HAVE MNCs BECOME STATELESS, OR IS GLOBAL CORPORATION

A MYTH?
1
AFZALUR RAHMAN
1
School of Business and Economics, Thompson Rivers University, Kamloops, BC, Canada
E-mail: 1afrahman@tru.ca

Abstract- Whether Multinational Corporations (MNCs) have become stateless, or is global corporation a myth
– is a hard debate among the academicians. Professor Charles Kindleberger (1969) stated that “The international
corporation has no country to which it owns more loyalty than any other, nor any country where it feels
completely home.” However, other experts questioned on this comment and came up with strong logical
evidences against it. Most of the well-known corporations’ (such as IBM, General Motors, Du Pont, and
General Electric) more than 50% assets are located in their home countries (Hu, 1992). As a result, the
operations in the home countries are extremely important for these companies.

Keywords- International Business, Multinational Corporations, Globalization.

I. INTRODUCTION responsiveness, and like this. However, according to

Sometimes, MNCs try to claim themselves as
stateless by providing fact that its foreign operations
exceed 50% of the total (Hu, 1992). However, there
are hidden calculations behind this claim. Although,
for some MNCs overseas operations exceed 50% of
the total, this 50% is divided among a number of
foreign countries. The home operation is higher than
any individual host country and thus the parent
company exercises superior command over its foreign
subsidiary. Like assets and operations, the human
resources of the home country also dominate an
MNC. With few exceptions, all the major MNCs’
majority of the total number of employees is located
in the home nation and by home nationals.
Although the term MNC is used in different
situations, the definitions are quite different from one
another, depending on the individual perceptions.
Some people use the word “Multinational” to
describe business operations outside the home
country (Ball & McCulloch, 1999). Others
characterized a firm as “Multinational” as long as
they are trying to achieve standard business
operations worldwide, economies of scale through
global integration, and responding to local differences
(Ghoshal & Nohria, 1993).
Moreover, some academic writers suggest
businesspeople to use the word “Multi-domestic”
instead of using “Multinational” when a firm
responds to local differences (Samli, Still, & Hill,
1993). Former World Bank economist Hu (1992)
disagreed with all the above-mentioned concepts and
claimed that no MNC exists in the world; rather these
firms are just national firms with international
operations.
Therefore, the word MNC has different meaning to
different individuals. According to some criteria,
MNCs have become stateless, such as in terms of
global operations and integration, local
other criteria, such as ownership and control, MNC is
still a myth.
II. WHY DOES OWNERSHIP MATTER?
Each MNC has a home country and is owned by
shareholders from mostly that country. Naturally, the
MNC is more committed to its home nation. (Hu,
1992) Most of the members of a board of directors
are appointed by the parent company and are
nationals of the home country. Similar practice is
followed for appointing the senior executives as well.
The only exception is the case of the bi-national
companies such as The Royal Dutch/ Shell Group in
which the corporation has two parents companies;
one from the United Kingdom and another from the
Netherlands.
Furthermore, in most cases host country’s nationals
cannot play a major role in the subsidiary since the
company is owned and controlled by the parent
company elsewhere (Hu, 1992). GrameenPhone (GP)
for example, the largest cellular phone company in
Bangladesh is a joint venture between Norway and
Bangladesh. 62% share of GP is owned by the
Norwegian counterpart which is Telenor (About,
2006). As a result since its inception the CEO
position of GP is always filled by a Norwegian
national. This is not a surprising practice since he
who pays the piper calls the tune.
When an MNC holds the ownership of the subsidiary,
subsidiary’s profits accumulate to parent (Hu, 1992).
These profits become a long-lasting liability for the
host country. Moreover, as an MNC, it has the
tendency to keep its liquid assets in its home currency
mainly to avoid currency risk factors. All these
factors adversely affect host country’s GNP and
Balance of Payment.
Thus, from the about discussion we can say
that with single exception of bi-national corporation,

Proceedings of Academics World 26th International Conference, Toronto, Canada, 5th March 2016, ISBN: 978-93-85973-50-5
41
 Have Mncs Become Stateless, Or Is Global Corporation A Myth?
there is no multinational or transnational corporations
when it comes to the point of ownership and control.
Ironically, MNCs are just national corporations with
international operations (Hu, 1992).
III. STRATEGIC IMPLICATIONS FOR
COMPETITIVE POSITION IN THE GLOBAL
ECONOMY
The strategic implications for an MNC’s competitive
position in the global economy can be derived from
different perspectives. Some firms such as Allen-
Edmonds claim themselves as MNCs, only by
exporting to foreign countries (Ball & McCulloch,
1999). Contrast this, others characterized a firm as
“Multinational” as long as they are trying to achieve
standard business operations worldwide, economies
of scale through global integration, and responding to
local differences (Ghoshal & Nohria, 1993).
Depending on the cost factor and local
responsiveness a firm can use one of four basic
strategies to compete in the international market such
as; international, multi-domestic, global, and
transnational (Bartlett & Ghoshal, 1989).
Firms pursuing an international strategy transfer skills
and products to foreign markets to achieve distinctive
edges; however, the head office holds strict control
on product and marketing strategies. (Hill, 1998)
Sometimes, these firms also consider the local
differences with limited customization.
On the other hand, a multi-domestic strategy is most
appropriate where there is high pressure for local
responsiveness and low pressure for cost reduction.
They exclusively customize their product offering
and marketing strategy for different national markets,
thus have a high cost structure.
In contrast, Global strategy makes most sense where
there is high pressure for cost reduction and low
pressure for local responsiveness. Firms pursing
global strategy try to get advantages by scale
economies and experience curve effects.
A more difficult to achieve but desirable strategy,
transnational is suitable where there are high

Proceedings of Academics World 26th International Conference, Toronto, Canada, 5th March 2016, ISBN: 978-93-85973-50-5
42
pressures from both cost reduction and local
responsiveness; however this strategy is most
challenging to pursue.
To conclude this discussion, it would be worthy to
mention that the reputation of the home country also
helps a firm to achieve a distinctive position in the
global market despite having small percentage of
total assets and operations in the home country (Hu,
1992).
For instant, Nestle has 95% of its total operations
located outside of the home nation, Switzerland.
However, the competitive advantage of Nestle based
to some extent on its national quality - superior Swiss
quality and standards which is perceived by rest of
the world.
REFERENCES
[1]. About Telenor. Retrieved on June 6, 2009 from
http://www.grameenphone.com/index.php?id=67
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[3]. Bartlett, C. A. & Ghoshal, S. (1989). The
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School Press: Boston, MA.
[4]. Ghoshal, S. & Nohria, N. (1993). Horses for
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[5]. Hill, C. W. L. (1998). Global Strategy. Global
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