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Dealing with so many different cultures and with extensive field experience, I tend to apply the simplest of definitions: International business = Business transactions crossing national borders at any stage of the transaction. But then very often other questions crop up.
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1. The economic system of exchanging good and services, conducted between individuals and businesses in multiple countries. 2. The specific entities, such as multinational corporations (MNCs) and international business companies (IBCs), which engage in business between multiple countries. International business is a term used to collectively describe all commercial transactions (private and governmental, sales, investments, logistics,and transportation) that take place between two or more nations. Usually, private companies undertake such transactions for profit; governments undertake them for profit and for political reasons. It refers to all those business activities which involves cross border transactions of goods, services, resources between two or more nations. Transaction of economic resources include capital, skills, people etc. for international production of physical goods and services such as finance, banking, insurance, construction etc. A multinational enterprise (MNE) is a company that has a worldwide approach to markets and production or one with operations in more than a country. An MNE is often called multinational corporation (MNC) or transnational company (TNC). Well known MNCs include fast food companies such as McDonald's and Yum Brands, vehicle manufacturers such as General Motors, Ford Motor Company and Toyota, consumer electronics companies like Samsung, LG and Sony, and energy companies such as ExxonMobil, Shell and BP. Most of the largest corporations operate in multiple national markets. Areas of study within this topic include differences in legal systems, political systems, economic policy, language, accounting standards, labor standards, living standards, environmental standards, local culture, corporate culture, foreign exchange market, tariffs, import and export regulations, trade agreements, climate, education and many
more topics. Each of these factors requires significant changes in how individual business units operate from one country to the next. The conduct of international operations depends on companies' objectives and the means with which they carry them out. The operations affect and are affected by the physical and societal factors and the competitive environment. Operations
Objectives: sales expansion, resource acquisition, risk minimization
Modes: importing and exporting, tourism and transportation, licensing and franchising, turnkey operations, management contracts, direct investment and portfolio investments. Functions: marketing, global manufacturing and supply chain management, accounting, finance, human resources Overlaying alternatives: choice of countries, organization and control mechanisms
Physical and societal factors
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Political policies and legal practices Cultural factors Economic forces Geographical influences
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Major advantage in price, marketing, innovation, or other factors. Number and comparative capabilities of competitors Competitive differences by country
There has been growth in globalization in recent decades due to the following eight factors:
• • • • • • • •
Technology is expanding, especially in transportation and communications. Governments are removing international business restrictions. Institutions provide services to ease the conduct of international business. Consumers know about and want foreign goods and services. Competition has become more global. Political relationships have improved among some major economic powers. Countries cooperate more on transnational issues. Cross-national cooperation and agreements.
Studying international business is important because:
o Become involved with the international business self-regulation movement. 6. o Seize opportunities when they arise. Maintain high ethical standards o Strong ethics translate into good business. o Forge ethical strategic partnerships. o Read the fine print.• • • • • Most companies are either international or compete with international companies. Take advantage of trade agreements: think outside the border o Familiarize yourself with preference programs and trade agreements. An understanding helps you decide what governmental policies to support. o Participate in trade-government partnerships. Managers in international business must understand social science disciplines and how they affect all functional business fields. All global business is personal . o You must be vigilant in enforcing your IP rights. An understanding helps you make better career decisions. o You must be vigilant in protecting your intellectual property both at home and abroad. o Do your research now. o Appoint a leader. 5. o Memorialize your company's code of ethics and compliance practices in writing. o Address your particular circumstances. the managing partner of Sandler. PA. o Participate in the process. Travis & Rosenberg. o Make the most of new security measures. uses the Six Tenets when giving advice on how to globalize one's business. The best way of conducting business may differ by country. Protect your brand at all costs o You and your brand are inseparable. Tom Travis. o Understand corporate accountability laws. o Develop compliance protocols for import and export operations. The Six Tenets are as follows: 1. o Keep your personnel secure. o Secure your data. Modes of operation may differ from those used domestically. 4. 2. Expect the Unexpected o The unexpected will happen. o Protect your worldwide reputation by strict adherence to labor and human rights standards. and international trade and customs consultant. Stay secure in an insecure world o Security requires transparency throughout the supply chain. 3.
Heavily leverages the Internet for expansion. Some multinational corporations are very big. . Many people wear several hats. The first modern multinational corporation is generally thought to be the Dutch East India Company. MULTINATIONAL ENTERPRISE A multinational corporation (MNC) or transnational corporation (TNC). Keep communications open. Multinational corporations can have a powerful influence in local economies. branches or manufacturing plants in different countries from where their original and main headquarters is located. also called multinational enterprise (MNE). Resources are limited. known as host countries. and play an important role in international relations and globalization. Most of the people in the company are stake holders instead of employees on salary. 3. 8. Uses resources very efficiently. People are scattered around the globe. Financing available for growth is not sufficient. 9. Usually can be categorized as a small business. is a corporation or an enterprise that manages production or delivers services in more than one country. 12. Nowadays many corporations have offices. 1. Adopts the new technologies very quickly. Operates in several countries. 4. Mostly managed by entrepreneurs with extensive technical backgrounds. 5. known as the home country.o o o o o o Go to the source. and even the world economy. Normally a small group of people runs it. Keep the home office operational. 6. Relate to offshore associates on a personal level. 11. Fly the flag at your overseas locations. The presence of such powerful players in the world economy is reason for much controversy. Be available to overseas clients and customers 24/7. 7. 10. and operates in several other countries. The International Labour Organization (ILO) has defined an MNC as a corporation that has its management headquarters in one country. with budgets that exceed some national GDPs. 2. It can also be referred as an international corporation. following are the characteristics of a Micro Multinational Company. Characteristics As I see it.
Routine daily tasks are outsourced to countries with low cost technical labor. These include such bodies as Eurochemic and Eurofima. although they do not have profit as the main aim. 1. there has been considerable interest in ' multinational ' or ' transnational ' business enterprises and corporations. In practice however the non-governmental organizations accepted into consultative status with the United Nations have all been non-profit organizations. Tables separate. [Version française abregée]. 1968. Yearly combined budget of the growth and management tools is only a fraction of the annual sales. Multinational Business Enterprises: A New Category of International Organizations -/Report orginally published in Yearbook of International Organizations. pp 1189-1214 with the detailed report. nevertheless operate in order to facilitate profit maximization by their members. in previous editions. Most of these are in the commercial section of the Yearbook classified list. 14. Studies of the definition and classification of international organizations have stressed the need to include as a separate category the largely ignored group of international profit- . 12th ed. restricted their attention to non-profit international organizations. including the survey data on which this article is based. The distinction between governmental and non-governmental organizations as defined by the Economic and Social Council of the United Nations. 1968-69. Articles dealing with the characteristics and business polices of world enterprises have however been appearing in the Harvard Business Review and other American publications since the beginning of the 1950s. Also published in International Associations. does not differentiate between profit and non-profit international non-govern.13. Since the 1966-1967 edition of the Yearbook and particularly during the first six months of 1968.mental organizations. Nearly all intergovernmental organizations are non-profit but the few exceptions have been included in previous editions of the Yearbook to ensure that all intergovernmental organizations were listed. whether governmental or non-governmental. There are many non-governmental organizations which. The report included a list of 600 multinational business enterprises. pp 1-11 Introduction The editors of the Yearbook of International Organizations have.
