A multinational corporation (MNC) is a corporate organization that owns and controls the production or trade of goods or services in at least one country other than its home country. Control is considered an important aspect of an MNC to distinguish it from international portfolio investment organizations, such as some international mutual funds that invest in corporations abroad to diversify financial risks. A MNC may also be called a multinational enterprise (MNE), transnational enterprise (TNE), transnational corporation (TNC), international corporation, or stateless corporation.
Currently, most of the largest and most influential companies are publicly traded multinational corporations, including Forbes Global 2000 companies.
Description
A multinational corporation (MNC) is a corporation incorporated in one country that produces or sells goods or services in various countries. Two common characteristics shared by MNCs are their large size and centrally controlled worldwide activities, which can include: Importing and exporting goods and services Making significant investments in a foreign country Buying and selling licenses in foreign markets Engaging in contract manufacturing—permitting a local manufacturer in a foreign country to produce its products Opening manufacturing facilities or assembly operations in foreign countries
Multinational enterprise (MNE) is the preferred term used by international economists and is defined as an enterprise that controls and manages production establishments, known as plants, located in at least two countries. The MNE engages in foreign direct investment (FDI) as it makes direct investments in host country plants for equity ownership and managerial control, to avoid some transaction costs.
Stateless corporation is a term used for MNCs which are broadly active across the world without a concentration in one state (these have also been called "transnational corporations" though this term is also used synonymously with MNC). As of 1992, a corporation must be legally domiciled in a particular country and engage in other countries through foreign direct investment and the creation of foreign subsidiaries. Geographic diversification can be measured across various domains, including ownership and control, workforce, sales, and regulation and taxation.
MNCs may gain from their global presence in a variety of ways. 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 experience globally with minimal additional costs. Furthermore, MNCs can use their global presence to take advantage of underpriced labor services often found in developing countries while gaining access to special R&D capabilities residing in advanced 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 have emerged during the late twentieth century.
Alternatives and arrangements For small corporations, registering a foreign subsidiary can be expensive and complex, involving fees, signatures, and forms; a professional employer organization (PEO) is sometimes advised as a cheaper and simpler alternative, but not all jurisdictions have laws accepting these types of arrangements.
Economic theory The actions of multinational corporations are strongly supported by economic liberalism ideology of free market systems in a globalized international society. According to the economic realist view, individuals act in rational ways to maximize their self-interest which creates markets, and that these function most efficiently in a free market system where there is little government interference. This advocates the free exchange of goods and services to maximize international wealth.
To many economic liberals, MNCs are the vanguard of the liberal order. They are seen as an embodiment of the liberal model of an interdependent world economy, taking the integration of national economies beyond trade and money to the internationalization of production. In this view, production, marketing, and investment are being organized on a global scale rather than in terms of nationally bounded economies.
Academic research has been carried out in the specialist field of international business, producing economic theories of MNCs including internalization theory and the eclectic paradigm ( the OLI framework).
Another theoretical dimension of the role of MNCs 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 dating from the 1960s. For example, psychiatrist and marketing expert Ernest Dichter, writing in Harvard Business Review in 1963, observed that companies with "foresight to capitalize on international opportunities" must recognize that "cultural anthropology will be an important tool for competitive marketing". This involved manipulating attachments to a consumer's nation in order to internationalize the nation and facilitate a global corporate village inhabited by "world customers". See also, Richard Barnet and Ronald Muller, Global Reach: The Power of Multinational Corporations, New York, Simon and Schuster, 1975, p. 30. On page 21, Barnet and Muller quote the Chairman of the Unilever Corporation as saying: "The Nation-State will not wither away. A positive role will have to be found for it."
The concept of stateless corporations arose in the 1990s. A theory suggested that such entities could be empirically defined "with analytical tools at the intersection between demographic analysis and transportation research". This intersection is known as logistics management, and describes the importance of rapidly increasing global mobility of resources. For a quarter-century, stateless corporations have procured source materials on a worldwide basis to produce and customize products for markets in individual countries.
