MNC
The Dutch East India Company (also known by the abbreviation "VOC" in Dutch), the world's first formally listedpublic company, started off as a spice trader. The VOC is often considered by many to be the first historical model of the multinational corporation (or transnational corporation) in its modern sense.[1][2][3][4]
A multinational corporation (MNC) orworldwide enterprise[5] is a corporateorganization that owns or controls production of goods or services in at least one country other than its home country.[6]
A multinational corporation can also be referred to as a multinational enterprise(MNE), a transnational enterprise (TNE), atransnational corporation (TNC), aninternational corporation, or a stateless corporation.[7] There are subtle but real differences between these three labels, as well as multinational corporation andworldwide enterprise.
Multinational corporations are subject tocriticisms for lacking ethical standards, and that this shows up in how they evade ethical laws and leverage their own business agenda with capital, and even the military backing of their own wealthy host nation-states.
Overview
Toyota is one of the world's largest multinational corporations with their headquarters in Toyota City, Japan.
A multinational corporation (MNC) is usually a large corporation incorporated in one country which produces or sells goods or services in various countries.[8] The two main characteristics of MNCs are their large size and the fact that their worldwide activities are centrally controlled by the parent companies.[9]
- Importing and exporting goods and services
- Making significant investments in a foreign country
- Buying and selling licenses in foreign markets
- Engaging in contract manufacturing—permitting a local manufacturer in a foreign country to produce their products
- Opening manufacturing facilities or assembly operations in foreign countries
MNCs may gain from their global presence in a variety of ways. First of all, MNCs can benefit 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 know-how 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 foreign countries.[10]
The problem 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 emerged during the late twentieth century.[11]
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 1990 in Business Week, the conception was theoretically clarified in 1992: 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 it describes the importance of rapidly increasing global mobility of resources. In a long history of analysis of multinational corporations we are some quarter century into an era of stateless corporations - corporations which meet the realities of the needs of source materials on a worldwide basis and to produce and customize products for individual countries.[12]
One of the first multinational business organizations, the East India Company, arose in 1600.[13] After the East India Company, came the Dutch East India Company, founded March 20, 1602, which would become the largest company in the world for nearly 200 years.[14]
The main characteristics of multinational companies are:
- In general, there is a national strength of large companies as the main body, in the way of foreign direct investment or acquire local enterprises, established subsidiaries or branches in many countries;
- It usually has a complete decision-making system and the highest decision-making center, each subsidiary or branch has its own decision-making body, according to their different features and operations to make decisions, but its decision must be subordinated to the highest decision-making center;
- MNCs seek markets in worldwide and rational production layout, professional fixed-point production, fixed-point sales products, in order to achieve maximum profit;
- Due to strong economic and technical strength, with fast information transmission, as well as funding for rapid cross-border transfers, the multinational has stronger competitiveness in the world;
- Many large multinational companies have varying degrees of monopoly in some area, due to economic and technical strength or production advantages.
Theoretical background
The actions of multinational corporations are strongly supported by economic liberalismand free market system in a globalizedinternational society. According to the economic realist view, individuals act in rational ways to maximize their self-interest and therefore, when individuals act rationally, markets are created and they function best in free market system where there is little government interference. As a result, international wealth is maximized with free exchange of goods and services.[15]
To many economic liberals, multinational corporations are the vanguard of the liberal order.[16] They are the embodiment par excellence of the liberal ideal of an interdependent world economy. They have taken the integration of national economies beyond trade and money to the internationalization of production. For the first time in history, production, marketing, and investment are being organized on a global scale rather than in terms of isolated national economies.[17]
International business is also a specialist field of academic research. Economic theories of the multinational corporation includeinternalization theory and the eclectic paradigm. 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 engagement and the culture of national and local responses. This has a history of self-conscious cultural management going back at least to the 1960s. For example:
Transnational corporations
The United East India Company (VOC), a pioneering early model of the transnational corporation at the dawn of modern capitalism.
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17th-century etching of the Oost-Indisch Huis (Dutch for "East India House"), the global headquartersof the United East India Company(VOC) in Amsterdam.
The Fort Batavia, seen from West Kali Besar (Andries Beeckman, c. 1656). While the VOC established its overseas administrative center, as the second headquarters, inBatavia (present-day Jakarta), the company also had important operations elsewhere.
A transnational corporation differs from a traditional multinational corporation in that it does not identify itself with one national home. While traditional multinational corporations are national companies with foreign subsidiaries,[19] transnational corporations spread out their operations in many countries to sustain high levels of local responsiveness.[20]
An example of a transnational corporation isNestlé who employ senior executives from many countries and tries to make decisions from a global perspective rather than from one centralized headquarters.[21]
Another example is Royal Dutch Shell, whose headquarters are in The Hague, Netherlands, but whose registered office and main executive body are headquartered in London,United Kingdom.
Multinational enterprise
The 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 as plants located in at least two countries.[22] The multinational enterprise (MNE) will engage in foreign direct investment (FDI) as the firm makes direct investments in host country plants for equity ownership and managerial control to avoid some transaction costs.[23]
A few examples of MNEs are Apple Inc. andNike Inc. who maximize economies of scalethrough foreign direct investments in international plants to manufacture value chain stages of production.
Multinational corporation and colonialism
The history of multinational corporations is closely intertwined with the history of colonialism, the first multinational corporations being founded to undertake colonial expeditions at the behest of their European monarchical patrons.[24] Prior to the era of New Imperialism, a majority European colonies not held by the Spanish and Portuguese crowns were administered by chartered multinational corporations.[25]Examples of such corporations include theBritish East India Company,[26] the Swedish Africa Company, and the Hudson's Bay Company.[27] These early corporations facilitated colonialism by engaging ininternational trade and exploration, and creating colonial trading posts.[28] Many of these corporations, such as the South Australia Company and the Virginia Company, played a direct role in formal colonization by creating and maintaining settler colonies.[28]Without exception these early corporations created differential economic outcomes between their home country and their colonies via a process of exploiting colonial resources and labour, and investing the resultant profits and net gain in the home country.[29] The end result of this process was the enrichment of the colonizer and the impoverishment of the colonized.[30] Some multinational corporations, such as the Royal African Company, were also responsible for the logistical component of the Atlantic slave trade,[31] maintaining the ships and ports required for this vast enterprise. During the 19th century, formal corporate rule over colonial holdings largely gave way to state-controlled colonies,[32][33] however corporate control over colonial economic affairs persisted in a majority of colonies.[28][32]
During the process of decolonization, the European colonial charter companies were disbanded,[28] with the final colonial corporation, the Mozambique Company, dissolving in 1972. However the economic impact of corporate colonial exploitation has proved to be lasting and far reaching,[34] with some commentators asserting that this impact is among the chief causes of contemporary global income inequality.[30]
Contemporary critics of multinational corporations have charged that some present day multinational corporations follow the pattern of exploitation and differential wealth distribution established by the now defunct colonial charter corporations, particularly with regards to corporations based in the developed world that operate resource extraction enterprises in the developing world,[35] such as Royal Dutch Shell, andBarrick Gold. Some of these critics argue that the operations of multinational corporations in the developing world take place within the broader context of neocolonialism.[36]
However, multinational corporations from emerging markets are playing an ever-greater role, increasingly impacting the global economy.[37]
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