to fulfil its role in the economic development of countries in which it is active. commercial or service . Little attention has been given to economically less important profit organizations which might in fact be more ' international '. namely that corporations and corporate structures bear many if not most of the characteristics of any or all other kinds of organizations. There has been a tendency to restrict attention to very large multi. the main interest in this ' new ' category has come from the field of international economics and business administration. The purpose of the Committee is to undertake a study in depth of the increasing influence of the multinational corporation and to establish recommendations for governments and business circles. Industrial Corporations ' (' Fortune '. Criteria have been discussed but only isolated examples of organizations fulfilling them have been cited. This approximates the decision-making problem experienced in government agencies. It is hoped in this way to aid the multinational corporation. Dr Sidney Rolfe. This interest has been stimulated by the estimate that within the next decade 75 % of the world's productive capacity will be controlled by a small group of 300 multinational corporations. whether they are industrial. The published studies have not yet produced criteria which could be used to evaluate any business enterprise in order to establish a list of multinational corporations. In addition it has been argued that as corporations recognize the effects of their policies on the well-being of society. The study is specifically concerned with manufacturing organizations listed in ' The 500 Largest U.national manufacturing organizations because of their considerable economic importance. 1934 and 1965) with manufacturing subsidiaries in 6 foreign countries. which is important for their survival. These would then constitute a third major group of organizations on the international scene. The Committee will formulate its conclusions on the basis of a report by American economist. of whatever country of origin. The International Chamber of Commerce has recently created a ' Special Committee on the Transnational Corporation ' of which the first meeting was held on March 16th. Apart from a few isolated studies on the classification of international organizations in general.making organizations. This has led to the suggestion that these organizations can become an instrument of great utility for the general progress of human welfare — a progress founded on the profit motive as the basis of a free market economy.S. 1968. It must be pointed out that the decision to add profit-making organizations to the list of international organizations in this Yearbook implied a fundamental assumption which has in fact been borne out by research in the United States on organizations in general. their decisions are governed less by straight-forward profit maximization and more by objectives which combine long-term profits with improvement in the general social welfare. together with international governmental and nongovernmental. non-profit organizations. A comprehensive study of the importance of the multinational corporation has been in progress at the Harvard Graduate School of Business for some years under Prof Raymond Vernon.
undertake to supply management. third countries. or the home country. Subsidiary: a foreign firm established under national law of the country. There are. establish a factory in the country in which it is selling or plans to sell and produce for sale in third countries and also in the home country. technical know-how. depending on the market with which it deals. sell its patents. leaving the further distribution of the goods to them. A company can.enterprises. criteria of ' multinationaly ' have to be developed which are sufficiently general to be applied to all types and sizes of profit corporation. has undertaken to explore another aspect of this question. for a foreign manufacturing enterprise which it does not own or in which it has only a minority interest. engineering. • • . A summary of the methods by which a national manufacturing organization could operate internationally illustrates the problem of definition. Definition of ' Multinational ' There is a graduation from organizations undertaking international trade to international business enterprises. These operational differences are complicated by the forms which the relationship between the parent and the daughter companies can take under differing national legislations with different degrees of financial commitment on the part of the parent company. at a fee. whose capital stock is 50 % or more controlled by the parent company. As an aid to the general debate on this ' new ' category of organizations and to test a few available criteria. advertising and employment firms. in the same way as is done for intergovernmental and international non-profit non-governmental organizations. combine any of the above methods. The UAI after consultation with the International Chamber of Commerce. In order to do this. • market and distribute the goods to their final users in the foreign country. contact with foreign producers to purchase from them goods which the company distributes whether in the country of production. In which case it may make arrangements with local distributors or establish a distribution network of its own. The UAI is primarily interested in making available as soon as possible details on all multinational corporations as international bodies. and/or trademarks to a company in a foreign country or license their use for a term of years in exchange for periodic royalty payments. according to Roy Blough : • • • • • • solicit purchases by foreign buyers in one or more countries and ship to them in wholesale lots. it was decided to include in 12th edition of the Yearbook a preliminary list of possible candidates for consideration as multinational corporations. for example. international accounting. Examples are : Branch office : a foreign local office of the parent company having no independent or corporate status.
affiliate will be used as a general term to describe all daughter and associated companies. In the course of the lengthy discussions on a European corporation a number of criteria have been suggested. their activities must include research and development. The definition of a multinational corporation Is made more difficult since there is no international corporate law. the company must operate in a great number of countries at different stages of economic development. Another set of criteria has been proposed by Jacques Maisonrouge. financial control of at least one corporation in a country other than the parent country. Efforts have been made within the European Economic Community since 1960 to establish a legal basis for a European corporation.e. A multinational corporation is not a legal entity. It has been proposed that only the larger corporations in the Common Market with a ' European outlook ' should be allowed to take on this new form. the subsidiaries must preferably be managed by nationals so that men of various nationalities can be trained for top jobs particularly at headquarters. To avoid these somewhat arbitrary distinctions. sales and service).tion as one with any of the following characteristics : branches in at least one country other than the parent country. It has been suggested that the existence of European corporations would lead to the standardization of corporate legislation and become the instrument of effective long-term economic integration. Another suggestion is that a minimum capital should be fixed [possibly $250. stocks of the company should be quoted on the . The parent and foreign daughter companies are established on equal footing in terms of their respective national legislation. These definitions are not universally accepted.wide image. several of the subsidiaries must be complete industrial organizations (i. In the remainder of this note. From an international legal point of view a multinational corporation is merely an agglomeration of corporate entities loosely linked by a network of non-resident shareholdings.• Joint company : a foreign firm in which the parent company financial interest and foreign financial interest are equally divided. This is also true of the other group of international organizations not established by intergovernmental agreement. • Sub-subsidiary: a subsidiary or affiliate not established directly by the parent company (or sub-affiliate) but by another subsidiary or affiliate of the latter. namely: basic policies of the corporation must be applied to all its subsidiaries In order to create a world. of which the majority happens to be in hands of the parent company. • Affiliate : a foreign firm in which the capital Interest of the participating parent company is less than 50 %. This is considered essential to permit an integration of economic strength to meet American competition. President of the IBM World Trade Corporation. namely non-profit non-governmental organizations. This situation can be further complicated since the subsidiary can Itself be In the home country or in a foreign country.000). a further proposal attempted to define a European corpora. manufacturing.500. financial interests in corporations in at least one country other than the parent country. A counter proposal suggests that no barrier should be raised to corporations wishing to take on the new form. quotation of shares of the corporation on stock exchanges of at least two countries.000 .
