A multinational corporation (MNC) or worldwide enterprise is a corporate organization that owns or controls production of goods or services in at least one country other than its home country.Black's Law Dictionary suggests that a company or group should be considered a multinational corporation if it derives 25% or more of its revenue from out-of-home-country operations. A multinational corporation can also be referred to as a multinational enterprise (MNE), a transnational enterprise (TNE), a transnational corporation (TNC), an international corporation, or a stateless corporation. There are subtle but real differences between these three labels, as well as multinational corporation and worldwide enterprise.
A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity and recognized as such in law for certain purposes. Early incorporated entities were established by charter. Most jurisdictions now allow the creation of new corporations through registration.
An organization or organisation is an entity comprising multiple people, such as an institution or an association, that has a particular purpose.
Black's Law is the most widely used law dictionary in the United States. It was founded by Henry Campbell Black (1860–1927). It is the reference of choice for terms in legal briefs and court opinions and has been cited as a secondary legal authority in many U.S. Supreme Court cases.
Most of the largest and most influential companies of the modern age are publicly traded multinational corporations, including Forbes Global 2000 companies. Multinational corporations are subject to criticisms for lacking ethical standards. They have also become associated with multinational tax havens and base erosion and profit shifting tax avoidance activities.
A public company, publicly traded company, publicly held company, publicly listed company, or public limited company is a company whose ownership is organized via shares of stock which are intended to be freely traded on a stock exchange or in over-the-counter markets. A public company can be listed on a stock exchange, which facilitates the trade of shares, or not. In some jurisdictions, public companies over a certain size must be listed on an exchange.
The Forbes Global 2000 is an annual ranking of the top 2,000 public companies in the world by Forbes magazine. The ranking is based on a mix of four metrics: sales, profit, assets and market value. The list has been published since 2003.
Ethics or moral philosophy is a branch of philosophy that involves systematizing, defending, and recommending concepts of right and wrong conduct. The field of ethics, along with aesthetics, concerns matters of value, and thus comprises the branch of philosophy called axiology.
A multinational corporation (MNC) is usually a large corporation incorporated in one country which produces or sells goods or services in various countries.The two main characteristics of MNCs are their large size and the fact that their worldwide activities are centrally controlled by the parent companies.
An import is a good brought into a jurisdiction, especially across a national border, from an external source. The party bringing in the good is called an importer. An import in the receiving country is an export from the sending country. Importation and exportation are the defining financial transactions of international trade.
An export in international trade is a good or service produced in one country that is bought by someone in another country. The seller of such goods and services is an exporter; the foreign buyer is an importer.
MNCs may gain from their global presence in a variety of ways. First of all, MNCs can benefit from the economy of scale by spreading R&D expenditures and advertising costs over their global sales, pooling global purchasing power over suppliers, and utilizing their technological and managerial know-how globally with minimal additional costs. Furthermore, MNCs can use their global presence to take advantage of underpriced labor services available in certain developing countries, and gain access to special R&D capabilities residing in advanced foreign countries.
The problem of moral and legal constraints upon the behavior of multinational corporations, given that they are effectively "stateless" actors, is one of several urgent global socioeconomic problems that emerged during the late twentieth century.
Potentially, the best concept for analyzing society's governance limitations over modern corporations is the concept of "stateless corporations". Coined at least as early as 1991 in Business Week , the conception was theoretically clarified in 1993: that an empirical strategy for defining a stateless corporation is with analytical tools at the intersection between demographic analysis and transportation research. This intersection is known as logistics management, and it describes the importance of rapidly increasing global mobility of resources. In a long history of analysis of multinational corporations we are some quarter century into an era of stateless corporations - corporations which meet the realities of the needs of source materials on a worldwide basis and to produce and customize products for individual countries.
One of the first multinational business organizations, the East India Company, was established in 1601.After the East India Company, came the Dutch East India Company, founded March 20, 1603, which would become the largest company in the world for nearly 200 years.
