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A multinational company (MNC) is a
corporate A corporation is an organization—usually a group of people or a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal person, legal ...

corporate
organization An organization, or organisation (Commonwealth English The use of the English language English is a of the , originally spoken by the inhabitants of . It is named after the , one of the ancient that migrated from , a peninsu ...

organization
that owns and controls the production 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 simply to diversify financial risks.
Black's Law Dictionary ''Black's Law Dictionary'' is the most widely used law dictionary Image:Legal Dictionaries.jpg, 300px, Several English and Russian legal dictionaries A law dictionary (also known as legal dictionary) is a dictionary that is designed and compiled to ...
suggests that a company or group should be considered a multinational corporation if it derives 25% or more of its revenue from out-of-home-country operations. A multinational corporation can also be referred to as a multinational enterprise (MNE), a transnational enterprise (TNE), a transnational corporation (TNC), an international corporation, or a stateless corporation. There are subtle but real differences between these terms. Most of the largest and most influential companies of the modern age are
publicly traded A public company, publicly traded company, publicly held company, publicly listed company, or public limited company A public limited company (legally abbreviated to PLC or plc) is a type of public company under United Kingdom company law, som ...
multinational corporations, including ''
Forbes Global 2000 The Forbes Global 2000 is an annual ranking of the top 2,000 public companies A public company, publicly traded company, publicly held company, publicly listed company, or public limited company A public limited company (legally abbreviated to ...
'' companies. Multinational corporations are subject to criticisms for lacking
ethical standards
ethical standards
. They have also become associated with
multinational tax haven A corporate haven, corporate tax haven, or multinational tax haven, is a jurisdiction that multinational corporations find attractive for establishing subsidiaries or incorporation of regional or main company headquarters, mostly due to favourabl ...
s and
base erosion and profit shifting Base erosion and profit shifting (BEPS) refers to corporate tax planning strategies used by multinationals to "shift" profits from higher-tax jurisdictions to lower-tax jurisdictions, thus "eroding" the "tax-base" of the higher-tax jurisdict ...
tax avoidance activities.


History


Colonialism

The history of multinational corporations began with the
history of colonialism The historical phenomenon of colonization Colonization, or colonisation refers to large-scale population movements where the migrants maintain strong links with their—or their ancestors'—former country, gaining significant privileges ov ...
. The first multinational corporations were founded to build set up colonial "factories" or port cities. In addition to carrying on trade between the mother country and the colonies, the British East India Company became a quasi-government in its own right, with local government officials and its own army in India . The two main examples were the
British East India Company The East India Company (EIC), also known as the Honourable East India Company (HEIC), East India Trading Company (EITC), the English East India Company or (after 1707) the British East India Company, and informally known as John Company, Com ...
, and the
Dutch East India Company The Dutch East India Company, officially the United East India Company ( nl, Vereenigde Oost Indische Compagnie; VOC), was a multinational corporation A multinational company (MNC) is a corporate organization that owns or controls the pro ...

Dutch East India Company
. Others included the
Swedish Africa Company The Swedish Africa Company ( sv, Svenska Afrikanska Kompaniet) was a Swedish trading company, founded in 1649 on the initiative of the Walloon- Dutch merchant Louis De Geer and his son Laurens, for whom Sweden had become a second home. The prima ...
, and the
Hudson's Bay Company The Hudson's Bay Company (HBC; french: Compagnie de la Baie d'Hudson) is a Canadian, now American-owned, retail Retail is the sale of goods In economics Economics () is the social science that studies how people interact with va ...
. These early corporations engaged in
international trade International trade is the exchange of capital Capital most commonly refers to: * Capital letter Letter case (or just case) is the distinction between the letters that are in larger uppercase or capitals (or more formally ''majuscul ...
and exploration, and set up
trading posts A trading post, trading station, or trading house, also known as a factory, was an establishment or settlement where goods and services could be traded. Typically the location of the trading post would allow people from one geographic area to tra ...
.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 during the 19th century, other governments increasingly took over the private companies, most notable in British India. During the process of
decolonization Decolonization (American American(s) may refer to: * American, something of, from, or related to the United States of America, commonly known as the United States The United States of America (USA), commonly known as the United States (U ...
, the European colonial charter companies were disbanded,with the final colonial corporation, the
Mozambique Company The Mozambique Company ( Portuguese: ''Companhia de Moçambique'') was a royal company operating in Portuguese Mozambique that had the concession of the lands in the Portuguese colony corresponding to the present provinces of Manica Province, Mani ...
, dissolving in 1972.