To be consistent with the other forms of organization listed in this Yearbook. activities oriented in terms of the world breakdown of the factors of production. the Union of International Associations considers that a detailed analysis of possible multi. ability to function in any region of the globe under the direction of a team of executives of a number of nationalities. Logically it is therefore the nationality of these members which qualifies the organization as an international one.e. although this represents a principal aim. These are : unity of management policy and organization as a guide to the major decisions governing the growth of the enterprise (including : consolidated balance sheet for the entire group. reinvestment of profits from individual subsidiaries based on needs of corporation as a whole. global conception of development and trade relations. The fundamental question which must be answered in order to establish criteria is which groups are to be considered as members of any such organization. whilst taking into account the long term evolution of this breakdown. organization of transfers and collective services on a global basis within the group). the subsidiaries are treated as a type of member. . the company must be a good citizen in every country in which it operates. Attention so far has been concentrated on the better known types of profit corporation which are owned by private shareholders. A more indirect approach has been made by Professor J Houssiaux of the Université de Nancy. These are the persons who vote according to the rules of the organization to elect the directors. and an environment with institutions based on internationalism. within an organization conceived independently of the management techniques of a particular economy. etc. There is however a large group of mixed government-private corporations.exchanges of the countries in which the company is active so that the capital is in effect multinational. and other organizations which may not use terms in their titles which have any connection with profit-making operations. as compared with the anticipated evolution of income and demand throughout the world.. He attempted to develop criteria to describe a national corporation and from this deduced criteria for a ' plurinational ' corporation. The criteria are : capital spread throughout the world through the intermediary of a variety of financial markets. Professor Houssiaux notes three conditions as essential for the establishment and development of such enterprises. Studies to date have generally assumed that an organization Is multinational because it operates in a number of countries. Possible Criteria For the purpose of preparing a definitive list of these organizations as been done for the other two types of international organization. cooperatives. the logical requirement is that the stockholders should be considered as members. i. continual modifications and extensions to group structure. ' societies '. in nearly the same fashion as do the members of other international organizations. ' associations '.national corporations should consider the use of all the following characteristics which measure different aspects of the concept of internationality.
This ignores all the realities of the respective financial importance of different countries. 2. This criterion might however be useful in evaluating those corporations which expect to be quoted on a stock exchange. Minimum criteria could be based on the total number of countries in which the company has installations. This is a crude approximation to the international shareholding balance. . 3. The disadvantage of this criterion is that it might exclude some corporations partially or wholly owned by governments particularly those ofsocialist persuasion. This criterion may however be useful in certain simple cases. or. Shareholding in parent company: Ideally the shareholding should be balanced such that. There is also the difficulty of indirect shareholdings via holding companies and investment clubs. An arbitrary acceptable ratio of headquarters country voting directors to foreign country directors could be defined. The criterion could be used to exclude excessively ethnocentric organizations. 4 Composition of executive staff within companies controlled by the parent company: A multinational management has been suggested as one characteristic. This criterion is clearly not suited to an evaluation of a trading or service company. National stock exchanges on which the shares are quoted: A minimum could be specified for the number of foreign stock exchanges on which the shares are quoted. nationals of no country have control of more shares than nationals two other countries combined. In the absence of precise information on the nationalities of shareholders. for example. It has the advantage that the information would not be considered confidential. 5. more stringently. Composition of Board of Directors: The national origin or current citizenship of members of the Board may be of great importance to the decision-making process of an international corporation. An ideal balance of nationalities is unrealistic but it would be possible to define some minimum acceptable ratio of headquarters country staff. the nationalities of members of the governing body are used as a guide to the significance of the stated geographical spread of membership. It will almost certainly be necessary to consider a number of criteria together in any final definition to cover the many different types of profit organization. those of members of the Board (who are the elected representatives of the shareholders) could be considered as a first approximation.It may be impracticable to obtain information systematically on some of the items. A balance of voting strength has not been used as an absolute criterion in evaluating non-profit organizations for this reason. In many cases this depends on the financial contribution as in profit organizations. Balance of factories or installations (excluding sales offices and licensed producers): A multinational manufacturing enterprise should have its installations in a number of countries. on the ratio of headquarters country installations to foreign country installations. to foreign staff. In the case of non-profit organizations. Possible criteria include: 1. and to the acceptability of its affiliates in host countries. An additional difficulty is the impossibility of obtaining systematic data on the nationality of the shareholder. or a highly diversified company.
Relationships with non-governmental. 12. The disadvantage of this criterion is that information may be considered confidential. Income ratio for whole group controlled by the parent company: The ratio of income earned in the headquarters country to that earned in all other countries can be considered as one measure of the relative interest of the directors in home and foreign operations. These can be considered as evidence of a decentralization of decision-making out of the headquarters-country. 7. The definition of tangible assets will vary. International . European Indus. 9. The disadvantage of this criterion is that the information may be considered confidential. 10.g. on the ratio of headquarters country offices to foreign-country offices. or.trial Space Study Group. non-profit organizations: A possible measure of '' other-directedness ' on the part of the corporation is membership of trade associations or any other such body for the exchange of technical or commercial information (e. Balance of sales offices (excluding representatives on commission): A trading or service company could be evaluated on the basis of the total number of countries in which the company has offices. 8. International Association of Food Distribution. Inter-American Council of Commerce and Production. Continental or regional head offices: A possible convenient indication of multinationality is the existence of regional head offices. Tax treaties and tax laws as applied to corporations doing international business are so very complex that this would seem to be unworkable. This is an important concept but the effects are difficult to measure and are easily confused with a unified management policy. Income is often difficult to define consistently. This may however become an important criterion in the future when special international legislation is created to deal with multinational corporations.6. 13. Languages: A possible convenient indication of multinationality is the acceptance of a number of working languages both in dealing with customers and for internal communication between the principal head office and the regional or foreign national offices. Tangible assets ratio for whole group controlled by the parent company: The ratio of tangible assets in the headquarters country to those in all other countries can be considered as one measure of the relative interest of the directors in home and foreign operations. The information is also likely to be highly confidential. Tax status: The tax position of the parent company and subsidiaries could be used as a criterion. 11. Relationship between parent group and foreign affiliates: The degree of independence in decision-making accorded to foreign affiliates by the parent company can be considered as a measure of the diminution of the influence of one national viewpoint in the conduct of the affairs of the company. This criterion may be less applicable to smaller corporations. more stringently.
