into one country by a company in production located in another country either by buying a company in the country or by expanding operations of an existing business in the country. [6] [7]

A subsidiary or daughter company[8] is a company that is completely or partly owned and wholly controlled by another business that owns more than half of the subsidiary's stock.[9][10]

A corporation may choose to locate in a special economic zone, which is a geographical region that has economic and other laws that are more free-market-oriented than a country's typical or national laws.

Conflict of laws

Main article: Conflict of laws

Conflict of laws is a set of procedural rules that determines which legal system and which jurisdiction's applies to a given dispute.

The term conflict of laws itself originates from situations where the ultimate outcome of a legal dispute depended upon which law applied, and the common law courts manner of resolving the conflict between those laws. In civil law, lawyers and legal scholars refer to conflict of laws as private international law. Private international law has no real connection with public international law, and is instead a feature of local law which varies from country to country.

The three branches of conflict of laws are:

  • Jurisdiction – whether the forum court has the power to resolve the dispute at hand
  • Choice of law – the law which is being applied to resolve the dispute
  • Foreign judgments – the ability to recognize and enforce a judgment from an external forum within the jurisdiction of the adjudicating forum.

Globalisation

Multinational corporations are important factors in the processes of globalisation. National and local governments often compete against one another to attract MNC facilities, with the expectation of increased tax revenue, employment, and economic activity. To compete, political powers push towards greater autonomy for corporations, or both. MNCs play an important role in developing the economies of developing countries like investing in these countries provide market to the MNC but provide employment, choice of multi goods etc.

On the other hand, economist Jagdish Bhagwati has argued that in countries with comparatively low labor costs and weak environmental and social protection, multinationals actually 'race to the top' rather than race to the bottom. While multinationals will certainly see a low tax burden or low labor costs as an element of comparative advantage, Bhagwati disputes the existence of evidence suggesting that MNCs deliberately avail themselves of lax environmental regulation or poor labor standards. As Bhagwati has pointed out, MNC profits are tied to operational efficiency, which includes a high degree of standardisation. Thus, MNCs are likely to adapt production processes in many of their operations to conform to the standards of the most rigorous jurisdiction in which they operate (this tends to be either the USA, Japan, or the EU). As for labor costs, while MNCs clearly pay workers in developing countries far below levels in countries where labor productivity is high (and accordingly, will adopt more labor-intensive production processes), they also tend to pay a premium over local labor rates of 10 to 100 percent.[11] Finally, depending on the nature of the MNC, investment in any country reflects a desire for a medium- to long-term return, as establishing plant, training workers, etc., can be costly. Once established in a jurisdiction, therefore, MNCs are potentially vulnerable to arbitrary government intervention such as expropriation, sudden contract renegotiation, the arbitrary withdrawal or compulsory purchase of licenses, etc. Thus, both the negotiating power of MNCs and the 'race to the bottom' critique may be overstated, while understating the benefits (besides tax revenue) of MNCs becoming established in a jurisdiction.

Transnational Corporations

A Transnational Corporation (TNC) differs from a traditional MNC in that it does not identify itself with one national home. While traditional MNCs are national companies with foreign subsidiaries,[12] TNCs spread out their operations in many countries sustaining high levels of local responsiveness.[13] An example of a TNC is Nestlé who employ senior executives from many countries and try to make decisions from a global perspective rather than from one centralized headquarters.[14] However, the terms TNC and MNC are often used interchangeably.

The number of transnational corporations have increased greatly from 7000 in 1970 to over 78,000 in 2006. What many people aren't aware of is that TNC's account for over half of the industrial output of the world. The names of some of the largest TNC's include Wal-mart, General Motors, Exxon-Mobil, Mitsubishi, and Siemens. However, according to data from 2005, only one of the 200 largest TNC's are based in a developing nation which happens to share a border with the United States, Mexico. This statistic, among many others, helps to illustrate the unequal distribution of TNC's. The North holds a monopoly when it comes to large corporations including TNC's and this power difference continues to create a rift between the North and South.[15]

Criticism of multinationals

Main articles: Anti-globalization and Anti-corporate activism

Anti-corporate advocates criticize multinational corporations for entering countries that have low human rights or environmental standards.[16] They claim that multinationals give rise to huge merged conglomerations that reduce competition and free enterprise, raise capital in host countries but export the profits, exploit countries for their natural resources, limit workers' wages, erode traditional cultures, and challenge national sovereignty.

See also

References

  1. ^ Pitelis, Christos (2000). The nature of the transnational firm. Routledge. p. 72. ISBN 0-415-16787-6. {{cite book}}: More than one of |pages= and |page= specified (help); Unknown parameter |coauthors= ignored (|author= suggested) (help)
  2. ^ Doob, Christopher M. (2013). Social Inequality and Social Stratification in US Society. Upper Saddle River, NJ: Pearson Education Inc.
  3. ^ http://en.wikipedia.org/wiki/East_India_Company
  4. ^ http://yaleglobal.yale.edu/about/globalinc.jsp "Globalinc. An Atlas of The Multinational Corporation" Medard Gabel & Henry Bruner, New York: The New Press , 2003. ISBN 1-56584-727-X
  5. ^ http://www.kb.nl/dossiers/voc/voc.html VOC at the National Library of the Netherlands (in Dutch)
  6. ^ Bishop, Matthew (2004). Essential Economics. London: The Economist Newspaper. pp. 102–103.
  7. ^ "Glossary of economics terms, online at The Economist".
  8. ^ [1]
  9. ^ [2]
  10. ^ [3]
  11. ^ Jagdish Bhagwati, In Defense of Globalisation. Oxford: Oxford University Press, 2004, esp. 122–195.
  12. ^ Drucker, Peter F. (1997). The Global Economy and the Nation State. Council on Foreign Relations. p. 167. {{cite book}}: More than one of |pages= and |page= specified (help)
  13. ^ Case study: The Relationship between the Structure/Strategy of Multinational Corporations and Patterns of Knowledge Sharing within them (PDF). Oxford University Press. 2009.
  14. ^ Schermerhorn, John R. (2009). Exploring Management. John Wiley and Sons. p. 387. ISBN 0-470-16964-8. {{cite book}}: More than one of |pages= and |page= specified (help)
  15. ^ ref name="Steger">Steger, Manfred B. (2009). Globalization: A Very Short Introduction. Oxford. p. 49-50. {{cite book}}: More than one of |pages= and |page= specified (help)
  16. ^ Marc 'Globalization, Power, and Survival: an Anthropological Perspective', pg 484–486. Anthropological Quarterly Vol.79, No. 3. Institute for Ethnographic Research, 2006
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