Mining

Mining of gold, silver, copper and especially oil major activities early on and remain so today. International mining companies became prominent in Britain in the 19th century, such as the Rio Tinto company founded in 1873, which started with the purchase of sulfur and copper mines from the Spanish government. Rio Tinto, now based in London and Melbourne Australia, has made many acquisitions and expanded globally to mine aluminium, iron ore, copper, uranium, and diamonds. European mines in South Africa began opening in the late 19th century, producing gold and other minerals for the world market, jobs for the locals, and business and profits for the companies.
Cecil Rhodes Cecil John Rhodes (5 July 1853 – 26 March 1902) was a British mining business magnate, magnate and politician in southern Africa who served as Prime Minister of the Cape Colony from 1890 to 1896. An ardent believer in British imperialism, Rho ...
(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 The British South Africa Company (BSAC or BSACo) was charteredChartered may refer to: * Charter, a legal document conferring rights or privileges ** University charter ** Chartered company * Chartered (professional), a professional credential * ...
and
De Beers De Beers Group is an international corporation that specializes in diamond Diamond is a solid form of the element carbon with its atoms arranged in a crystal structure In crystallography Crystallography is the experimental science of de ...

De Beers
. The latter company practically controlled the global diamond market from his base in southern Africa.


Oil

The "Seven Sisters" was a common term for the seven multinational companies which dominated the global
petroleum industry The petroleum industry, also known as the oil industry or the oil patch, includes the global processes of hydrocarbon exploration, exploration, extraction of petroleum, extraction, oil refinery, refining, Petroleum transport, transporting (often ...
from the mid-1940s to the mid-1970s. *
Anglo-Iranian Oil Company The Anglo-Persian Oil Company (APOC) was a British company founded in 1908 following the discovery of a large oil field A petroleum reservoir or oil and gas reservoir is a subsurface accumulation of hydrocarbons In organic chemistry, a hydrocarb ...
(originally Anglo-Persian; now ) *
Royal Dutch Shell Royal Dutch Shell plc (to be renamed Shell plc effective 24 January 2022), commonly known as Shell, is a British British may refer to: Peoples, culture, and language * British people, nationals or natives of the United Kingdom, British Overs ...
*
Standard Oil Company of California Chevron Corporation is an American multinational energy corporation. One of the successor companies of Standard Oil Standard Oil Co. was an American petroleum, oil-producing, transporting, refining, and marketing company. Established in 18 ...
(SoCal, later
Chevron Chevron (often relating to V-shaped patterns) may refer to: Science and technology * Chevron (aerospace), sawtooth patterns on some jet engines * Chevron (anatomy), a bone * ''Eulithis testata'', a moth * Chevron (geology), a fold in rock laye ...
) *
Gulf Oil Gulf Oil was a major global oil company from 1901 until March 15, 1985. The eighth-largest American manufacturing company in 1941 and the ninth-largest in 1979, Gulf Oil was one of the so-called Seven Sisters oil companies. Prior to its merger w ...

Gulf Oil
(now merged into Chevron) *
Texaco#REDIRECT Texaco Texaco, Inc. ("The Texas Company") is an American oil subsidiary of Chevron Corporation. Its flagship product is its fuel "Texaco with Techron". It also owns the Havoline motor oil brand. Texaco was an independent company until ...

Texaco
(now merged into Chevron) *
Standard Oil Company of New Jersey Exxon is the brand name of the oil and natural resources company Exxon Corporation which was, prior to 1972, known as Standard Oil Company of New Jersey. In 1999, Exxon Corporation merged with Mobil to form ExxonMobil. The ''Exxon'' brand is ...
(
Esso Esso is a trading name A trade name, trading name, or business name is a pseudonym A pseudonym () or alias () (originally: ψευδώνυμος in Greek) is a fictitious name that a person or group assumes for a particular purpose, which di ...

Esso
, later
Exxon Exxon is the brand A brand is a name, term, design, symbol or any other feature that identifies one seller's good or service as distinct from those of other sellers. Brands are used in business, marketing, and advertising for recognition ...
, now part of
ExxonMobil Exxon Mobil Corporation, stylized as ExxonMobil, is an American multinational Multinational may refer to: * Multinational corporation, a corporate organization operating in multiple countries * Multinational force, a military body from multip ...
) *
Standard Oil Company of New York Standard may refer to: Symbols * Colours, standards and guidons In military organizations, the practice of carrying colours, standards or guidons, both to act as a rallying point for troops and to mark the location of the commander, is t ...

Standard Oil Company of New York
(Socony, later
Mobil Mobil Corporation, (originally Standard Oil Company of New York and then Socony-Vacuum Oil Company) was an American oil company that merged with Exxon Exxon is the brand A brand is a name, term, design, symbol or any other feature th ...