The greater the effort made to produce a stringent definition of internationality. International Superphosphate Manufacturers' Association.000 parents have their headquarters in the major European countries and the USA. The directory which proved suitable to this program was ' Who Owns Whom '. This lists approximately 120. A final difficulty is the rapid change in the situation from month to month as subsidiaries are sold or parent companies merge or are taken over by other companies. with the International Telecommunications Union.Copper Research Association. The desirable multinational corporation characteristic of centralized control and decentralized decision-making may not be suitable in a particular trade or industry. the more complex measurement becomes and the fewer the number of organizations which will fulfil the resultant criteria.g. The percentage of answers would not have provided the basis for a complete selection.e. Relationships with intergovernmental organizations: Another possible measure of ' other-directedness ' on the part of the corporation is any form of consultative relationship with intergovernmental organizations (e. subsidiary. a '' subsidiary ') or represents only a noncontrolling-financial interest (i. The alternative chosen was to analyse information already available in published form to provide a preliminary list of possible multinational corporations which could be used as the basis for a more critical list in a subsequent edition of the Yearbook. The relationship between parent. etc. or as membership of the General Committee of the FAO/lndustry Cooperative Program or the FAO Fertilizer Industry Advisory Committee. Very few directories give an indication in detail of the number of countries in which a parent company has affiliates and the extent to which these affiliates are in fact controlled by the parent. Sources of Information and Problems in Establishing a List The most serious difficulty in establishing any list of multinational corporations is the lack of published information on corporations throughout the world which covers the items mentioned in the possible criteria above. The position of some organizations on this scale may be governed more by the requirements of the business with which they are concerned than with any desire to be nationalistic or internationalistic. branch and sub-subsidiary is normally very difficult to follow through. The other types of parent-daughter . 14. It also indicates whether the affiliate is wholly owned or controlled (i.).e.000 affiliate companies throughout the world whose 16. Existing organizations must be assumed to lie on a scale between extreme protective nationalism and a form of ideal internationalism. an ' associate '}. This criterion may become important since such organizations will have to make provision for multinational corporation membership as distinct from that of individual national companies). It would have been possible to attempt to send questionnaires to a wide selection of companies but the results obtained would have required a considerable amount of analysis to permit comparison. or as a partnership with the International Finance Corporation in joint ventures stimulated by the World Bank.
subsidiaries and associates). form at least one subsidiary in each foreign country in which it operates directly. etc. countries. This minimum figure was developed from the results of the analysis shown in Table 1.. The main disadvantage of this directory is that it did not cover all the major industrialized countries. 3.S. It was possible to update the information on European affiliates by making use of the first directory.000 American parent companies had approximately 14. This table shows for the major European countries and the U.000 affiliates. parent companies are considered to be the major group of potential multinational corporations.S. No information was available in comparable form on Canadian and Japanese parent companies and their affiliates. not just manufacturing enterprises as do the majority of directories of this type. The main advantage of using this directory was that it included all categories of business enterprises. in terms of each national legislation.e. [Tables separate] Table 1 Number of countries (excepting the country of the parent company) in which parent companies have affiliates (i.relationship are covered by these two terms which are defined in detail below. It was decided to analyse all the companies listed in the two directories to determine exactly how many there with affiliates in 1. how many. The only suitable directory which could be located that was not restricted to one type of entreprise was the ' Directory of American Firms Operating in Foreign Countries '. Since the U.S. Due to the limitation on space available for this preliminary list in the Yearbook a compromise solution was chosen. Analysis of Sources No information is available on the acceptable number of countries to qualify for ' multinationality '. It would have been possible to select some minimum figure and merely prepare a list of those companies which exceeded this. In addition the information on the U. a second source of information was required. The study at Harvard University is based on six.. In addition this directory did not make any comparable distinction between subsidiaries. On the basis of the analysis the minimum figure could then be chosen so that the maximum number of companies could be listed in the Yearbook.A. associates and branches. German parent companies have affiliates in 9 foreign countries (13 from the table). but the criteria for the other organizations in this Yearbook is three.2. which was available in a 1968 edition. This listed the countries in which 4. parent companies was restricted to details on their European affiliates. . for example. Two is the logical minimum. By checking the location of subsidiaries a direct count of the number of countries should be obtained. The disavantage of this directory was that only the 1966 edition was available. The choice of the first source was based on the assumption that a multinational corporation must.
subsidiaries and associates) in a given foreign country.e. This figure formed the basis for the analysis in Table 1. Table 3 Preliminary list of possible multinational business enterprises. it was possible to analyse each European company included in Table 3 in greater detail in order to establish a scale on the basis of which cases falling into these groups could perhaps be specified. • Column ' c ' : Percentage of the total number of foreign affiliate companies (i. Whilst preparing Table 1 it was convenient to prepare Table 2. but because of the size of the corporation the number of these affiliates is equivalent to or greater than that of a smaller organization with interests more equally balanced between countries. subsidiaries plus associates).e. 21. but the data in Table 1 gives some indication of the number of these. These are the cases where : • a very large corporation has a relatively minor proportion of its affiliates in other countries. This gave a preliminary fist of 600 enterprises which is printed as Table 3. The list includes a number of corporations which might be excluded from a future list. 16-20. This list should contain a high proportion of corporations which will fall Into the category of multinational once general criteria have been defined. 13-15.e. they are not ' subsidiaries ') but pri. Within each group the corporations have been placed In alphabetical order within headquarters country to facilitate consultation. Using the information in the directory ' Who Owns Whom '.Table 2 Number of parent companies for each major industrialized country having affiliates (i. No distinction was made between subsidiaries.e. subsidiaries plus associates) of the parent company which are in foreign countries. 31-40. The list arbitrarily excludes (due to the minimum of 10) many corporations which might be considered as multinational. The parent corporations listed have been arbitrarily split into groups having affiliates in 10-12. Four columns of figures follow the name of each parent corporation as an aid to any future definition of ' mutinational '. have affiliates in Brazil (21 from the table). and 41 plus countries.marily associates in which the corporation has a noncontrolling interest. subsidiaries plus associates) which are owned or controlled subsidiaries. how many. Only two columns could be completed for American companies. • the affiliates in foreign countries are not owned or controlled (i. 26-30. as • .S.A. Using the data in Table 1 the minimum number of countries was fixed arbitrarily at 10. Swedish parent companies. This shows for each of the major European countries and the U. sub-subsidiaries and sub-subsubsidiaries.25. The meaning of the columns is a follows : Column ' a ' r Number of foreign countries in which the parent company has affiliates (i. for example. etc. • Column ' b ' : Percentage of the total number of affiliate companies (i.e.
