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Multinational firms arise because capital is much more mobile than labor. Since cheap labor and raw material inputs are located in other countries, multinational firms establish subsidiaries there. They are often criticized as being runaway corporations.
Economists are not in agreement as to how multinational or transnational corporations should be defined. Multinational corporations have many dimensions and can be viewed from several perspectives (ownership, management, strategy and structural, etc.)
The following is an excerpt from Franklin Root, International Trade and Investment
Some argue that ownership is a key criterion. A firm becomes multinational only when the headquarter or parent company is effectively owned by nationals of two or more countries.
For example, Shell and Unilever, controlled by British and Dutch interests, are good examples. However, by ownership test, very few multinationals are multinational. The ownership of most MNCs are uninational. (e.g., the Smith-Corona versus Brothers case)
Smith-Corona argued that Brothers is a foreign corporation (51% is owned by Japanese), but Brothers maintained that Smith-Corona is a foreign corporation because their products are made in Asia. Ownership does not really matter. For tax purposes, Honda of America Manufacturing (OH) is an American company. Only foreign firms pay tariffs and are subject to import quotas.
Apple: 98% of iPhones are produced by Chinese contractors. 90% of Apple products are produced in China (Hence, Apple is a foreign company, subject to US tariff. Tim Cook is an American CEO, and hence Apple is often treated as an American company. Ownership criterion is irrelevant in most cases, except when calculating tariffs.
DuPont was founded as a gunpowder manufacturer in 1802 by E. I. du Pont, who fled France during the French Revolution in 1789. du Pont family's net worth: $16B. Invented nylon and kevlar. DuPont De Nemours' net worth is $31B.
An international company is multinational if the managers of the parent company are nationals of several countries. Usually, managers of the headquarters (e.g., GM, Toyota) are nationals of the home country. This may be a transitional phenomenon.
Japan's New Business Language (Rakuten, Japan's largest online firm with 100 million users, Amazon.com has 330 million users.)
On March 1, 2010, Hiroshi Mikitani, chief executive, everything at Rakuten, from meetings to menus, would be in English. (Financial Times, December 17, 2017). All staff were given two years to improve their English proficiency.
Very few companies pass this test currently.
Business Strategy
Sabvei(Subway) in Moscow.
Global profit maximization:
some are home country oriented,
others are host country oriented.
Successful firms: world-oriented , but must adapt to local markets.
Root's definition
Starbucks in Qian Men street, Beijing
According to Franklin Root (1994), an MNC is a parent company that
(i) engages in foreign production through its affiliates located in several countries,
(ii) exercises direct control over the policies of its affiliates, and
(iii) implements transnational business strategies in production, marketing, finance and staffing in a way that transcend national boundaries.
In other words, MNCs exhibit no loyalty to the country in which they are incorporated.
Barilla has plants and offices in Greece, France, Germany, Norway, Russia, Sweden, Turkey, US, and Mexico.
Wheat is purchased from around the world.