The main characteristics of multinational companies are:
When a corporation invests in the country which it is not domiciled, it is called foreign direct investment (FDI).Countries may place restrictions on direct investment; for example, China has historically required partnerships with local firms or special approval for certain types of investments by foreigners although some of these restrictions were eased in 2019. Similarly, the United States Committee on Foreign Investment in the United States scrutinizes foreign investments.
In addition, corporations may be prohibited from various business transactions by international sanctions or domestic laws. For example, Chinese domestic corporations or citizens have limitations on their ability to make foreign investments outside of China, in part to reduce capital outflow.Countries can impose extraterritorial sanctions on foreign corporations even for doing business with other foreign corporations, which occurred in 2019 with the United States sanctions against Iran; European companies faced with the possibility of losing access to the US market by trading with Iran.
International investment agreement s also facilitate direct investment between two countries, such as the North American Free Trade Agreement and most favored nation status.
Multinational corporations can select from a variety of jurisdictions for various subsidiaries, but the ultimate parent company can select a single legal domicile; The Economist suggests that the Netherlands has become a popular choice, as its company laws have fewer requirements for meetings, compensation, and audit committees,and Great Britain had advantages due to laws on withholding dividends and a double-taxation treaty with the United States.
Corporations can legally engage in tax avoidance through their choice of jurisdiction, but must be careful to avoid illegal tax evasion.
Corporations which are broadly active across the world without a concentration in one area have been called stateless or "transnational" (although "transnational corporation" is also used synonymously with multinational corporation 115 Geographic diversification can be measured across various domains, including ownership and control, workforce, sales, and regulation and taxation.), but as of 1992 a corporation must be legally domiciled in a particular country, and engages in other countries through foreign direct investment and the creation of foreign subsidiaries. :
Multinational corporations may be subject to the laws and regulations of both their domicile and the additional jurisdictions where they are engaged in business.In some cases, the jurisdiction can help to avoid burdensome laws, but regulatory statutes often target the "enterprise" with statutory language around "control".
As of 1992, the United States and most OECD countries have legal authority to tax a domiciled parent corporation on its worldwide revenue, including subsidiaries; 117 as of 2019, the US applies its corporate taxation "extraterritorially", which has motivated tax inversions to change the home state. By 2019, most OECD nations, with the notable exception of the US, had moved to territorial tax in which only revenue inside the border was taxed; however, these nations typically scrutinize foreign income with controlled foreign corporation (CFC) rules to avoid base erosion and profit shifting.:
In practice, even under an extraterritorial system taxes may be deferred until remittance, with possible repatriation tax holidays, and subject to foreign tax credits. 117 Countries generally cannot tax the worldwide revenue of a foreign subsidiary, and taxation is complicated by transfer pricing arrangements with parent corporations. :117:
For small corporations, registering a foreign subsidiary can be expensive and complex, involving fees, signatures, and forms;a professional employer organization (PEO) is sometimes advertised as a cheaper and simpler alternative, but not all jurisdictions have laws accepting these types of arrangements.
Disputes between corporations in different nations is often handled through international arbitration.
The actions of multinational corporations are strongly supported by economic liberalism and free market system in a globalized international society. According to the economic realist view, individuals act in rational ways to maximize their self-interest and therefore, when individuals act rationally, markets are created and they function best in free market system where there is little government interference. As a result, international wealth is maximized with free exchange of goods and services.
To many economic liberals, multinational corporations are the vanguard of the liberal order.They are the embodiment par excellence of the liberal ideal of an interdependent world economy. They have taken the integration of national economies beyond trade and money to the internationalization of production. For the first time in history, production, marketing, and investment are being organized on a global scale rather than in terms of isolated national economies.
International business is also a specialist field of academic research. Economic theories of the multinational corporation include internalization theory and the eclectic paradigm. The latter is also known as the OLI framework.