This distinguishes such corporations from those which in the extreme merely have a minority interest.opposed to associates. All that can be said is that the probability of a parent company being ' international minded ' is higher if it has operating affiliates in a number of foreign countries. Comment on Initial Criteria and Sources The criteria used to distinguish between possible candidates have largely been dictated by published information available. This criterion is therefore a crude approximation to a determination of the position of a company on the line between purely national (ethnocentric) and completely international (geocentric).150. The upper end of the range includes the companies which have been cited as examples of multinatio. • percentage of foreign affiliates. Information on the percentage of subsidiaries amongst European affiliates only is given in brackets. • Column ' d ' : An index of ' internationality ' combining the information in the previous column to facilitate comparison between companies. ' b ') X (col. None of the criteria listed in Table 3 is wholly satisfactory : number of countries. The results of this survey have been expressed in a manner which does not preclude a more or less stringent definition of multinationality. following on from this. Dormant companies were treated as associates. it can be of considerable international economic importance by operating through intermediate trading and import-export companies. • percentage of foreign affiliates controlled. They represent different attempts to isolate the quality of ' internationality '. In practice the majority of companies fall into the range 20 . This criteria does not distinguish between large monolithic companies with relatively few financially significant subsidiaries and companies with a considerable number of subsidiaries of much less financial importance. the lower the probability that the company will be primarily interested in its affairs within the country of its headquarters. ' c ')/1000 = index of ' internationality '. it has been assumed that the number of foreign affiliates corresponds approximately to the geographical division of financial interests.S. Even in the limiting case where a company has no foreign affiliates. This gives an index for each parent company in the range 0 17000 if all possible countries and territories are taken into account.nal corporations. It has been suggested that multinational corporations should only include those cases where the parent company has a controlling interest in affiliates. ' a ') X (col. The index is derived as follows : (col. The lower end of the range includes the companies which are more likely to be excluded from any future list of multinational corporations. It could also be argued that a corporation with a vast network of minority interest was less centralized and therefore more international. parent company subsidiaries and associates an attempt was made to approximate the policy of the company in this respect. In a particular country or industry it may be convenient to adopt one or other structure. • . Since no data was available to distinguish between U. It has also been assumed. that the higher the percentage of foreign affiliates.
The defi. 25 % America. The remaining parent companies only have affiliates in their own countries. 9% Asia and 5% Australia.A. The definitions used by the editors of ' Directory of American Firms Operating in Foreign Countries ' are : ' This Directory includes only those firms in which American firms or individuals have a substantial direct capital investment in the form of stock. with affiliates In one foreign country only. 11 % Africa.ches ' and ' subsidiaries ' are included but not distinguished or defined. as the sole owner.393 countries. From Table 2 the distribution of the links of the parent companies with foreign countries is 53 % Europe. ' Bran. (2.ciation with that other company '. Of these parent companies. A separate study of foreign enterprises in Japan gives some indication of the validity of the figures in . Members of industrial consortia are listed as associates. or as a partner in the enterprise '. The 7. parents constitute respectively 45 % and 52%. Any company of which another company is the associate as already defined is regarded as being In asso. A certain amount of inconsistency over the definitions of subsidiary and associate is to be expected. A company is classified as an associate when it is so described by itself or where it has annouced that it has acquired a substantial interest in another company or where published information is available that it owns not less than 10 per cent of the share capital of the other company.48 in the case of European companies only).A.e.75 countries.It was not possible to check the two directories used so that It had to be assumed that together they represented a fairly complete and accurate coverage of the parent companies in the European countries and the USA. It is interesting to note that the number of the intergovernmental and international non-profit organizations listed in this Yearbook as having headquarters in the Table 1 countries is 50% of the total of parents companies with headquarters in the same countries [comparing companies in at least three countries on the assumption that these can be considered equivalent to the minimum membership criterion of the other organizations). U. i. There are 595 parent companies with affiliates in 10 or more foreign countries and 166 with affiliates in 20 or more.046 parent companies have affiliates in 26.S.S. and 7045 with affiliates in one or more.A. parents constitute respectively 37 % and 40 %.S. each company has affiliates in an average of 3. Comment on survey From Table 1 there are 2991 parent companies in 14 European countries and the U.nitions used by the editors of ' Who Owns Whom ' are ' A subsidiary is defined as a company more than 50 per cent of the share capital of which is owned by another company which in the directory is therefore defined as a parent company. U. Of these parent companies. The European parent companies included in the Table constitute approximately 40 % of those surveyed.
e. The organizations included from this ' manufacturer ' list represent 48% of the U.4). (One difficulty in the survey which affects the results is the differences in the definition of a country.burg. Japan and the Eastern European countries. No attempt was made to allow for this. and also to the inevitable difficulty of obtaining information and ensuring that it was kept up to date. Nor was it possible to obtain information on the parent com. Table 2 gives a corresponding figure of 465. the number of parent companies correlates quite strongly with the figure for export trade.) Comment on list The list published in Table 3 can be considered as a selection of cases on which criteria may be tested. This is being used as a basis for research at Harvard University by Professor Raymond Vernon.6).7). Unfortunately the sources used did not provide sufficient comparable information on Pan American. This study estimated that ' almost 800 ' foreign enterprises had been set up in Japan by 1966. The list itself contains a number of unexpected cases due to the sources used and the method employed in the short time available. It does not however include any of the mixed category of profit organizations mentioned earlier in this note.7 thousand million dollars. organizations included in Table 3. Australia (3. The countries for which data on parent companies was available.S. The only other countries with comparable exports are Canada (10. with the exception of Spain. together with some Eastern European countries. Portugal and Luxem. As stated earlier the list does not include business enterprises from a number of important countries Including Canada. The index for Agence Havas is however only 8 which makes it one of the least ' international ' in the list according to the criteria employed.7).4). All the examples of multinational corporations previously cited in published articles appear to have been included.g. and Brazil (1.this Table. Of these countries only Canada and Japan are probably hosts to many parent companies which should be included in the list. The difference is probably due to implantations from countries other than those for which information was availabe. The list includes 70% of the 180 corporations mentioned in an unpublished list of American corporations which an in the ' Fortune ' list but which have a minimum of 6 foreign manufacturing subsidiaries. Venezuela (2. From Table 1 however.panies registered in the tax havens. whereas companies operating from other countries would treat Portugal and Angola as separate countries. They tend to lie in the higher groups and have a high index of ' internationality '. Examples are Pan American Airways (USA) in the 40 plus group and the travel agents Agence Havas (France) in the 10-12 group which are included because of the number of offices in foreign countries. all had an export figure of at least $1. .Portuguese parent companies do not consider Angola as a separate country. South Africa (1-9). Japan (10.
