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Multinational corporations have existed since the beginning of overseas trade.

They have remained a part of the business scene throughout history, entering their modern form in the 17th and 18th centuries with the creation of large, European-based monopolistic concerns such as the British East India Company during the age of colonization. Multinational concerns were viewed at that time as agents of civilization and played a pivotal role in the commercial and industrial development of Asia, South America, and Africa. By the end of the 19th century, advances in communications had more closely linked world markets, and multinational corporations retained their favorable image as instruments of improved global relations through commercial ties. The existence of close international trading relations did not prevent the outbreak of two world wars in the first half of the twentieth century, but an even more closely bound world economy emerged in the aftermath of the period of conflict. In more recent times, multinational corporations have grown in power and visibility, but have come to be viewed more ambivalently by both governments and consumers worldwide. Indeed, multinationals today are viewed with increased suspicion given their perceived lack of concern for the economic well-being of particular geographic regions and the public impression that multinationals are gaining power in relation to national government agencies, international trade federations and organizations, and local, national, and international labor organizations. Despite such concerns, multinational corporations appear poised to expand their power and influence as barriers to international trade continue to be removed. Furthermore, the actual nature and methods of multinationals are in large measure misunderstood by the public, and their long-term influence is likely to be less sinister than imagined. Multinational corporations share many common traits, including the methods they use to penetrate new markets, the manner in which their overseas subsidiaries are tied to their headquarters operations, and their interaction with national governmental agencies and national and international labor organizations.

WHAT IS A MULTINATIONAL CORPORATION?

but the reality of their situation is more complicated. production. There are over 40. but this tendency is declining as companies are forced to respond to increasing global competition. The top multinational corporations are headquartered in the United States. the International Monetary Fund (IMF). and trade relations between countries. As a result.As the name implies. In 1995.1 trillion. The administrative setup.000 multinational corporations currently operating in the global economy. operated as subsidiaries. or have considerable autonomy.6 percent in 2000. the top 200 multinational corporations had combined sales of $7. in addition to approximately 250. The share of these low-income countries in which foreign countries are making direct investments is very small. Western Europe. most foreign investment was in high-income countries and a few geographic locations in the South like East Asia and Latin America. there are 63 countries considered to be low-income countries. most multinational corporations are investing in certain geographic locations only.3 percent of the world's gross domestic product. The domestic financial markets in these countries have not been developed and do not have appropriate laws in place to enable domestic financial institutions to stand up to foreign competition.000 overseas affiliates running crosscontinental businesses. and the World Bank are the three institutions that underwrite the basic rules and regulations of economic. Multinational corporations are sometimes perceived as large. they have the capacity to shape global trade. utilitarian enterprises with little or no regard for the social and economic well-being of the countries in which they operate. judicial systems. The World Trade Organization (WTO). According to the World Bank's 2002 World Development Indicators. a multinational corporation is a business concern with operations in more than one country.5 percent 1990 to only 1. Multinational corporations are viewed by many as favoring their home operations when making difficult economic decisions. Many developing nations have loosened trade rules under pressure from the IMF and the World Bank. These operations outside the company's home country may be linked to the parent by merger. it rose from 0. . monetary. and financial transactions. and Japan. which is equivalent to 28. and law-enforcing agencies generally cannot guarantee the social discipline and political stability that are necessary in order to support a growth-friendly atmosphere. In the 1990s.

The days of corporate colonization seem to be nearing an end.Although foreign direct investment in developing countries rose considerably in the 1990s. However. including Brazil. developed countries (plus another 10 to 12 newly industrialized countries) are benefiting from most of the economic growth and prosperity. corporations are able to influence public policy to some degree by threatening to move jobs overseas. are now home to large multinational concerns. Similarly. Furthermore. not all developing countries benefited from these investments. chances are it will be thriving in another! . and that multinationals in large measure do conform to local standards in these regards. In these countries. Taiwan. and Venezuela. Kuwait. many people in the developing countries are still living in poverty. Why firm became multinatioanal? well I'm no expert but i would imagine that one reason is so that the company can spread risks. This criticism of multinationals is valid to a point. multinationals are bound by the same constraints as domestically owned concerns. the rate of economic growth is increasing and the number of people living at poverty level is falling. The modern multinational corporation is not necessarily headquartered in a wealthy nation. Therefore. Many countries that were recently classified as part of the developing world. but companies are often prevented from employing this tactic given the need for highly trained workers to produce many products. once they enter a market. and environmental standards. and find it difficult to abandon the infrastructure they produced to enter the market in the first place. multinational corporations are viewed as being exploitative of both their workers and the local environment. Multinational corporations are also seen as acquiring too much political and economic power in the modern business environment. there are still nearly 140 developing countries that are showing very slow growth rates while the 24 richest. Most of the foreign direct investment went to a very small number of lower and upper middle income developing countries in East Asia and Latin America. If the economy is slow or demand is dropping in one country. labor. Such workers can seldom be found in low-wage countries. but it must be remembered that no corporation can successfully operate without regard to local social. given their relative lack of association with any given locality. Indeed.

many car companies have mastered the so-called international segmentation of production. much of the market is taken by cheaper.S. International business scholars and economists have observed that firms become multinationals to exploit three broadly defined sets of advantages. and its other components may have been produced in yet another location. This is a firm that extends beyond the borders of an individual nation and operates with affiliates and branches in at least two countries. Multinationals often are technological leaders and invest heavily in developing new products. Second. Another motive is the size of the market. Consider Coca-Cola. the vehicle¶s aluminum-wheel components may have been produced in Delta. where as there are billions in the world and so your market size would increase and so would sale. For example. consider localization advantage. Lastly. Multinationals usually try to build facilities that produce and sell their products in locations near the consumer (the Polish consumers of Coke in our example). The market for many products if becoming more and more global-especially with the internet. There may be (lets say for arguments sake) 1 million out of 60 million in the UK who want your product. Other multinationals replicate entire production processes in different countries. with so many foreign businesses selling in the market. Multinational firms usually develop and own proprietary technology (the Coca-Cola formula is patented and kept extremely secret) or widely recognized brands (such as Ferrari) that other competitors cannot use. Poland. which works like this: A Toyota vehicle assembled in San Antonio may have been designed at the Toyota design center in Australia. This helps reduce transportation costs or helps the company fit in better with local tastes and needs.Another reason may be to compete with larger companies and maybe to receive economies of scale. processes and brands. bigger brands and so businesses must finnd market else where to replace the lost bits! Why would a firm want to become a multinational? Let¶s be clear about what we mean by a multinational. Proximity to demand also helps firms adapt their products and services . Maintaining stronger protection of these elements helps firms enjoy greater profits from innovation. If you are visiting Poland. not in the United States. The first is ownership advantage. although the brand and the company hail from the U. British Columbia. the Coke you drink probably was produced in a plant in Lodz. A multinational organizes phases for producing goods and services to sell in different countries.and so its a case of 'multinational to survive'. while usually keeping them confidential and protected by intellectual property rights.

labor costs. they also may take advantage of lower production costs (for example. sometimes even lower environmental standards) or more abundant production factors. expertise or patents that they find too risky or unprofitable to rent or license to other firms. In these cases. For example. the Polish affiliate of Coca-Cola also owns bottling plants in the Beskidy Mountains region of Poland. energy. which it has created at a substantial cost . At the same time. Enforcing international contracts can be costly or ineffective in countries in which the rule of law is weak and court procedures are long and inefficient. which is rich in mineral water for making other beverages. multinationals want to internalize the benefits from owning a particular technology. Finally. such as expert engineering or greater raw materials). the company also may risk losing its ownership advantage.to different markets. brand.