Multinational Corporation Essay

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Multinational,  international, global, or transnational corporations are those that operate in more than one country—not simply exporting goods from one country to another, but offering services in multiple countries or operating  production facilities in more than one country. Because the demands of their businesses require  them  to operate  under  different  conditions within  different borders—abiding  by local laws and serving different  customer  bases—their  profits  and productivity  are affected by international matters  to a greater degree than those of single-nation  companies. Combined  with their  generally greater  wealth, this has tended to involve them in international politics and to make them objects of suspicion. In popular speech, “the corporations”  generally implies “the multinational corporations,” and especially those that export  cultural  products  from the  United  States or t Уhe West to the rest of the world, or those that control great amounts  of natural resources, like the oil companies. These are the companies  that have a greater than average impact on world affairs.

The British East India Company is widely considered the first multinational corporation, but it was the advances  of the  Industrial  Revolution—particularly in manufacture  and transportation—that paved the way for the modern multinational,  just as the internet and the information revolution have led to new forms of multinational operation  through  online ordering, business process outsourcing, and off-shoring.

Postwar Multinational Corporations

Throughout the 20th century, Americans made great strides in foreign direct investment  (FDI), and World War II had a good deal to do with so many of the prominent multinational corporations having American origins. Americans had already made significant progress in reaping overseas profits from domestic innovations, like the Hollywood movies that were shown all over the world.  Foreign  audiences  happily  tolerated  subtitles or dubbed-in  voices in exchange for the much better production values of big-budget  Hollywood  movies compared to most of the local fare, which is one reason the biggest successes exported  from Hollywood were those that  made those bigger budgets most obvious: the action movies, thrillers, science fiction movies, and so on. At the same time, the American movie industry specialized from a very early period in the creation and promotion of movie stars, figures whose fame soon outpaced the fame of any one movie.

Other  American  cultural  icons were exported  in great  numbers   as  well; having  pioneered  national advertising in the United States, Coca-Cola began selling its product  to the  world. Depending  on the arrangement (which varied and developed over time), syrup  could  be manufactured in the  United  States and shipped elsewhere to be diluted and bottled, or the  formula  for the  syrup could  be given to CocaCola-owned  bottling  companies  around  the  world. After World War II, when most of Europe was occupied with recovery, FDI by Americans  skyrocketed, accounting  for 75 percent  of new FDI from the end of the war until 1960. American FDI did not diminish at that point—far from it, it has continued  to grow at great rates—but non-American corporations began to engage in it more and more often, such that by the 21st century it had become a worldwide phenomenon.

FDI is the establishing and funding of a commercial  enterprise   in  one  country   by  the  citizen of another  country,  or a corporation from  another country—such  as an American shoe factory opened in Asia, a Japanese car factory opened in Mexico, or a Swedish furniture store opened in Detroit. This is the mechanism  by which all multinational corporations come into being; the transnational or global descriptor has come into use to imply a way of doing business that transcends national concerns, as opposed to taking an American  or Japanese way of doing business and conducting  it across the globe. In practice, though, companies are still headquartered in one country  or another,  and still originate from one culture or another.  However, this is arguably analogous to the state-nation relationship  in the United States: while a given bank may be chartered  in Alabama, or a publisher  may be headquartered in New York, its concerns  and  interests  outside  of that  state  clearly outweigh the concerns within that state, and there is likely nothing  distinctively Alabaman  about  a bank with 1,200 branches sprinkled throughout 30 states.

Operating in multiple countries does not mean operating equally in those countries, or divided resources and profits equally among them. From the 1960s on—right  after  the  peak of American  dominance of FDI, as the rest of the world started to catch up—labor unions and concerned activists complained that American corporations were using overseas opportunities to move formerly American  jobs into countries  where wages and  other  labor costs (benefits, pensions, payroll taxes) were cheaper. In particular, companies  were doing this while continuing  to rely primarily on American customers,  and customers from other  wealthy nations,  for their  income— thus  taking  American  money  in,  banking  greater profits  from  it, and  redistributing their  labor  costs to other  countries.  While this began as a labor concern—because companies were not just opening new factories overseas and retaining their existing American factories, they were closing American workplaces and replacing them with cheaper ones elsewhere—it quickly became  a national  concern,  representing  a potential drain on American capital and the prospect of the American consumer funding foreign labor with little domestic benefit.