The other theoretical dimension of the role of multinational corporations concerns the relationship between the globalization of economic engagement and the culture of national and local responses. This has a history of self-conscious cultural management going back at least to the 60s. For example:
Ernest Dichter, architect, of Exxon's international campaign, writing in the Harvard Business Review in 1963, was fully aware that the means to overcoming cultural resistance depended on an "understanding" of the countries in which a corporation operated. He observed that companies with "foresight to capitalize on international opportunities" must recognize that "cultural anthropology will be an important tool for competitive marketing". However, the projected outcome of this was not the assimilation of international firms into national cultures, but the creation of a "world customer". The idea of a global corporate village entailed the management and reconstitution of parochial attachments to one's nation. It involved not a denial of the naturalness of national attachments, but an internationalization of the way a nation defines itself.
"Multinational enterprise" (MNE) is the term used by international economist and similarly defined with the multinational corporation (MNC) as an enterprise that controls and manages production establishments, known as plants located in at least two countries.The multinational enterprise (MNE) will engage in foreign direct investment (FDI) as the firm makes direct investments in host country plants for equity ownership and managerial control to avoid some transaction costs.
The history of multinational corporations is closely intertwined with the history of colonialism, the first multinational corporations being founded to undertake colonial expeditions at the behest of their European monarchical patrons.Prior to the era of New Imperialism, a majority European colonies not held by the Spanish and Portuguese crowns were administered by chartered multinational corporations. Examples of such corporations include the British East India Company, the Swedish Africa Company, and the Hudson's Bay Company. These early corporations facilitated colonialism by engaging in international trade and exploration, and creating colonial trading posts. Many of these corporations, such as the South Australia Company and the Virginia Company, played a direct role in formal colonization by creating and maintaining settler colonies. Without exception these early corporations created differential economic outcomes between their home country and their colonies via a process of exploiting colonial resources and labour, and investing the resultant profits and net gain in the home country. The end result of this process was the enrichment of the colonizer and the impoverishment of the colonized. Some multinational corporations, such as the Royal African Company, were also responsible for the logistical component of the Atlantic slave trade, maintaining the ships and ports required for this vast enterprise. During the 19th century, formal corporate rule over colonial holdings largely gave way to state-controlled colonies, however corporate control over colonial economic affairs persisted in a majority of colonies.
During the process of decolonization, the European colonial charter companies were disbanded,with the final colonial corporation, the Mozambique Company, dissolving in 1972. However the economic impact of corporate colonial exploitation has proved to be lasting and far reaching, with some commentators asserting that this impact is among the chief causes of contemporary global income inequality.
Contemporary critics of multinational corporations have charged that some present day multinational corporations follow the pattern of exploitation and differential wealth distribution established by the now defunct colonial charter corporations, particularly with regards to corporations based in the developed world that operate resource extraction enterprises in the developing world,such as Royal Dutch Shell, and Barrick Gold. Some of these critics argue that the operations of multinational corporations in the developing world take place within the broader context of neocolonialism.
However, multinational corporations from emerging markets are playing an ever-greater role, increasingly impacting the global economy.
Anti-corporate advocates criticize multinational corporations for being without a basis in a national ethos, being ultimately without a specific nationhood, and that this lack of an ethos appears in their ways of operating as they enter into contracts with countries that have low human rights or environmental standards.In the world economy facilitated by multinational corporations, capital will increasingly be able to play workers, communities, and nations off against one another as they demand tax, regulation and wage concessions while threatening to move. In other words, increased mobility of multinational corporations benefit capital while workers and communities lose. Some negative outcomes generated by multinational corporations include increased inequality, unemployment, and wage stagnation.
The aggressive use of tax avoidance schemes, and multinational tax havens, allows multinational corporations to gain competitive advantages over small and medium-sized enterprises.Organizations such as the Tax Justice Network criticize governments for allowing multinational organizations to escape tax, particularly by using base erosion and profit shifting (BEPS) tax tools, since less money can be spent for public services.
