Multinational Companies. The multinational label has been attached to a growing number of

The multinational label has been attached to a growing number of

privately owned corporations over the last decades. These multinational

corporations (MNCs) have many characteristics in common. They tend

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to be quite large in terms of assets they control: they tend to wield a great

deal of social, political and economic power on a global scale; and they

tend to be the subject of controversy and criticism. One authority has de-

fined the multinational corporation as “… a number of affiliated business

establishments that function as productive enterprises in different countries

simultaneously. To have such capacity the firm must possess host-country-

based production units such as factories, mines, retail stores, insurance of-

fices, banking houses, or whatever operating facility is characteristic to its

business”.

All major industrialized countries have their own multinational com-

panies owned by shareholders in their own countries, but operating in-

ternationally. Some multinationals have major shareholders in several

other countries as well. Multinational companies often have complicat-

ed structures. There is likely to be a parent company. This is a company

with shareholders which owns other companies called subsidiaries. In

a mature MNC, capital, technology, goods and services, information,

and managerial talent flow freely from one country to another as busi-

ness conditions dictate. Profit potential rather than national boundaries

determines the multinational manager’s strategies.

Full-fledged multinationalism does not occur overnight. Instead it

is the result of an evolutionary “internationalization” process with six

identifiable stages.

Stage 1. Licensing. Companies in foreign countries are authorized to

produce and/or market a given product within a specified territory in

return for a fee.

Stage 2. Exporting. Goods are produced in one country and sold for

use or resale to one or more companies in foreign countries.

Stage 3. Local warehousing and selling. Goods that are produced in

one country are shipped to the parent company’s storage and marketing

facilities located in one or more foreign countries.

Stage 4. Local assembly and packaging. Components rather than fin-

ished products are shipped to company-owned assembly facilities in one

or more foreign countries for final assembly and sales.

Stage 5. Joint venture. A company in one country pools resources with

one or more companies in a foreign country to produce, store, transport,

and market products with resulting profits/losses shared appropriately.

Stage 6. Direct foreign investment. A company in one country produc-

es and markets products through wholly owned subsidiaries in foreign

countries.

According to traditional international management theory, each

successive stage in this internationalization process increases the parent

firm’s political and economic risks. However, many argue which stage is

more risky. But many support that direct foreign investment, or multina-

tionalism, is recommended as the way to protect the firm’s technology

and competitive knowledge advantage, because management can di-

rectly oversee and control its application.

The growth of multinationals has had both benefits and drawbacks.

On the positive side it has tied the world more closely together economi-

cally and has helped spur development in poor nations. It has also in-

creased free-market competition by providing consumers with greater

choice in the goods they may buy. Among the drawbacks, especially for

home-country firms, have been a great outflow of money for overseas

investment and a net loss of jobs to foreign workers. Some firms locate

plants abroad in regions where labor is cheaper and ship the products

back to the home country to compete with more expensive domestically

made goods.

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