Multinational Corporations Today

Those objections led to the Foreign Trade and Investment  Act  of 1972, the  Burke-Hartke  bill, brought before Congress by Representative  Burke and Senator Hartke. Protectionist in design, the bill called for greater  regulation  of the international flow of capital, restricting  FDI and creating a Foreign Trade and Investment  Commission  that  would  have enforced import quotas by country and category. The bill came right on the heels of the demise of the Bretton Woods monetary  policy system, and  the  same  administration that abandoned Bretton Woods—President  Nixon’s—opposed Burke-Hartke,  which came very close to passing. The bill’s defeat encouraged multinational activity, even as its near miss encouraged protectionist interests in both political parties. The subsequent 1974 Trade Act preserved some of the import-limiting goals of Burke-Hartke,  but little of its sympathy with American workers. It loosened the criteria necessary to petition  the International Trade  Commission to restrict  imports  of a good by requiring  that the industry in question show that imports are “a substantial cause” of financial troubles that industry faces in the United States. While this protected  American companies  from foreign ones, nothing  was done to protect  Americans from the foreign involvements of American multinationals.

Ironically, the automobile industry was at the forefront  of both  concerns—for  every thousand  autoworkers complaining that their jobs were in jeopardy because  their  employer  could  open  a foreign plant with cheap labor, there  was an auto executive complaining  that  Japanese automakers  were destroying American industry. The 1980s were the first, and to date  only, decade  in which more  capital was spent on foreigners’ FDI on American shores than American companies  spent on overseas FDI. Much of this was because of Japanese companies,  finally thriving after rebuilding their approach to business and industry in the postwar years, buying out American businesses  and  opening  American  factories.  For  much of the  decade, Americans  were consumed  as much by the economic  threat  of Japan as the communist military threat  of the Soviet Union. Once associated with  cheap,  poorly  made  goods, Japanese industry was now synonymous with efficiency. Images of Japanese  workers  and  executives  starting  the  day with calisthenics,  figures comparing  the  performance  of American schoolchildren  unfavorably to that of their Japanese counterparts, and cryptoracist  descriptions of Japanese rivals as sneaky and ninja-like filled the news, even  as American  automakers  continued  to close factories in Michigan in order to move operations to Mexico.

Off-Shoring And Outsourcing

While the original reason to operate in multiple countries  was to do business in all of them, over the course of the 20th century  the approach  developed of exporting  labor  and  other  activities  in order  to maximize profits and efficiency. This quickly became a highly specialized and detailed  process. Off-shoring refers specifically to shifting part of a company’s operations  from one country  to another.  While this originally was most  likely to  involve factory  labor, where the differences in labor costs would vary considerably from country  to country,  it applies also to multinational corporations that shift their corporate headquarters (or center of operations for a particular division) from one country  to another.  While this is still in a sense a shift of labor, it is significantly different from the factory example: executives do not find themselves laid off with new executives hired in the new country,  though  support,  secretarial,  and  custodial staff very likely will. But because of the high probability  of a corporation owning the building in which it is headquartered, moving to  a new headquarters likely means using the old building for a new corporate  office, retaining  the employment  of those nonexecutives.

Production  off-shoring is sometimes  euphemistically called physical restructuring, and involves setting  up  manufacturing facilities in  a country  with cheap labor. Many developing countries  are destinations for production off-shoring. The job of designing and marketing  the product  typically remains  in the company’s home country; once the process of building the product  is perfected,  it is off-shored, where labor can be had cheaply and needs minimal  training. Services off-shoring requires more skilled labor, and is a more recent development. Because India and parts of southeast Asia have a large English-speaking population  and low labor costs, they are the destination for most services off-shoring, in which information technology, engineering,  customer  service, and other tasks are performed by a foreign subsidiary.