The Dutch East India Company, officially the United East India Company was an early megacorporation founded by a government-directed amalgamation of several rival Dutch trading companies (voorcompagnieën) in the early 17th century. It was established on March 20, 1602, as a chartered company to trade with Mughal India during the period of proto-industrialization, from which 50% of textiles and 80% of silks were imported, chiefly from its most developed region known as Bengal Subah. In addition, the company traded with Indianised Southeast Asian countries when the Dutch government granted it a 21-year monopoly on the Dutch spice trade. It has been often labelled a trading company or sometimes a shipping company. However, VOC was in fact a proto-conglomerate company, diversifying into multiple commercial and industrial activities such as international trade, shipbuilding, and both production and trade of East Indian spices, Formosan sugarcane, and South African wine. The Company was a transcontinental employer and an early pioneer of outward foreign direct investment. The Company's investment projects helped raise the commercial and industrial potential of many underdeveloped or undeveloped regions of the world in the early modern period. In the early 1600s, by widely issuing bonds and shares of stock to the general public, VOC became the world's first formally listed public company. In other words, it was the first corporation to be listed on an official stock exchange. It was influential in the rise of corporate-led globalisation in the early modern period.
A special economic zone (SEZ) is an area in which the business and trade laws are different from the rest of the country. SEZs are located within a country's national borders, and their aims include increased trade balance, employment, increased investment, job creation and effective administration. To encourage businesses to set up in the zone, financial policies are introduced. These policies typically encompass investing, taxation, trading, quotas, customs and labour regulations. Additionally, companies may be offered tax holidays, where upon establishing themselves in a zone, they are granted a period of lower taxation.
In economics, internationalization is the process of increasing involvement of enterprises in international markets, although there is no agreed definition of internationalization. There are several internationalization theories which try to explain why there are international activities.
A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a business in one country by an entity based in another country. It is thus distinguished from a foreign portfolio investment by a notion of direct control.
The International Financial Services Centre (IFSC), Dublin began in 1987 as a special economic zone on an 11-hectare docklands site in central Dublin, with EU approval to apply a 10% corporate tax rate for "designated financial services activities" on the site. Before the expiry of this EU approval in 2005, the Irish Government legislated to effectively have a national flat rate by reducing the overall Irish corporate tax rate from 32% to 12.5% which was introduced in 2003.
Double taxation is the levying of tax by two or more jurisdictions on the same declared income, asset, or financial transaction. Double liability is mitigated in a number of ways, for example:
Ireland's Corporate Tax System is a central component of Ireland's economy. In 2016–17, foreign firms paid 80% of Irish corporate tax, employed 25% of the Irish labour force, and created 57% of Irish OECD non-farm value-add. U.S.–controlled firms represent almost all foreign firms in Ireland and in 2017 were 25 of the top 50 Irish firms, and 70% of the revenue of the top 50 Irish firms. By 2018, Ireland had received the most U.S. § Corporate tax inversions in history, and Apple was over one–fifth of Irish GDP. Academics rank Ireland as the largest tax haven; larger than the Caribbean tax haven system.
International business refers to the trade of goods, services, technology, capital and/or knowledge across national borders and at a global or transnational level..
Developmental state, or hard state, is a term used by international political economy scholars to refer to the phenomenon of state-led macroeconomic planning in East Asia in the late 20th century. In this model of capitalism, the state has more independent, or autonomous, political power, as well as more control over the economy. A developmental state is characterized by having strong state intervention, as well as extensive regulation and planning. The term has subsequently been used to describe countries outside East Asia that satisfy the criteria of a developmental state. Botswana, for example, has warranted the label since the early 1970s. The developmental state is sometimes contrasted with a predatory state or weak state.
Economic liberalization is the lessening of government regulations and restrictions in an economy in exchange for greater participation by private entities; the doctrine is associated with classical liberalism. Thus, liberalization in short is "the removal of controls" in order to encourage economic development. It is also closely associated with neoliberalism.