Mobil
, now part of ExxonMobil) Preceding the 1973 oil crisis, the Seven Sisters controlled around 85 per cent of the world's petroleum reserves. In the 1970s most countries with large reserves nationalized their reserves that had been owned by major oil companies. Since then, industry dominance has shifted to the
OPEC The Organization of the Petroleum Exporting Countries (OPEC, ) is an intergovernmental organization An intergovernmental organization (IGO) is an organization composed primarily of sovereign states (referred to as ''member states''), or o ...

OPEC
cartel and state-owned oil and gas companies, such as
Saudi Aramco Saudi Aramco ( ar, أرامكو السعودية '), officially the Saudi Arabian Oil Company (formerly Arabian-American Oil Company), is a Saudi Arabian public petroleum and natural gas company based in Dhahran. , it is one of the List of larges ...
,
Gazprom PJSC Gazprom (russian: Газпром, ) is a Russian majority state-owned multinational Multinational may refer to: * Multinational corporation, a corporate organization operating in multiple countries * Multinational force, a military body fr ...
(Russia),
China National Petroleum Corporation The China National Petroleum Corporation (CNPC) () is a major national oil and gas corporation of China and one of the largest integrated energy groups in the world. Its headquarters are in Dongcheng District, Beijing, Dongcheng District, Beijin ...
,
National Iranian Oil Company The National Iranian Oil Company (NIOC; fa, شرکت ملّی نفت ایران, Sherkat-e Melli-ye Naft-e Īrān) is a government-owned national oil An oil is any nonpolar chemical substance A chemical substance is a form of matter ...
,
PDVSA Petróleos de Venezuela, S.A. (PDVSA, ) (English: Petroleum of Venezuela) is the Venezuela Venezuela (; ), officially the Bolivarian Republic of Venezuela ( es, link=no, República Bolivariana de Venezuela), is a country on the northern ...
(Venezuela),
Petrobras Petróleo Brasileiro S.A., better known by the acronym Petrobras (), is a state-owned Brazilian multinational corporation A multinational company (MNC) is a corporate organization that owns or controls the production of goods or services in ...

Petrobras
(Brazil), and
Petronas Petroliam Nasional Berhad (National Petroleum Limited), commonly known as Petronas, is a Malaysian petroleum, oil and natural gas, gas company. Established in 1974 and wholly owned by the Government of Malaysia, the corporation is vested with ...

Petronas
(Malaysia). By 2012 only 7% of the world's known oil reserves were in countries that allowed private international companies free rein. Fully 65% were in the hands of state-owned companies that operated in one country and sold oil to multinationals such as BP, Shell, ExxonMobil and Chevron.


Manufacturing

Down through the 1930s about 4/5 of the international investments by the multinational corporations was concentrated in the primary sector, especially mining (especially oil) and agriculture (rubber, tobacco, sugar, palm oil, coffee, cocoa, tropical fruits). Most went to the Third World colonies. That change dramatically after 1945 as the investors turn to industrialized countries, and invested in manufacturing (especially high tech electronics, chemicals, drugs and vehicles) as well as trade. Sweden's leading manufacturing concern was
SKF AB SKF (Swedish: ''Svenska Kullagerfabriken''; 'Swedish Ball bearing, Ball Bearing Factory') is a Swedish bearing (mechanical), bearing and seal (mechanical), seal manufacturing company founded in Gothenburg, Sweden, in 1907. The company manufac ...
, a leading maker of bearings for machinery. In order to expand its international business, it decided in 1966 it needed to use the English language. Senior officials, although mostly still Swedish, all learned English in all major internal documents were in English, the lingua franca of multinational corporations. it ordered all its senior officials an English language Is it expanded its international business it decided to become


Unilever

A prominent multinational manufacturer is
Unilever Unilever PLC is a British multinational Multinational may refer to: * Multinational corporation, a corporate organization operating in multiple countries * Multinational force, a military body from multiple countries * Multinational state, a so ...

Unilever
, a
consumer goods A final good or consumer good is a final product In Production (economics), production, a final product, or finished product is a product (business), product that is ready for sale.Wouters, Mark; Selto, Frank H.; Hilton, Ronald W.; Maher, Michae ...
company headquartered in London. Its products include many foods, as well as vitamins, supplements, tea, coffee, cleaning agents, water and air purifiers, pet food, and cosmetics. Unilever is the largest producer of soap in the world. Its Unilever's products are sold in 190 countries. Unilever owns over 400 brands, with a turnover in 2020 of 51 billion
euro The euro (currency symbol, symbol: euro sign, €; ISO 4217, code: EUR) is the official currency of 19 of the Member state of the European Union, member states of the European Union. This group of states is known as the eurozone or euro area ...