since all foreign affiliates were listed as associates. Some indication of the extent of this upward scaling can be obtained by comparing the figures for Belgium (461 U. priority is given to nationals from the headquarters country in filling important posts in foreign subsidiaries. organizations in that country. The position of the Compagnie Nationale Air France (France) in the list in the 10 —12 group. The index in this case was zero.quarters maintains responsibility for all main decisions. • . policies formulated without regard to national preferences. is whether and to what extent they can be considered as multinational. parent company remains in the hands of nationals of the headquarters country who occupy all important posts. parent company relies on financial controls rather than command structure to achieve a profit.S. such organizations should perhaps be considered as a special type of multinational corporation. company becomes a confederation of loosely connected subsidiaries.S.dered to be an accident of history to be changed according to the convenience of tax laws. The list also included some representatives and information offices of American companies and had a total of 657 U. Lausanne). Of these 21 % were indicated as branches or other entities directly dependent on the American parent. corpo. A study of types of multinational corporation which has received a great deal of publicity is that of Professor Howard Perlmutter (Institut pour I'étude des méthodes de direction de I'entreprise. is probably more indicative of the status of national airlines as multinational companies.quarters country. This gives approximately 525 affiliates in comparison with the Table 2 figure of 461.S. In practice this type of organization arouses the suspicion of local governments and can lead to nationalistic attacks.rations makes it difficult to compare details on European and American organizations in the tables. head. Due to the inclusion of more information on branches in the American source the figures for American organizations are all scaled upwards. Information on European organizations has however all been obtained from the same source.S. subsidiary directors participate in the formulation of general policies. • Polycentric corporations : recognition that local situations are different from one another and from the parent country. organizations) with those from a detailed American Embassy list published in December 1967 of U. which depend on an international network of sales bureaus. • Geocentric corporations : posts filled without regard to nationality. He distinguishes the following groups of corporations in what he considers to be an evolutionary chain (although every corporation Is considered to have a combination of a!l the characteristics): Ethnocentric corporation : senior management suspicious of foreigners and unfamiliar business methods. But.The lack of adequate distinction between branches and subsidiaries or associates in the source on U. headquarters location consi. parent company considered to be superior and have a monopoly of know-how. many of which have access to all financial and research data. It is at this point that data on the nationality breakdown of the Board of Directors would prove useful. subsidiaries operated by the nationals of each country. The question raised by such organizations. organizations mentioned. even if the directors are all nationals of the head.
Conclusions The main question raised by this preliminary study is how restrictive a definition of multinational corporations is required and whether it would be preferable to define criteria to separate groups of corporations of different degrees of internationality in order to cover all cases. or preferably more in order to split up the higher proportion of organizations at the ethnocentric end of the range. There is also the highly charged question of the distinction. It might be useful to distinguish between long-established corporations with international interests in many countries (mainly trading companies). Another type of structure which may not fall within any of the criteria yet suggested is that of a large corporation which controls a complex network of binational operations. Information on the shareholders would only give a theoretical picture of the operation of the organization on the assumption that the Board decisions reflected the day-to-day opinions of shareholders. It may prove to be the case that many small new corporations with subsidiaries in only a few countries are less ethnocentric and more international than many of the large corpora.It might be possible to establish arbitrarily sets of quantitative criteria which would group corporations into three such groups. Such a scale could possibly be developed by using the index technique with more ratio criteria. or the necessity for a distinction. The ratio of headquarters country directors to foreign directors does appear to represent the most easily obtain. between multinational corpo. It is the closest approximation to the nationalities of the sharehol. A further problem is created by individuals families. In addition it is normally by its Board or management that a corporation is judged. In examining suitable criteria in the future.rations. In this way degrees of multinationality could be recognized which would permit satisfactory classification of the sales bureau type of organization. since low index values indicate organizations which are more likely to be ethnocentric as defined above. rather than by its shareholders.tions. and smaller corporations recently created as international companies by national corporations from a limited number of countries (usually two to four).able and least confidential additional criterion. and international cartels (which have been defined as voluntary agreements among independent enterprises in closely related indus.king.tries in two or more countries with the purpose of exerting a monopolistic control of the market). .ders and may in fact be preferable since it gives a real picture of the ethnocentrism of the Board and decision ma. large national corporations developing International Interests. multinational groups (which have been broadly defined as a collection enterprises between which any form of fink may exist which is sufficiently strong and durable to permit a common economic policy). provision will have to be made for the consortium arrangement and the bi-national joint venture which is becoming important and widespread. and national corporations which create and completely control multinational corporations as a means of conducting their international operations.
ver be set by Peru where legislation has just been proposed to deal specifically with the tax problems of multina. It is to be hoped that listing these .It would be an advantage to make any future criteria consistent with those employed to detect international non. One solution is the creation of special national legislation in each country to deal with multinational corporations which make their headquarters there.sed. as some have already done. according to Roy Blough : to make sound and profitable investments in developing countries which for less broadly based com. At present only the tax havens such as the Bahamas. In the case of international non-profit organizations. The role of the large multinational corporation in aiding the less developed countries has been frequently stres. and other knowledge and skills that are likely to be better adapted to the needs of the less developed countries than is the knowledge of business firms that have access only to home-country technology. Some of the specific functions that they can (but will not necessarily) perform which could contribute to general economic devleoprnent are.profit organizations. and to provide developing countries with contacts with foreign markets without which their export trade and industries cannot be rapidly developed. An example may howe. In view of the significance attached to these corporations as tools for the rational economic development of the world. to become truly international in order to avoid nationalization.panies would be too risky. such a body might alleviate another current problem by providing a source of development funds. They are faced with increasingly complex tax problems and the burden of double taxation. to make use of a world-wide store of technological.porations that they should pay a single tax to a specially constituted international authority on the basis of their consolidated financial statements. Bermuda and Lichtenstein provide an adequate place where a large multinational corporation can establish its central activity. discriminatory tariffs or accusations of economic colonialism. The multinational corporation will become an increasingly important concept over the next few years as mergers and takeovers establish international economic empires. managerial. to make use of their international communications system to help countries achieve the benefits of cooperation.tional corporations and their employees. This is an important reason for listing these bodies in this Yearbook. to create jobs and stimulate the desire for education in the developing countries. Belgium is the only country with special legislation. The additional complexity of the more highly developed profit corporations may make it useful to reassess non-profit organization criteria in order to distinguish between the more and the less international in a similar manner. Another suggestion that has been made is that it is in the interest of national tax authorities and of such cor. The tax funds could be channelled through the United Nations to the countries in greatest need. The corporations themselves will have to make great efforts. due to the lack of any international legal status or provisions for international non-governmental organizations (whether profit or non-profit). This would avoid the necessity for the current highly complex network of bilateral conventions on double taxation.
