Multinationals

The term 'multinational' is used for a company which has subsidiaries or sales facilities throughout the world. Another expression for this type of business enterprise is 'global corporation'. Many of these giant organisations are household names such as Coca Cola, Heinz, Sony, Hitachi, IBM, and General Motors. Companies like these control vast sums of money and they operate in countries with widely differing political and economic systems.

Looking back into history, we can find two main reasons for the development of multinationals. Firstly, when companies found that their national markets had become saturated, they realized that they could only increase profits by setting up subsidiaries abroad. Secondly, if a country set up trade barriers - usually tariffs or quotas - against a company's products, then the only alternative for the company was to establish a factory or sales organization in the country concerned.

In earlier times most countries gave the multinationals a 'red carpet' welcome because they saw such foreign investment as creating much-needed employment, stimulating the business sector generally, and possibly earning foreign currency if the company's products were exported. More recently, however, the tide has turned against the multinationals. They are now viewed by many with suspicion; once heroes, they are now villains on the international business stage.

Tension between host country and multinational is inevitable in many cases because multinationals do pose a threat to national sovereignty.

The multinational is big and rich. It often operates in industries which are difficult to enter and of vital national importance, e.g. the computer, chemical and automobile industries. Most important of all, the main objective of the multinational is to organize its activities around the world so as to maximize global profits and global market shares. Each subsidiary is part of an international network of affiliates. These all interact with each other. Each part serves the whole. The centre controlling the network - the multinationals' headquarters - is not under the control of the host government. It is frequently thousands of miles away from these subsidiaries.

To illustrate this principle of interaction between affiliates, we can take the example of the Canadian company Massey Ferguson. It can make tractors in the USA for sale in Canada that contain British engines, French transmissions, and Mexican axles: all products of the company's subsidiaries. IBM is another company which is transnational in scope. A typical 360 - series computer may include components from four or five countries.

Developing countries, in particular, have become concerned about their dependence on foreign investment in key sectors of their economy. They have become aware that foreign subsidiaries often take most of their profits out of the country rather than reinvest them in the company. Sometimes, the flow of funds causes disastrous fluctuations in the exchange rates of their currencies.

Arguing against multinationals critics try to shrill tones that these organizations engaged in an anti-competitive activities insensitively shut down plants, make huge bribes to gain contracts, interfere politically, destabilize currencies, underpay their workers and so on. Those speaking for the defense see these corporations almost as international agencies promoting peace, providing better, cheaper products, and bringing much needed resources, expertise and employment to the host countries.