euro
s. The company is organised into three main divisions: Foods and Refreshments; Home Care; and Beauty & Personal Care. It has research and development facilities in China, India, the Netherlands, the United Kingdom, and the United States. Unilever was founded in 1929 by the merger of a Dutch margarine producer
Margarine Unie Margarine (, also , ) is a spread used for flavoring, baking and cooking. It is most often used as an inexpensive butter substitute. It was named ''oleomargarine'' from Latin for ''oleum'' (olive oil) and Greek ''margarite'' (pearl indicating lus ...
and the British soapmaker
Lever Brothers Lever Brothers was a British manufacturing company founded in 1885 by two brothers: William Hesketh Lever, 1st Viscount Leverhulme (1851–1925), and James Darcy Lever (1854–1916). They invested in and successfully promoted a new soap-making proc ...
. After 1950, it increasingly diversified its products and expanded its operations worldwide. Its numerous acquisitions included
Lipton Lipton is a British brand of tea, owned by Unilever. Lipton was also a supermarket chain in the United Kingdom, later sold to Argyll Foods, after which the company sold only tea. The company is named after its founder Sir Thomas Lipton. The Lip ...
(1971),
Brooke Bond Brooke Bond is a brand of tea owned by Unilever Unilever is an Anglo-Dutch multinational corporation, multinational Fast moving consumer goods, consumer goods company headquartered in London, England, and Rotterdam, Netherlands. Unilever products ...
(1984), Chesebrough-Ponds (1987),
Best Foods Best or The Best may refer to: People * Best (surname), people with the surname Best * Best (footballer, born 1968), retired Portuguese footballer Companies and organizations * Best & Co., an 1879–1971 clothing chain * Best Lock Corporation, ...
(2000),
Ben & Jerry's Ben & Jerry's Homemade Holdings Inc., trading and commonly known as Ben & Jerry's, is a Vermont company that manufactures ice cream, frozen yogurt, and sorbet. It was founded in 1978 in Burlington, Vermont, and sold in 2000 to British conglomerat ...

Ben & Jerry's
(2000),
Alberto-Culver Alberto-Culver was an American American(s) may refer to: * American, something of, from, or related to the United States of America, commonly known as the United States The United States of America (USA), commonly known as the United Stat ...
(2010),
Dollar Shave Club Dollar Shave Club is an American company based in Venice, California Venice is a neighborhood in the city of Los Angeles within the Westside region of Los Angeles County, California. Venice was founded by Abbot Kinney in 1905 as a seaside res ...
(2016) and Pukka Herbs (2017).


Current status

A multinational corporation (MNC) is usually a large corporation incorporated in one country which produces or sells goods or services in various countries. Two common characteristics shared by MNCs are their large size and the fact that their worldwide activities are centrally controlled by the parent companies. *
Import An import is the receiving country in an export An export in international trade International trade is the exchange of capital, goods, and services across international borders or territories because there is a need or want of go ...

Import
ing and
export An export in international trade International trade is the exchange of capital, goods, and services across international borders or territories because there is a need or want of goods or services. In most countries, such trade rep ...

export
ing goods and services * Making significant investments in a foreign country * Buying and selling licenses in foreign markets * Engaging in
contract manufacturing A contract manufacturer (CM) is a manufacturer that contracts with a firm for components or products (in which case it is a turnkey supplier). It is a form of outsourcing. A contract manufacturer performing packaging operations is called copacker or ...
— permitting a local manufacturer in a foreign country to produce its products * Opening manufacturing facilities or assembly operations in foreign countries MNCs may gain from their global presence in a variety of ways. First of all, MNCs can benefit from the
economy of scale 330px, As quantity of production increases from Q to Q2, the average cost of each unit decreases from C to C1. LRAC is the long-run average cost In microeconomics Microeconomics (from Greek prefix ''mikro-'' meaning "small" + ''economics'') ...
by spreading expenditures and advertising costs over their global sales, pooling global purchasing power over suppliers, and utilizing their technological and managerial know-how globally with minimal additional costs. Furthermore, MNCs can use their global presence to take advantage of underpriced labor services available in certain developing countries, and gain access to special R&D capabilities residing in advanced foreign 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 Socioeconomics (also known as social economics) is the social science that studies how economic activity affects and is shaped by social processes. In general it analyzes how modern society, societies social progress, progress, economic stagnation ...
problems that emerged during the late twentieth century. Potentially, the best concept for analyzing society's governance limitations over modern corporations is the concept of "stateless corporations". Coined at least as early as 1991 in ''
Business Week ''Bloomberg Businessweek'', previously known as ''BusinessWeek'', is an American weekly business magazine, published 50 times a year. Since 2009, the magazine is owned by New York City New York, often called New York City to distinguish i ...
'', the conception was theoretically clarified in 1993: that an empirical strategy for defining a stateless corporation is with analytical tools at the intersection between
demographic Demography (from prefix ''demo-'' from Ancient Greek Ancient Greek includes the forms of the Greek language used in ancient Greece and the classical antiquity, ancient world from around 1500 BC to 300 BC. It is often roughly divided ...