3 . these nations are experiencing extreme rates of poverty. North Africa. and they tend to have non-democratic regimes. may be highly misleading because countries may have identical income distributions but far different social welfare levels due to differences in economic and social mobility. As a consequence. wealth is created. These problem countries are primarily concentrated in Sub-Saharan Africa. and the Middle East. provide researchers with a broad picture of trends in world welfare.2 Studies that focus only on income inequality.organizations in this Yearbook will contribute to a greater understanding of the role that they will play in developing world society together with the intergovernmental and international non-profit nongovernmental organizations. PhD Saint Vincent College The economic role of multinational corporations (MNCs) is simply to channel physical and financial capital to countries with capital shortages. MNCs reduce world poverty levels and provide a positive externality that is consistent with the United Nations’ (UN) mission — countries are encouraged to cooperate and to seek peaceful solutions to external and internal conflicts. In addition. which yields new jobs directly and through “crowding-in” effects. and excessive environmental damage. Nations lacking FDI have common characteristics: they have economies that are heavily dependent on government regulations and controlled by inefficient state-operated monopolistic enterprises. South Asia. According to Nancy Birdsall and Carol Graham. As a consequence. however. Role of mnc’s in developing countries Sustainable Development: The Role of Multinational Corporations Gary Quinlivan. the UN’s publication of the Human Development Report and the World Bank’s World Development Report. It follows that a supporting role for the UN would be to motivate developing countries to achieve the necessary political and economic environment that attracts foreign direct investment (FDI). repressed human rights. present static measures of income inequality and are thus too limiting.1 An important role currently undertaken by the UN is the provision of a valuable and detailed assessment of the economic impact of MNCs through its publication of the World Investment Report. These reports. as emphasized by Jere Behrman. allowing developing countries to improve their infrastructures and to strengthen their human capital. the UN and World Bank should also analyze measures of mobility. new tax revenues arise from MNC generated income. In addition. By improving the efficiency of capital flows.
by Eduardo Borensztein.5 to 2.6 Although not as dramatic as the change in the WSJ rankings. Lucent Technologies.7 Has the increase in foreign direct investment (FDI) by MNCs harmed domestic investment? The UN’s 1999 World Investment Report cited two recent studies: the first. found an additional dollar of FDI increases. and in 1997. there were five new firms (Microsoft. delivers mutually beneficial gains from exchange and sparks the collaborative effort of all nations to produce commodities efficiently. The Wall Street Journal (WSJ) annually surveys the world’s 100 largest public companies ranked by market value. the UN reported a 25 percent change in the composition of their top 100. but as reported by the UN. the number of firms (excluding investment companies. they produced 25 percent of global output. Even more remarkable is that there were 66 new members on the 1999 list. and some others) incorporated and listed on stock exchanges increased from . Firm size and market power.000 with over 500. mutual funds.5 Comparing the rankings in 1999 to that of 1990. from 1988 to 1997. the second study.3. Wal-Mart.The primary thrust of this paper is to examine the myths and facts about MNCs that underlie public opinion and thus shape public policy.000 foreign affiliates.8 An alternative avenue to examine crowding in/out effects is to survey the number of new firms that enter the marketplace. from 1990 to 1997. domestic investment in a sample of 69 developing countries by a factor of 1. given free trade. by the UN. Competition. the number of MNCs rose substantially from 17. however. utilized data from 1970 to 1996 for 39 mostly developing countries and found a strong crowding-in effect associated with FDI in Asia. The UN tracks the 100 largest nonfinancial MNCs ranked by foreign assets.4 In particular the paper addresses the following questions: Are profit-motivated MNCs engaging in destructive competition and insidious plots to economically and politically manipulate entire economies? Are MNCs methodically eliminating domestic firms in order to exploit their monopoly powers? Do MNCs export high-wage jobs to low-wage countries? Are MNCs undermining the world’s environment? Are MNCs augmenting the external debt problems of developing countries? Are MNCs perpetuating world poverty? Do MNCs exploit child labor? Monopoly Power? Competition is not destructive. and Intel) in the top ten. José de Gregorio and Jong-Wha Lee.500–20. Four of the five new firms were not even in the top 100 in 1990. are dynamic.000 to approximately 60. but offered some evidence of a possible crowding-out effect in Latin America. it has compelled MNCs to provide the world with an immense diversity of high-quality and low-priced products. Has the monopoly power of MNCs grown? Granted. crowding-in. Cisco Systems. An increase in monopoly power should also lead to fewer and larger MNCs. some MNCs are very large: as of 1998. the top 100 firms controlled 16 percent of the world’s productive assets and the top 300 controlled 25 percent. According to World Bank data covering 133 countries.
however. Coordinated international manipulations of markets are almost always government supported and directed.9 Sub-Saharan Africa was the only region with a negligible increase in the number of listed domestic companies. in the first two quarters of 2000. free markets protect consumers from prolonged abuses by government-sponsored monopolies and cartels.10 They view MNCs to be amoral government-manipulating rent-seeking monoliths that exploit the lack of environmental regulations and cheap foreign labor in developing countries. the threat of liability. MNCs are not committed to the destruction of the world’s environment.g. the Association of Coffee Producing Countries.394 in 1997. but only 52 of these regulations sought greater control over FDI. OPEC’s oil price distortions were a major source of world recession and the increased external debt and poverty of developing countries. The Right/Left Wing Conundrum Paradoxically.12 Admittedly. the main source of the corruption is government officials. According to the UN. consumer boycotts. and not surprisingly. In the 1970s.29. are infringing on national sovereignty. discourages rewards to special interests (both domestic and foreign). Fortunately. and the Cocoa Producers Alliance cartels attempted to force commodity prices upward.”14 Market incentives (e. there has been a tendency toward the liberalization of FDI regulations.. OPEC. from 1991 to 1998. both the extreme right and extreme left are united in their belief that MNCs. with an evil intent. and defines and protects private property rights. The UN’s 1999 World Investment Report notes several studies that confirm foreign affiliates having higher environmental standards than their domestic counterparts across all manufacturing sectors. A UN survey of MNCs revealed that the number one reason MNCs do not invest in given countries is the presence of extortion and bribery. but their investment decisions are heavily deterred by the presence of economic and political corruption.11 Their remarks. MNCs do not operate with immunity — they are heavily monitored both in the United States and abroad. Profits are very important to MNCs.13 The role of multilaterals (primarily the UN and World Bank) should be to promote responsible deregulation that encourages competition. Both the International Chamber of Commerce and the International Organization of Employers have established social codes and standards agreed upon by their members that attempt to discourage bribes and extortion and to establish principles for responsible environmental management. but instead have been the driving force in the spread of “green” technologies and in creating markets for “green products. and the negative impact on reputation) have forced firms to police their foreign affiliates and to maintain high environmental standards. lack substance. The UN also positively reflected on the efforts initiated by MNCs to assist domestic suppliers (“regardless of ownership”) to qualify for eco-labeling and to meet the ISO 1400 certification- . For example. there were 895 new FDI regulations enacted by more than 75 countries.189 in 1990 to 40.