History Colonialism The first multinational corporations are tied to the history of colonialism, and were founded to establish colonial "factories" or port cities. The two main examples are the British East India Company, founded in 1600, and the Dutch East India Company (VOC), founded in 1602. In addition to conducting trade between Great Britain and its colonies, the British East India Company became a quasi-government in its own right, with local government officials and its own army in India.Alex Jeffrey and Joe Painter, "Imperialism and Postcolonialism," in Political Geography: An Introduction to Space and Power (London: SAGE, 2009), pp. 174–75.Nick Robins, This Imperious Company: The Corporation That Changed the World How the East India Company Shaped the Modern Multinational (London: Pluto, 2006), pp. 24–25. Other examples include the Swedish Africa Company, founded in 1649, and the Hudson's Bay Company (HBC), founded in 1670.Stephen A. Royle, Company, Crown and Colony: The Hudson's Bay Company and Territorial Endeavor in Western Canada (London: I.B. Tauris, 2011). These early corporations engaged in international trade and exploration and set up trading posts.Micklethwait, John, and Adrian Wooldridge, The company: A short history of a revolutionary idea (New York: Modern Library, 2003).
The Dutch government took over the VOC in 1799, and through the 1800s other governments increasingly took over private companies, most notably in British India.Nick Robins, Nick. The Corporation That Changed the World How the East India Company Shaped the Modern Multinational. London: Pluto, 2006. 145. HBC, while losing its trade and land monopoly in 1870, maintained its trading posts as general goods stores for settlers, evolving into a chain of modern department stores which continued until 2025. During the process of decolonization, the European colonial charter companies were disbanded, with the final colonial corporation, the Mozambique Company, dissolving in 1972.
Mining Mining of gold, silver, and copper was a major activity in the colonial period and remains so today. International mining companies became prominent in Britain in the 19th century, such as the Rio Tinto company, founded in 1873 to purchase sulphur and copper mines from the Spanish government. The corporation made many acquisitions and expanded globally to mine aluminum, iron, copper, uranium, and diamonds.Charles E. Harvey, The Rio Tinto Company: an economic history of a leading international mining concern, 1873-1954. (Alison Hodge, 1981). European mines in South Africa began operations in the late 19th century, producing gold and other minerals for the world market. Cecil Rhodes (1853–1902) was one of the few businessmen in the era who became Prime Minister (of South Africa 1890–1896). His mining enterprises included the British South Africa Company and De Beers. The latter company practically controlled the global diamond market from its base in southern Africa.Robert I. Rotberg, The Founder: Cecil Rhodes and the Pursuit of Power. (Oxford University Press, 1988).
Oil
By the 1930s, seven MNCs dominated global oil production, owning nearly all rights to the oil in Iran, Iraq, Saudi Arabia, and the Persian Gulf. These MNCs became known as Consortium for Iran cartel or the "Seven Sisters". They shared control of the major oil fields and colluded, adjusting oil production in order to keep prices high while simultaneously forcing the countries they operated in to compete against each other for lower tax rates and oil royalties. In the 1970s, nationalized oil companies took over production, with the OPEC cartel gaining market dominance, though oil MNCs continued to be profitable. In the late 1990s and early 2000s, there were numerous mergers in the global energy sector, resulting in the "super-major" integrated oil companies or Big Oil. These MNCs are among the largest and most-profitable companies."Global 500". . Fortune. Accessed August 2008.
Manufacturing During the 1930s, about 80% of international investment by MNCs were in resource extraction (especially oil) and agriculture (rubber, tobacco, sugar, palm oil, coffee, cocoa, and tropical fruit), mostly in colonies. This changed during the rebuilding processes following WWII, as opportunity arose for MNCs to establish manufacturing in industrialized countries, particularly in the transportation, vehicle, chemical, pharmaceutical, and electronics sectors.John H. Dunning and Sarianna M. Lundan, Multinational Enterprises and the Global Economy (2nd ed. 2008) pp 37–39.
Studies of host economies have also emphasized that the impact of multinational enterprises varied by national context; research on Australia, for example, has examined how foreign MNCs arrived in successive waves and interacted with local sectors, government policy, and resource-based development.
Sweden's leading manufacturing concern was SKF, a leading maker of bearings for machinery. In order to expand its international business, it decided in 1966 that it needed to use the English language. Senior officials, although mostly still Swedish, all learned English, and all major internal documents were in English, the lingua franca of multinational corporations.Christopher Tugendhat, The Multinationals (1973) p 147.
Proliferation