demographic
analysis and
transportation Transport (in British English British English (BrE) is the standard dialect of the English language English is a West Germanic languages, West Germanic language first spoken in History of Anglo-Saxon England, early medieval Engl ...

transportation
research. This intersection is known as
logistics management Logistics is generally the detailed organization and implementation of a complex operation. In a general business sense, logistics is the management of the flow of things between the point of origin and the point of consumption to meet the requi ...

logistics management
, and it describes the importance of rapidly increasing global mobility of resources. In a long history of analysis of multinational corporations we are some quarter century into an era of stateless corporations - corporations which meet the realities of the needs of source materials on a worldwide basis and to produce and customize products for individual countries. One of the first multinational business organizations, the
East India Company The East India Company (EIC), also known as the Honourable East India Company (HEIC), East India Trading Company (EITC), the English East India Company or (after Acts of Union 1707, 1707) the British East India Company, and informally known a ...
, was established in 1601. After the East India Company, came the
Dutch East India Company The Dutch East India Company, officially the United East India Company ( nl, Vereenigde Oost Indische Compagnie; VOC), was a multinational corporation A multinational company (MNC) is a corporate organization that owns or controls the pro ...

Dutch East India Company
, founded March 20, 1603, which would become the largest company in the world for nearly 200 years. The main characteristics of multinational companies are: * In general, there is a national strength of large companies as the main body, in the way of foreign direct investment or acquire local enterprises, established
subsidiaries A subsidiary, subsidiary company or daughter company is a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal personality, legal or a mixture ...
or branches in many countries; * It usually has a complete
decision-making In psychology, decision-making (also spelled decision making and decisionmaking) is regarded as the Cognition, cognitive process resulting in the selection of a belief or a course of action among several possible alternative options, it could be ...
system and the highest decision-making centre, each subsidiary or branch has its own decision-making body, according to their different features and operations to make decisions, but its decision must be subordinated to the highest decision-making centre; * MNCs seek markets in worldwide and rational production layout, professional fixed-point production, fixed-point sales products, in order to achieve ; * Due to strong economic and technical strength, with fast information transmission, as well as funding for rapid cross-border transfers, the multinational has stronger
competitiveness In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods ...
in the world; * Many large multinational companies have varying degrees of monopoly in some area, due to economic and technical strength or production advantages.


Foreign direct investment

When a corporation invests in the country which it is not domiciled, it is called foreign direct investment (FDI). Countries may place restrictions on direct investment; for example, China has historically required partnerships with local firms or special approval for certain types of investments by foreigners, although some of these restrictions were eased in 2019. Similarly, the United States
Committee on Foreign Investment in the United States The Committee on Foreign Investment in the United States (CFIUS, commonly pronounced "Cifius" ) is an inter-agency committee of the United States Government The federal government of the United States (U.S. federal government) is the na ...
scrutinizes foreign investments. In addition, corporations may be prohibited from various business transactions by
international sanctions International sanctions are political and economic decisions that are part of diplomatic efforts by countries, multilateral or regional organizations against states or organizations either to protect national security interests, or to protect int ...
or domestic laws. For example, Chinese domestic corporations or citizens have limitations on their ability to make foreign investments outside of China, in part to reduce capital outflow. Countries can impose extraterritorial sanctions on foreign corporations even for doing business with other foreign corporations, which occurred in 2019 with the United States
sanctions against Iran There have been a number of sanctions against Iran imposed by a number of countries, especially the United States, and international entities. The first sanctions were imposed by the United States in November 1979 after a group of Muslim Student ...
; European companies faced with the possibility of losing access to the US market by trading with Iran.
International investment agreementAn International Investment Agreement (IIA) is a type of treaty between countries that addresses issues relevant to cross-border investments, usually for the purpose of protection, promotion and liberalization of such investments. Most IIAs cover for ...
s also facilitate direct investment between two countries, such as the
North American Free Trade Agreement The North American Free Trade Agreement (NAFTA; es, Tratado de Libre Comercio de América del Norte, TLCAN; french: Accord de libre-échange nord-américain, ALÉNA) was an agreement signed by Canada Canada is a country in the north ...
and
most favored nation In international economic relations and international politics, most favoured nation (MFN) is a status or level of treatment accorded by one state State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly maga ...
status.