Services off-shoring  is often  used  synonymously with business process outsourcing,  but outsourcing is different from off-shoring in that it involves hiring a foreign company to do a task, rather than purchasing or building a foreign company for that task. The difference to American  labor is not a large one, but outsourcing  is available to many more companies—even single-nation ones—than off-shoring is, because a single company  can perform  outsourced  tasks for many client companies. Business process outsourcing (BPO), pioneered in India in the 1990s, involves contracting  an outside  company  to perform  customer service  or  back  office (finance  and  accounting,  or human  resources)  business processes. This includes customer  service and technical  support  call centers that  redirect  calls to representatives  in India rather than to employees of the company, as well as a wide variety of tasks that do not involve contact  with the public and that  the public therefore  remains  largely unaware  of. The internet  has enabled much  of this, allowing sensitive  data  to  be  safely communicated instantly to other parts of the world.

BPO has even led to legal process outsourcing and knowledge process outsourcing, BPO subfields in which BPO centers  provide legal services or expert knowledge.

International Marketing Research

A number  of marketing  research companies cater to the special concerns of corporations operating multinationally. Zogby International and SIS International are two of the oldest, both founded  in 1984 in New York. Zogby  International  was  founded  by  political pollster John Zogby, an unsuccessful Democratic candidate  for mayor of Utica. Zogby International is still best known for its political polls, and regularly makes headlines as a result of its polling coverage of American presidential campaigns. Zogby International operates in a number  of other countries, often as the most reliable or prestigious  polling firm, and correctly called major elections in Mexico and Israel, among other places. Like other marketing companies, Zogby is regularly engaged by corporations to manage focus groups and conduct  polls to inform  decision making such as price-setting,  the demographic slant  of advertising  campaigns,  gauging demand  of potential  products  and services or existing products and  services in  new  markets,  and  so forth.  Zogby tends to rely heavily on phone and online polls, which suits some clients better than others.

SIS International was originally founded  by Ruth Stanat to provide monthly market research reports to companies expanding into global markets. Beginning in 1990, the company began operating internationally, and  has reorganized  itself into  three  divisions:  SIS Intelligence  Answering, offering on-demand intelligence services to corporations; SIS International Custom  Research, the  flagship division, specializing in market  entry and market  feasibility research to help prepare  new  enterprises; and  SIS Global  Research Media, which produces books and other research products, as well as offering custom tracking services. Like Zogby, SIS also offers political polling, but has never been as well-known for it, nor does it make up as significant a portion of its business.

Other major international marketing research firms include Visionagain, a London-based  company with American  and  Indian  branches,  specializing in the telecommunications and  pharmaceutical industries; and SKOPOS Market Insight, founded by psychologists in London, with offices throughout Europe.

Market research of some form is exceptionally important when a company is looking to do business in a new market,  whether  that  means introducing  a new line of products  or offering their products  in a new geographical area. Market research can help find the right angle to attract  new customers  and establish a brand identity, such as when South Korean auto manufacturer Daewoo expanded into Western  countries. It can suggest areas of flexibility and adaptation, such as the plethora  of options offered by American food companies throughout Asia: the teriyaki Whoppers, cucumber-flavored  Pepsi, and mayonnaise-flavored Doritos in Japan; McDonalds’ vegetarian burgers in India, where beef and pork are not served; and Coca-Cola’s acquisition of local soft drink brands Limca and Thums-Up in India, in order to avoid direct competition  with those well-established products.