A transnational corporation is an enterprise that is involved with the international production of goods or services, foreign investments, or income and asset management in more than one country.
The economic liberalisation in India refers to the economic liberalisation of the country's economic policies, initiated in 1991 with the goal of making the economy more market- and service-oriented, and expanding the role of private and foreign investment. Most of these changes were made as part of the conditions laid out by the World Bank and the IMF as a condition for a $500 million bail out to the Indian government in December 1991. Specific changes include a reduction in import tariffs, deregulation of markets, reduction of taxes, and greater foreign investment. Liberalisation has been credited by its proponents for the high economic growth recorded by the country in the 1990s and 2000s. Its opponents have blamed it for increased inequality and economic degradation. The overall direction of liberalisation has since remained the same, irrespective of the ruling party, although no party has yet solved a variety of politically difficult issues, such as liberalising labour laws and reducing agricultural subsidies. There exists a lively debate in India as to whether the economic reforms were sustainable and beneficial to the people of India as a whole.
Raj Aggarwal is an author and contributor to the fields of finance and international business studies. Aggarwal was the dean of the University of Akron College of Business Administration from 2006 until 2009. He was elected as a fellow of the Academy of International Business. He has worked as an engineer, financial analyst, strategic planner, department chair, university budget planner and corporate board member. He has authored or co-authored over a dozen books or monographs and over a hundred scholarly articles that have cited over 5,000 times according to his profile in Google Scholar.
Sanjaya Lall, was a development economist, Professor of Economics and Fellow of Green Templeton College, Oxford University. Lall's research interests included the impact of foreign direct investment in developing countries, the economics of multi-national corporations, and the development of technological capability and industrial competitiveness in developing countries. One of the world's pre-eminent development economists, Lall was also one of the founding editors of the journal Oxford Development Studies and a senior economist at the World Bank.
EPG Model is an international business model including three dimensions – ethnocentric, polycentric and geocentric. It has been introduced by Howard V. Perlmutter within the journal article "The Tortuous Evolution of Multinational Enterprises" in 1969. These three dimensions allow executives to more accurately develop their firm's general strategic profile.
Transfer mispricing, also known as transfer pricing manipulation or fraudulent transfer pricing, refers to trade between related parties at prices meant to manipulate markets or to deceive tax authorities. The legality of the process varies between tax jurisdictions; most regard it as a type of fraud or tax evasion.
Economic globalization is one of the three main dimensions of globalization commonly found in academic literature, with the two others being political globalization and cultural globalization, as well as the general term of globalization. Economic globalization refers to the widespread international movement of goods, capital, services, technology and information. It is the increasing economic integration and interdependence of national, regional, and local economies across the world through an intensification of cross-border movement of goods, services, technologies and capital. Economic globalization primarily comprises the globalization of production, finance, markets, technology, organizational regimes, institutions, corporations, and labour.
Internalization theory is a branch of economics that is used to analyse international business behaviour.
Base erosion and profit shifting (BEPS) refers to corporate tax planning strategies used by multinationals to "shift" profits from higher–tax jurisdictions to lower–tax jurisdictions, thus "eroding" the "tax–base" of the higher–tax jurisdictions.
Murray Sayle: "The Netherlands United East Indies Company (Verenigde Oostindische Compagnie, or VOC), founded in 1602, was the world's first multinational, joint-stock, limited liability corporation – as well as its first government-backed trading cartel. Our own East India Company, founded in 1600, remained a coffee-house clique until 1657, when it, too, began selling shares, not in individual voyages, but in the Company itself, by which time its Dutch rival was by far the biggest commercial enterprise the world had known."
John Hagel & John Seely Brown (2013): "[...] In 1602, the Dutch East India Company was formed. It was a new type of institution: the first multinational company, and the first to issue public stock. These innovations allowed a single company to mobilize financial resources from a large number of investors and create ventures at a scale that had previously only been possible for monarchs."
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