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A multinational corporation ( MNC); also called a multinational enterprise ( MNE), transnational enterprise ( TNE), transnational corporation ( TNC), international corporation, or stateless corporation, is a corporate 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 solely to diversify financial risks.
Most of the current largest and most influential companies are Public company multinational corporations, including Forbes Global 2000 companies.
The Dutch government took over the VOC in 1799, and during the 19th century, other governments increasingly took over private companies, most notably in British India.Nick Robins, Nick. The Corporation That Changed the World How the East India Company Shaped the Modern Multinational. London: Pluto, 2006. 145. During the process of decolonization, the European colonial charter companies were disbanded, with the final colonial corporation, the Mozambique Company, dissolving in 1972.
The "Seven Sisters" was a common term for the seven multinational companies that dominated the global petroleum industry from the mid-1940s to the mid-1970s.Anthony Sampson, The Seven Sisters: The Great Oil Companies and the World They Shaped (1975) online
The nationalization of the Iranian oil industry in 1951 by Iranian Prime Minister Mohammad Mosaddegh and the subsequent boycott of Iranian oil by all companies had dramatic consequences for Iran and the international oil market. Iran was unable to sell any of its oil. In August 1953, the then-prime minister was overthrown by a pro-American dictatorship led by the Shah, and in October 1954, the Iranian industry was denationalized.
Worldwide oil consumption increased rapidly between 1949 and 1970. This increase in consumption was caused not only by the growth of production by multinational oil companies but also by the strong influence of the United States on the global oil market.
In 1959, companies lowered the price of oil due to a surplus in the market. This reduction dealt a significant blow to the finances of producers. Saudi oil minister Abdullah Tariki and Venezuela's Juan Perez Alfonso entered into a secret agreement (the Mahdi Pact), promising that if the price of oil was lowered a second time, they would take collective action against the companies. This occurred in 1960. Prior to the 1973 oil crisis, the Seven Sisters controlled around 85 percent 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 cartel and state-owned oil and gas companies, such as Saudi Aramco, Gazprom (Russia), China National Petroleum Corporation, National Iranian Oil Company, PDVSA (Venezuela), Petrobras (Brazil), and Petronas (Malaysia).
The rise in oil prices burdened developing countries with balance of payments deficits, leading to an energy crisis. OPEC members had to abandon their plan of redistributing wealth from the West to the post-colonial South and invest either in foreign expenditures or ostentatious economic development projects. After 1974, most of the money from OPEC members ceased as payments for goods and services or investments in Western industry.
In February 1974, the first Washington Energy Conference convened. The most significant contribution of this conference was the establishment of the International Energy Agency (IEA), enabling states to coordinate policy, gather data, and monitor global oil reserves.
In the 1970s, OPEC gradually nationalized the Seven Sisters. The Kingdom of Saudi Arabia, as the world's largest oil producer, could leverage this. However, Saudi Arabia opted for the correct approach and maintained consistent oil prices throughout the 1970s.
In 1979, the "second oil shock" came from the collapse of the Shah's regime in Iran. Iran had become a regional power due to oil money and American weapons. The Shah eventually abdicated and fled the country. This prompted a strike by thousands of Iranian oil workers, significantly reducing oil production in Iran. Saudi Arabia tried to cope with the crisis by increasing production, but oil prices still soared, leading to the "second oil shock."
Saudi Arabia significantly reduced oil production, losing most of its revenues. In 1986, Riyadh changed course, and oil production in Saudi Arabia sharply increased, flooding the market with cheap oil. This caused a worldwide drop in oil prices, hence the "third oil shock" or "counter-shock." However, this shock represented something much bigger—the end of OPEC's dominance and its control over oil prices.
Iraqi President Saddam Hussein decided to attack Kuwait. The invasion sparked a crisis in the Middle East, prompting Saudi Arabia to request assistance from the United States. The United States sent a million troops to help, and by February 1991, Iraqi forces were expelled from Kuwait. Due to the oil boycott from Kuwait and Iran, oil prices rose and quickly recovered. Saudi Arabia once again led OPEC, and thanks to assistance in defending Kuwait, new relations emerged between the US and OPEC. Operation "Desert Storm" brought mutual dependence among the main oil producers. OPEC continued to influence global oil prices but recognized the United States as the largest consumer and guarantor of the existing oil security order.
The United States still maintains close relations with Saudi Arabia. In 2003, U.S. forces invaded Iraq, intending to remove the dictatorship and gain access to Iraqi oil reserves, giving the United States greater strategic importance from 2000 to 2008. During this period, there was a constant shortage of oil, but its consumption continued to rise, maintaining high prices and leading to concerns about "peak oil".
From 2005 to 2012, there were advances in oil and gas extraction, leading to increased production in the United States from 2010. The USA became the leading oil producer, creating tension with OPEC. In 2014, Saudi Arabia increased production to push new American producers out of the market, leading to lower prices. OPEC then reduced production in 2016 to raise prices, further worsening relations with the United States.