Legal domicile

Raymond Vernon reported in 1977 that of the largest multinationals focused on manufacturing, 250 were headquartered in the United States, 115 in Western Europe, 70 in Japan, and 20 in the rest of the world . The multinationals in banking numbered 20 headquartered in the United States, 13 in Europe, nine in Japan and three in Canada. Today multinationals can select from a variety of jurisdictions for various subsidiaries, but the ultimate parent company can select a single legal domicile; ''
The Economist ''The Economist'' is an international weekly newspaper A weekly newspaper is a general-news or current affairsCurrent affairs may refer to: Media * Current Affairs (magazine), ''Current Affairs'' (magazine), a bimonthly magazine of cult ...
'' suggests that the Netherlands has become a popular choice, as its company laws have fewer requirements for meetings, compensation, and audit committees, and Great Britain had advantages due to laws on withholding dividends and a double-taxation treaty with the United States. Corporations can legally engage in
tax avoidance Tax avoidance is the legal usage of the tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law, a legal person is any person A person (plural people or persons ...
through their choice of jurisdiction, but must be careful to avoid illegal
tax evasion Tax evasion is an illegal attempt to defeat the imposition of taxes A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law Law is a system A system is a g ...
.


Stateless or transnational

Corporations that are broadly active across the world without a concentration in one area have been called stateless or "transnational" (although "transnational corporation" is also used synonymously with "multinational corporation"), but 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.


Regulation and taxation

Multinational corporations may be subject to the laws and regulations of both their domicile and the additional jurisdictions where they are engaged in business. In some cases, the jurisdiction can help to avoid burdensome laws, but regulatory statutes often target the "enterprise" with statutory language around "control". , the United States and most OECD countries have legal authority to tax a domiciled parent corporation on its worldwide revenue, including subsidiaries; , the US applies its corporate taxation "extraterritorially", which has motivated
tax inversion A tax inversion or corporate tax inversion is a form of tax avoidance where a corporation restructures so that the current parent is replaced by a foreign parent, and the original parent company becomes a subsidiary of the foreign parent, thus mov ...
s to change the home state. By 2019, most OECD nations, with the notable exception of the US, had moved to territorial tax in which only revenue inside the border was taxed; however, these nations typically scrutinize foreign income with controlled foreign corporation (CFC) rules to avoid
base erosion and profit shifting Base erosion and profit shifting (BEPS) refers to corporate tax planning strategies used by multinationals to "shift" profits from higher-tax jurisdictions to lower-tax jurisdictions, thus "eroding" the "tax-base" of the higher-tax jurisdict ...
. In practice, even under an extraterritorial system taxes may be deferred until remittance, with possible
repatriation tax holiday A repatriation tax holiday is a tax holiday specifically directed towards individuals and businesses in one country who repatriate to that country income Income is the consumption and saving opportunity gained by an entity within a specified time ...
s, and subject to
foreign tax credit A foreign tax credit (FTC) is generally offered by income tax systems that tax residents on worldwide income, to mitigate the potential for double taxationDouble taxation is the levying of tax by two or more jurisdictions on the same income (in the ...
s. Countries generally cannot tax the worldwide revenue of a foreign subsidiary, and taxation is complicated by
transfer pricing In taxation and accounting, transfer pricing refers to the rules and methods for pricing transactions within and between enterprises under common ownership or control. Because of the potential for cross-border controlled transactions to distort ...
arrangements with parent corporations.


Alternatives and arrangements

For small corporations, registering a foreign subsidiary can be expensive and complex, involving fees, signatures, and forms; a
professional employer organization A professional employer organization (PEO) is an outsourcing firm that provides services to small and medium-sized businesses (SMBs). Typically, the PEO offering may include human resource consulting, safety and risk mitigation services, payroll pr ...
(PEO) is sometimes advertised as a cheaper and simpler alternative, but not all jurisdictions have laws accepting these types of arrangements.


Dispute resolution and arbitration

Disputes between corporations in different nations is often handled through
international arbitration International arbitration is arbitration Image:LCIA.jpg, upright=1.5, The London Court of International Arbitration Arbitration, a form of alternative dispute resolution (ADR), is a way to resolve disputes outside the judiciary courts. The di ...
.