g. an expanded tax base.. potential for future markets.18 Indirect job creation is estimated. For example. The biggest threat to the national sovereignty of developing countries does not come from the MNCs but from rent-seeking initiatives to protect special interests under the guise of “level-field” trade agendas. In 1999. proposals. UN Conference on Trade and Development (UNCTAD). which seek to impose various enviro-labor standards have the support of or have been submitted as agenda items by the WTO. and capital formation.. e. other variables are deemed to be collectively more decisive. External debt problems are portfolio in nature and primarily attributable to loans from multilateral organizations (e.9 percent) in 30 years.g. infrastructure. and government regulations. Caux Round Table. the United States recorded its lowest unemployment rate (3. labor costs do not determine where MNCs base their affiliates.000 MNCs. Private loans are problematic to the extent that the government is involved and has given guarantees to support favored industries.to low-wage countries. they tend to preserve high-wage jobs in developed countries — in 1998.environmental standards currently supported by more than 5.. political stability.17 Jobs and Capital Formation In 1998. the United States received a record $277.15 Multinationals are not siphoning jobs from high. MNCs had 86 million employees — 19 million in developing countries — and were also responsible for more than 100 million jobs created indirectly through multiplier effects. but policies such as enviro-labeling and world minimum wage or compensation laws prohibit developing countries from fully participating in world trade. in fact.16 Besides. and non-governmental organizations such as the Union of Industrial and Employers Confederations of Europe and the International Confederation of Free Trade Unions. FDI does not contribute to the external debt problems of developing countries. World Bank and IMF) and G-7 governments. Government loan guarantees cause moral hazard — the market does not correctly assess the risk associated with loans because a . the MNC may lose their investment and the domestic country does not receive the ongoing benefits aforementioned. and the Global Sullivan Principles) to establish industry codes dedicated to achieving high levels of social responsibility.19 In April 2000. If the investment does not do well. Foreign direct investment (FDI) is the most desired form of capital flow. MNCs have advanced several programs (e. 75 percent of FDI went to developed countries. taxes. These organizations may have good intentions. Global Environmental Management Initiative. International Labor Organization. If the investment does well. by the UN. both the MNC and domestic country are better off — the MNC receives profits and the domestic country receives jobs. As a result.5 billion in FDI of which $87 billion was channeled into manufacturing. but the domestic country owes no restitution. The MNC is taking a long-term equity position in the domestic country.g. to be 3 to 7 times the jobs directly generated by MNCs respectively in the manufacturing and food industries. education levels.
Overall. According to the UN. fat. and $84. has inflexible labor markets. Only $2. from 1970 to 1995. with one minor exception. The Heritage Freedom Index (HFI) measures the degree of economic and political repression present in developing countries.21 In those countries (the LDC) where the presence of MNCs is negligible. But in developing countries most open to MNCs. and Asia. The weakest performance. keeps its markets closed to foreign competition. 10 are either mostly unfree or repressed and only Bahrain is free. Given risk conditions. cereals. the IMF. life expectancy for low income countries increased from 52 to 59 years. which are primarily composed of the Sub-Saharan African countries.6. and/or World Bank are expected to bail out the lenders if a crisis occurs. $166 billion ($760 billion from 1993 to 1998) or 25.government. Only the Sub-Saharan African and South Asian regions’ literacy rates remained stagnant.9. From 1980 to 1997. From 1960 to 1995 for developing countries:22 The purchasing power parity measure of real per capita GDP improved a healthy 3.20 As predicted. and protein and the production of food has.7 percent per year. Based on the 2000 HFI.5 percent per year. Africa. infant mortality rates dropped 56 percent. Poverty Evidence supplied by the World Bank and the UN strongly suggests that MNCs are a key factor in the large improvement in welfare that has occurred in developing countries over the last 40 years. the improvement in life expectancy has been dramatic: East Asia and Latin America and the Caribbean regions have achieved a life expectancy nearing that of the industrialized countries.23 Sub-Saharan Africa and South Asia were only able to increase their life expectancies from 48 to 51 and 54 to 62 respectively. capital flows to where it can earn the highest rate of return.9 billion dollars of FDI was obtained by least developed countries (LDC). in 1998.9 billion of FDI. The results are even more dismal for Sub-Saharan Africa where 35 (make that 36 given Robert Mugabe’s policy of land-grab terrorism) of the 42 economies in the region are mostly unfree or repressed. and imposes high taxes. suffers from over regulation. While the LDC’s growth rate was a mere 1.24 The production of food per capita has risen 39 percent from 1980 to 1996. The daily per capita supply of calories. The required risk premium is much higher when a developing country is experiencing civil wars. improved over the last 16 to 25 years at all levels of human development for developing nations. received respectively $7. of the 18 economies in the Middle East and North Africa. has a weak infrastructure. FDI is smaller in developing countries that are repressed. $71. in diet improvements and food production per capita occurred in Sub-Saharan Africa. Latin America and the Caribbean. Adult literacy rates increased from 48 to 70 percent. severe poverty rates persist and show little sign of improvement.8 percent of the world FDI inflow went to developing countries. Children born in 1995 were expected to live 16 years longer as compared to 1960 — it took industrialized countries one century to achieve the same results. is politically unstable. which lost .
they need to privatize. and to provide their children with more educational opportunities. almost all the contributing authors in Birdsall and Graham’s book point out that education has been the principal reason for the increase in mobility over the last century. which provides the income flow necessary for welfare improvements. malnutrition rates for children under age five plummeted from 40 to 30 percent. positively affected by the presence of MNCs. especially in Peru and Chile. Only Sub-Saharan Africa had an enrollment ratio below 50 percent in 1995. thus. following the financial crises of the 1980s. Finally. jobs. from 13 to 9 percent in Latin America and the Carribean.e. Once again. Regions lacking MNCs had the worst child labor rates and the smallest reductions: SubSaharan Africa’s and South Asia’s child labor rates dropped respectively from 35 to 30 percent and from 23 to 16 percent. Summary The role of MNCs is underappreciated — they have provided developing countries with much needed capital. enrollment rates for ages 6 to 23 rose for all developing countries from 46 percent in 1960 to 57 percent in 1995. protect private property rights. and environmentally friendly technologies. From 1980 to 1998. and establish a rule of law — the MNCs will then provide the capital . and from 14 to 5 percent in Middle East and North Africa. MNCs create wealth. the percentage of children working between the ages of 10 and 14) tumbled from 20 to 13 percent.3 percent of their daily per capita supply of protein and for whom food production per capita dropped 1 percent from 1980 to 1996. mobility case studies revealed increased economic and social mobility in Latin America and the Caribbean. If the desideratum of developing countries is to escape severe conditions of poverty. deregulate. Sub-Saharan African rates improved by only one percentage point and in South Asia. The reduction in child labor rates was attributable to increased family income. which has permitted families to improve their diets. 50 percent of children under age five still suffer from malnutrition. From 1975 to 1990-97. Through free market initiatives.26 As expected.25 Child labor rates dropped from 27 to 10 percent in East Asia and the Pacific.. world child labor rates (i. to have better homes. As evidenced. the improvement in education is conditional on increased real income and.
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