International Impact

Multinational  corporations often use their resources to attempt to influence change in the world. For instance,  Asian  countries   do  not  always have—or are not able to enforce—intellectual  property  law to the same degree as in the West. There is a thriving business in pirated copies of movies and music, with little done  about  it. Western  corporations over the last decade have been trying hard to encourage Asian governments  and businesses to crack down on such piracy. Similarly, multinational corporations have pursued  international agreements  to respect patents and copyright, so that pharmaceutical companies that develop  a medicine  do  not  face competition   from companies   headquartered  in  countries   where  the developer’s patent is not upheld, and where the medicine could thus be manufactured legally and cheaply by companies that, in the eyes of the developer, do not own it. Other  product  patents  and intellectual property laws protect  the interests  of apparel companies, software and technology companies, and so on.

Multinational  corporations regularly  lobby, even in countries where they own no businesses, for favorable industry  and  environmental regulations  and  a favorable (or hostile-to-competitors) tariff structure, always seeking to shape the economic  environment to their interests. Of course, to an extent lobbying is much like advertising: for every dollar Pepsi spends, Coke spends a dollar to cancel it out, and in the end both  stay in the game just to keep the playing field level. In many cases, lobbying works the same way: with  tariffs, the  importing  companies  and  exporting companies  lobby to opposite  ends; with regulations, there is quite often a lobbying group that wants the opposite of what the corporation seeks, whether because of labor interests, environmental protection, consumer  protection,  and so on. For every corporation that markets  itself as a producer  of enviromentally friendly products  in order to attract  green dollars, there  is another  corporation that  spent  years fighting environmental legislation because of the costs or other consequences—often the very same corporation. Even companies  within the same industry  can lobby for opposite ends: if Coca-Cola and Pepsi both use vanilla in their  formulation  but Coca-Cola uses three  times as much,  it is arguably in Pepsi’s  interest to see an increased  tariff on vanilla beans. This becomes even more true if Pepsi’s vanilla beans come from a plantation they own, or if they are pondering a move to vanillin, a vanilla substitute.

Lobbying is not an available tactic in all countries, and  sometimes  is not  effective. In  smaller  or  less developed countries, market withdrawal is sometimes used as a threat: if the country will not adjust its laws or regulations  to suit the business, or if it insists on changing them  to make them  less conducive  to the business, then the business will cease operating there. This is most effective when the loss of the corporation’s business represents  something  more than  just the loss of jobs—though movie studios have been able to use market withdrawal and tax competition  to find the most amenable places to film (leading to Toronto and  Vancouver  serving  as  many  television  shows’ New York, for example).

 

Bibliography: 

  1. Daniel Drezner, All Politics is Global: Explaining International Regulatory Regimes (Princeton University Press,  2008);
  2. Barry Eichengreen, Globalizing Capital: A History of the International  Monetary  System (Princeton  University  Press,  2008);
  3. Niall Ferguson,  The Ascent of Money: A Financial History of the World (Penguin Press, 2008);
  4. Parissa Haghirian, Multinationals and CrossCultural Management: The Transfer of Knowledge Within Multinational Corporations (Routledge, 2008);
  5. Gerald L. Houseman, Economics in a Changed Universe: Joseph E. Stiglitz, Globalization, and the Death of “Free Enterprise” (Lexington Books, 2008);
  6. Nathan M. Jensen, Nation-States and  the Multinational Corporation:  A Political Economy of Foreign Direct Investment  (Princeton  University Press, 2008);
  7. Juan José Palacios Lara, Multinational Corporations and the Emerging Network Economy in Asia and the Pacific (Routledge, 2008);
  8. Alex Rubner, In the Twilight of the Multis: The Rise and Fall of the Multinational Corporations (Pen, 2008);
  9. Beth A. Simmons, Frank Dobbin, and Geoffrey Garrett, eds., The Global Diffusion of Markets and Democracy (Cambridge University Press, 2008);
  10. Paul J. Zak, ed., Moral Markets: The Critical Role of Values in the Economy (Princeton  University  Press,  2008);
  11. Fareed Zakaria,  The Post-American World (W.W. Norton & Co., 2008).

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