Theoretical background

The actions of multinational corporations are strongly supported by
economic liberalism Economic liberalism (also known as fiscal conservatism in United States politics) is a political Politics (from , ) is the set of activities that are associated with Decision-making, making decisions in Social group, groups, or other form ...
and
free market In economics Economics () is a social science Social science is the branch A branch ( or , ) or tree branch (sometimes referred to in botany Botany, also called , plant biology or phytology, is the science of pl ...
system in a
globalized Globalization, or globalisation (English in the Commonwealth of Nations, Commonwealth English; American and British English spelling differences#-ise, -ize (-isation, -ization), see spelling differences), is the process of foreign relation ...
international society. According to the economic realist view, individuals act in rational ways to maximize their self-interest and therefore, when individuals act rationally, markets are created and they function best in free market system where there is little government interference. As a result, international wealth is maximized with free exchange of goods and services. To many economic liberals, multinational corporations are the vanguard of the liberal order. They are the embodiment par excellence of the liberal ideal of an interdependent world economy. They have taken the integration of national economies beyond trade and money to the internationalization of production. For the first time in history, production, marketing, and investment are being organized on a global scale rather than in terms of isolated national economies. International business is also a specialist field of academic research. Economic theories of the multinational corporation include internalization theory and the eclectic paradigm. The latter is also known as the OLI framework. The other theoretical dimension of the role of multinational corporations 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 going back at least to the 60s. For example:


Multinational enterprise

"Multinational enterprise" (MNE) is the term used by international economist and similarly defined with the multinational corporation (MNC) as an enterprise that controls and manages production establishments, known as plants located in at least two countries. The multinational enterprise (MNE) will engage in foreign direct investment (FDI) as the firm makes direct investments in host country plants for equity ownership and managerial control to avoid some
transaction cost In economics and related disciplines, a transaction cost is a cost in making any economic trade when participating in a Market (economics), market. Oliver E. Williamson defines transaction costs as the costs of running an economic system of companie ...
s.


Criticism

Sanjaya Lall in 1974 proposed a spectrum of scholarly analysis of multinational corporations, from the political right to the left. He put the business school how-to-do-it writers at the extreme right, followed by the liberal laissez-faire economists, and the neoliberals (they remain right of center but do allow for occasional mistakes of the marketplace such as externalities). Moving to the left side of the line are nationalists, who prioritize national interests over corporate profits, then the "dependencia" school in Latin America that focuses on the evils of imperialism, and on the far left the Marxists. The range is so broad that scholarly consensus is hard to discern. Anti-corporate advocates criticize multinational corporations for being without a basis in a national
ethos Ethos ( or ) is a Greek#REDIRECT Greek Greek may refer to: Greece Anything of, from, or related to Greece Greece ( el, Ελλάδα, , ), officially the Hellenic Republic, is a country located in Southeast Europe. Its population is appro ...

ethos
, being ultimately without a specific nationhood, and that this lack of an ethos appears in their ways of operating as they enter into contracts with countries that have low
human rights Human rights are moral A moral (from Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally spoken in the area around Rome, known as Latium. ...
or
environmental standards A biophysical environment is a biotic Biotics describe living or once living components of a community; for example organisms, such as animals and plants. Biotic may refer to: *Life, the condition of living organisms *Biology, the study of life ...
. In the world economy facilitated by multinational corporations, capital will increasingly be able to play workers, communities, and nations off against one another as they demand tax, regulation and wage concessions while threatening to move. In other words, increased mobility of multinational corporations benefit capital while workers and communities lose. Some negative outcomes generated by multinational corporations include increased
inequality Inequality may refer to: Economics * Attention inequality Attention inequality is a term used to target the inequality of distribution of attention across users on social networks, people in general, and for scientific papers. Yun Family Foundat ...
,
unemployment Unemployment, according to the OECD The Organisation for Economic Co-operation and Development (OECD; french: Organisation de Coopération et de Développement Économiques, OCDE) is an intergovernmental economic organisation with 38&nbs ...
, and
wage stagnation US net productivity compared to real wages. Real wages are wages adjusted for inflation In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), produc ...
. For the debate from a neo-liberal perspective see Raymond Vernon, ''Storm over the Multinationals'' (1977).
The aggressive use of
tax avoidance Tax avoidance is the legal usage of the tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law, a legal person is any person A person (plural people or persons ...
schemes, and
multinational tax haven A corporate haven, corporate tax haven, or multinational tax haven, is a jurisdiction that multinational corporations find attractive for establishing subsidiaries or incorporation of regional or main company headquarters, mostly due to favourabl ...
s, allows multinational corporations to gain competitive advantages over
small and medium-sized enterprises Small and medium-sized enterprises (SMEs) or small and medium-sized businesses (SMBs) are businesses whose personnel numbers fall below certain limits. The abbreviation "SME" is used by international organizations such as the World Bank, the Europea ...
. Organizations such as the
Tax Justice Network The Tax Justice Network (or TJN) is an advocacy group Advocacy groups, also known as special interest groups, use various forms of advocacy in order to influence public opinion and ultimately policy. They play an important role in the devel ...