By 2012, only 7% of the world's known oil reserves were in countries that allowed private international companies free rein; 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.
Sweden's leading manufacturing concern was SKF, a leading maker of bearings for machinery. In order to expand its international business, it decided in 1966 that it needed to use the English language. Senior officials, although mostly still Swedish, all learned English, and all major internal documents were in English, the lingua franca of multinational corporations.Christopher Tugendhat, The Multinationals (1973) p 147.
MNCs may gain from their global presence in a variety of ways. First of all, MNCs can benefit from the economy of scale by spreading R&D expenditures and advertising costs over their global sales, pooling global purchasing power over suppliers, and utilizing their technological and managerial experience 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 problems that have 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, 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 analysis and transportation research. This intersection is known as logistics, 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 that meet the realities of the needs of source materials on a worldwide basis and to produce and customize products for individual countries.Holstein, William J. et al., "The Stateless Corporation", Business Week (May 14, 1991), p. 98. Roy D. Voorhees, Emerson L. Seim, and John I. Coppett, "Global Logistics and Stateless Corporations", Transportation Practitioners Journal 59, 2 (Winter 1993): 144–51.
One of the first multinational business organizations, the East India Company, was established in 1601. After the East India Company came the Dutch East India Company, founded on March 20, 1603, which would become the largest company in the world for nearly 200 years.
The main characteristics of multinational companies are:
In addition, corporations may be prohibited from various business transactions by international sanctions or domestic laws. For example, Chinese domestic corporations or citizens have limitations on their ability to make foreign investments outside 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; European companies faced with the possibility of losing access to the U.S. market by trading with Iran.
International investment agreements also facilitate direct investment between two countries, such as the North American Free Trade Agreement and most favored nation status.
Corporations can legally engage in tax avoidance through their choice of jurisdiction, but must be careful to avoid illegal tax evasion.
, the United States and most OECD countries don't have the legal authority to tax a domiciled parent corporation on its worldwide revenue, including subsidiaries. , the U.S. applies its corporate taxation "extraterritorially", which has motivated to change the home state. By 2019, most OECD nations, with the notable exception of the U.S., 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.
In practice, even under an extraterritorial system, taxes may be deferred until remittance, with possible repatriation tax holidays, and subject to foreign tax credits. Countries generally cannot tax the worldwide revenue of a foreign subsidiary, and taxation is complicated by transfer pricing arrangements with parent corporations.
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:
Anti-corporate advocates criticize multinational corporations for being without a basis in a national ethos, being ultimate without a specific nationhood, and for this lack of an ethos appears in their ways of operating as they enter into contracts with countries that have low human rights or environmental standards.Marc 'Globalization, Power, and Survival: an Anthropological Perspective', pg 484–486. Anthropological Quarterly Vol.79, No. 3. Institute for Ethnographic Research, 2006 The aggressive use of tax avoidance schemes, and multinational tax havens, allows multinational corporations to gain competitive advantages over small and medium-sized enterprises.Library of the European Parliament Corporate tax avoidance by multinational firms Organizations such as the Tax Justice Network criticize governments for allowing multinational organizations to escape tax, particularly by using base erosion and profit shifting (BEPS) tax tools, since less money can be spent for public services. Moreover, academics found that profit shifting by multinational corporations led to a reduction in domestic profit in much of the world, with the European Union losing upwards of 20% while developing countries lost up to 5% due to billions being transferred to corporate tax havens. While research has found that anti-transfer pricing may be effective in raising corporate revenue, many advocates continue to argue that more needs to be done since profit shifting, coupled with other methods such as export-processing zones, reduces government revenue for services that support lower and middle-class citizens, increases income and profits for high income shareholders, and reduce after-tax income for workers.
According to Crotty, Epstein, and Kelly (1998), the mobility of multinational corporations within a neoliberal policy regime increases their bargaining power vis-Ă -vis labor and governments, which can lead to a "race to the bottom" in taxes, regulation, and wages. Through threat and spillover effects, this may contribute to greater inequality, persistent unemployment, and wage stagnation. However, the authors emphasize that the effects of foreign direct investment are context-dependent. When investments take place in an environment with high aggregate demand, strong institutions, and clear rules that limit coercive competition, and effective coordination among governments, multinationals may instead contribute to higher wages, improved working conditions, and broader economic development.
Economist Paul Krugman argued in his essay "In Praise of Cheap Labor" (1997) that the jobs created by multinational corporations in developing countries, despite low Wage and poor working conditions, are often an improvement compared to the available alternatives such as marginal farming or the Informal economy. He maintained that "bad jobs at bad wages" are better than no jobs at all, since factory work in export-oriented sectors can serve as a stepping stone to broader economic development. According to Krugman, countries such as South Korea, Taiwan, Indonesia, and Bangladesh have achieved measurable progress in income, nutrition, and living standards through export-led industrialization. Although multinationals are primarily driven by profit, Krugman argued that the main beneficiaries are not capital owners but workers in developing countries.
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