A recent development in world business is the multinational or global company (MNC) â€“ a corporation which maintains world headquarters in one country but performs production, marketing finance, and personnel functions within many nations. Although some of these companies were started early in the twentieth century their importance as major factors in the international business world became evident only after World War II. Chief reasons for their development are: (1) the corporate form of organization with its infinite life and legal recognition as a separate entity; (2) the vastly improved systems of communication and transportation which facilitate global strategies; (3) the concentration of capital funds in advanced countries; (4) the rapid growth of markets in many countries together with the maturing of markets in the home country; and (5) the creation of larger regional markets through common market and free trade agreements.
The chief advantage of the multinational firm are: (1) the access to organized capital markets and the resulting size of their investment potential; (2) the means by which management personnel can be recruited, formally trained, and developed; (3) the advanced stage of their accounting techniques, which provide controls and comparisons not available in many countries which operate on a less scientific basis; (4) the greater possibility of applying the law of comparative advantage and thus shifting procurement and production to low-cost areas; and (5) the power over government wielded by their size and their impact on the entire economies of individual, small countries.
New problems and policy issues emerged with the growth of multinational operations. Since some of these problems are unique to this new form of organization we shall discuss these in some detail.
First, a multinational company, by its very definition, finds itself a citizen of more than one nation and, therefore, must reconcile its loyalty to more than one sovereign power. It must at times cope with basic conflicts among foreign policies of several countries to which it has obligations. Embargoes by one country against another may create obstacles; one country may prohibit the sale of goods to a second country in which the company operates; to honor the laws of one country may force disastrous unemployment in the second. Every country attempts to enforce some of its laws extraterritorially; the US anti-trust laws restrict the American companyâ€™s action in other countries; tax treaties or the lack of them cause double taxation or havens for avoiding taxation. Political activity may be difficult to avoid in many governmental situations; a multinational manager tends to become involved in the activities of local governments, and these activities may be opposed to the political position in the companyâ€™s parent country.
Second policy issue unique to the multinational firm is the attempt to maintain coordinated consistent with its global strategy; at the same time, it must operate in different societies with different customs, languages, religious, and legal systems. Policies which may be desirable for one country may create international incidents with other countries. Different wage levels and labor practices may be required for each country in which the company operates. Variations in laws and tax systems prevent the establishment of consistent policies for all countries.
There has been a trend toward decentralization in multinational operations as a result of national conditions which differ to such a great extent as to make it impossible to maintain centralized policies and decision making. This fourth issue at times creates a centrifugal force which pulls against a unified strategy. Once a manager has been delegated large powers of operations in a given country, it is difficult to replace him, even if his performance does not reach the standards of the company as a whole. Variations resulting from decentralization make transfer of management personnel more difficult. Furthermore well trained managers in the parent firm may not view a transfer to an undeveloped country as the best means of promotion to top levels of management. Although American and British managers are accustomed to moving among countries some nationalists e.g. the French often view a managerial position in another country as undesirable.
The foreign countries in which operations are conducted are referred to as host counties. The nation in which the corporation has been chartered and in which its headquarters is located is referred to as the home country. —