Multinational corporation is a type of business organization. Such organizations are based in one country, but they have branches, stores, or factories in many countries. Multinational corporations carry out large amounts of financing, production, sales, and research and development in their foreign operations. Trade agreements between nations and regions have aided the growth of multinationals.
Multinational corporations, also called MNC’s and transnational corporations, have developed since World War II ended in 1945. MNC’s can have great economic power. The largest MNC’s include BP, Exxon Mobil Corporation, Shell plc (public limited company), Toyota Motor Corporation, and Walmart, Inc. Each of these MNC’s has reported annual revenue (income) of greater than $230 billion. This figure is larger than the gross domestic product (GDP) of about 75 percent of the world’s countries. GDP is the market value of all final goods and services produced in a country during a given year.
Firms develop into MNC’s for a number of reasons. Becoming an MNC might allow a firm to obtain control over the supply of resources. It might also allow a firm to take advantage of the lower costs of foreign labor and materials. And, by becoming an MNC, a firm might avoid paying tariffs (taxes) on imported goods. A multinational firm might also avoid high production costs and taxes associated with certain operations in the home country.
Operation.
A multinational firm may have a few plants in one country that produce complete products to be sold in several countries. In other cases, plants in many countries may each make parts of the finished products. This process gives the MNC a larger area from which to choose the most economical locations for specialized plants. The corporation can then sell its products at lower prices than would otherwise be possible.
Multinational retailers, such as Walmart Inc., often have their corporate headquarters in one nation. Such corporations, however, order and purchase goods from manufacturers around the world to be sold in retail establishments in many countries.
Debate over MNC’s.
The economic role of multinational corporations has aroused widespread international debate. In the United States, for example, some labor groups believe that U.S. MNC’s increase unemployment at home by establishing operations in other countries. Another concern is that, by shifting production operations overseas, U.S. MNC’s decrease the flow of funds earned by U.S. exports. MNC defenders argue that such actions by U.S. MNC’s are offset by foreign-based MNC’s locating production operations within the United States.
Outside the United States, many people oppose U.S. multinational corporations because of their control over local economies and because of the large profits they earn. Supporters of MNC’s emphasize the contributions of an MNC’s technology and capital to economic development.
See also Globalization.