Tax Justice Network
criticize governments for allowing multinational organizations to escape tax, particularly by using
base erosion and profit shifting Base erosion and profit shifting (BEPS) refers to corporate tax planning strategies used by multinationals to "shift" profits from higher-tax jurisdictions to lower-tax jurisdictions, thus "eroding" the "tax-base" of the higher-tax jurisdict ...
(BEPS) tax tools, since less money can be spent for public services.Tax Justice Network
Taxing corporations
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See also

*
Globalization Globalization, or globalisation (Commonwealth English The use of the English language English is a West Germanic languages, West Germanic language first spoken in History of Anglo-Saxon England, early medieval England, which ha ...

Globalization
*
Global workforceGlobal workforce refers to the international labor pool of workers, including those employed Employment is a relationship between two parties, usually based on contract A contract is a legally binding document between at least two parties tha ...
* List of multinational corporations * Transnational Corporations Observatory * World economy * Multinational tax haven


Notes


References


Further reading

* Cameron, Rondo, V. I. Bovykin, et al. eds. ''International banking, 1870-1914'' (1991) * Chandler, Alfred D. and Bruce Mazlish, eds. ''Leviathans: Multinational Corporations and the New Global History'' (2005)
online
* Chandler, Alfred D. et al. eds. ''Big Business and the Wealth of Nations'' (Cambridge University Press, 1999
excerpt
* Chernow, Ron. ''The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance'' (2010
excerpt
* Davenport-Hines, R. P. T., and Geoffrey Jones, eds. ''British Business in Asia since 1860'' (2003
excerpt
* Dunning. John H. and Sarianna M. Lundan. ''Multinational Enterprises and the Global Economy'' (2nd ed. 2008), major textboo
1993 edition online
* Habib-Mintz, Nazia. "Multinational corporations’ role in improving labour standards in developing countries." ''Journal of International Business and Economy'' 10.2 (2009): 1-20
online
* Hunt, Michael H. "Americans in the China Market: Economic Opportunities and Economic Nationalism, 1890s-1931." ''Business History Review'' 51.3 (1977): 277–307
online
* Jones, Geoffrey. ''Multinationals and Global Capitalism: From the Nineteenth to the Twenty-first Century'' (2005) * Jones, Geoffrey. ''Merchants to multinationals : British trading companies in the nineteenth and twentieth centuries'' (2000
online
* Jones, Geoffrey, and Jonathan Zeitlin, eds. ''The Oxford Handbook of Business History'' (2008) * Jones, Geoffrey, et al. ''The History of the British Bank of the Middle East: Vol. 2, Banking and Oil'' (1987) * Jones, Geoffrey. ''The Evolution of International Business'' (1995
online
* Lumby, Anthony. "Economic history and theories of the multinational corporation." ''South African journal of economic history'' 3.2 (1988): 104–124. * Martin, Lisa, ed. ''The Oxford Handbook of the Political Economy of International Trade'' (2015
excerpt
* Munjal, Surender, Pawan Budhwar, and Vijay Pereira. "A perspective on multinational enterprise’s national identity dilemma." ''Social Identities'' 24.5 (2018): 548–563
online
* Stopford, John M. "The origins of British-based multinational manufacturing enterprises." ''Business History Review'' 48.3 (1974): 303–335. * Tugendhat, Christopher. ''The multinationals'' (Penguin, 1973
online
* Vernon, Raymond. ''Storm over the Multinationals: The Real Issues'' (Harvard UP, 1977)
online
* Wells, Louis T. ''Third world multinationals: The rise of foreign investments from developing countries'' (MIT Press, 1983) on companies based in Third World * Wilkins, Mira. "The history of multinational enterprise." in ''The Oxford handbook of international business'' vol 2 (2009)
online
* Wilkins, Mira. ''The Emergence of Multinational Enterprise: American Business Abroad from the Colonial Era to 1914'' (1970) ** Wilkins, Mira. ''Maturing of Multinational Enterprise : American Business Abroad from 1914 to 1970'' (1974) * Wilkins, Mira. ''American business abroad: Ford on six continents'' (1964
online


Corporate histories

* Ciafone, Amanda. ''Counter-Cola: A Multinational History of the Global Corporation'' (U of California Press, 2019) on Coca-Cola. * Fritz, Martin and Karlsson, Birgit. ''SKF: A Global Story, 1907-2007'' (2006). ISBN 978-91-7736-576-1 * Scheiber, Harry N. "World War I as Entrepreneurial Opportunity: Willard Straight and the American International Corporation." ''Political Science Quarterly'' 84.3 (1969): 486–511
online


Historiography

* Hernes, Helga. ''The Multinational Corporation: A Guide to Information Sources'' (Gale, 1977)
online


External links




UNCTAD publications on multinational corporations
{{DEFAULTSORT:Multinational corporation International business Multinational companies, Transnationalism Economic globalization