Multinational

Corporation
The first modern multinational corporation is generally thought
to be the East India Company.[4] Many corporations have offices,
branches or manufacturing plants in different countries from
where their original and main headquarters is located.
Some multinational corporations are very big, with budgets that
exceed some nations' GDPs. Multinational corporations can
have a powerful influence in local economies, and even
the world economy, and play an important role in international
relations and globalization.
Market imperfections
It may seem strange that a corporation can decide to do business
in a different country, where it does not know the laws, local
customs or business practices.[1] Why is it not more efficient to
combine assets of value overseas with local factors of
production at lower costs by renting or selling them to local
investors?[1]
One reason is that the use of the market for coordinating the
behaviour of agents located in different countries is less efficient
than coordinating them by a multinational enterprise as an
institution.[1] The additional costs caused by the entrance in
foreign markets are of less interest for the local enterprise.
[1]
 According to Hymer, Kindleberger and Caves, the existence
of MNEs is reasoned by structural market imperfections for final
products.[5] In Hymer's example, there are considered two firms
as monopolists in their own market and isolated from
competition by transportation costs and other tariff and non-
tariff barriers. If these costs decrease, both are forced to
competition; which will reduce their profits.[5] The firms can
maximize their joint income by a merger or acquisition, which
will lower the competition in the shared market.[5] Due to the
transformation of two separated companies into one MNE the
pecuniary externalities are going to be internalized.[5]However,
this doesn't mean that there is an improvement for the society. [5]
This could also be the case if there are few substitutes or limited
licenses in a foreign market.[6] The consolidation is often
established by acquisition, merger or the vertical integration of
the potential licensee into overseas manufacturing.[6] This makes
it easy for the MNE to enforce price discrimination schemes in
various countries.[6] Therefore Hymer considered the emergence
of multinational firms as "an (negative) instrument for
restraining competition between firms of different nations". [7]
Market imperfections had been considered by Hymer as
structural and caused by the deviations from perfect competition
in the final product markets.[8] Further reasons are originated
from the control of proprietary technology and distribution
systems, scale economies, privileged access to inputs and
product differentiation.[8] In the absence of these factors, market
are fully efficient.[1] The transaction costs theories of MNEs had
been developed simultaneously and independently by McManus
(1972), Buckley & Casson (1976) Brown (1976) and Hennart
(1977, 1982).[1] All these authors claimed that market
imperfections are inherent conditions in markets and MNEs are
institutions that try to bypass these imperfections.[1] The
imperfections in markets are natural as
the neoclassical assumptions like full knowledge and
enforcement don't exist in real markets.[9]

International power
Tax competition
Multinational corporations have played an important role in
globalization. Countries and sometimes subnational regions
must compete against one another for the establishment of MNC
facilities, and the subsequent tax revenue, employment, and
economic activity. To compete, countries and regional political
districts sometimes offer incentives to MNCs such as tax breaks,
pledges of governmental assistance or improved infrastructure,
or lax environmental and labor standards enforcement. This
process of becoming more attractive toforeign investment can be
characterized as a race to the bottom, a push towards greater
autonomy for corporate bodies, or both.
However, some scholars for instance the Columbia economist
Jagdish Bhagwati, have argued that multinationals are engaged
in a 'race to the top.' While multinationals certainly regard a low
tax burden or low labor costs as an element of comparative
advantage, there is no evidence to suggest that MNCs
deliberately avail themselves of lax environmental regulation or
poor labour standards. As Bhagwati has pointed out, MNC
profits are tied to operational efficiency, which includes a high
degree of standardisation. Thus, MNCs are likely to tailor
production processes in all of their operations in conformity to
those jurisdictions where they operate (which will almost always
include one or more of the US, Japan or EU) that has the most
rigorous standards. As for labor costs, while MNCs clearly pay
workers in, e.g. Vietnam, much less than they would in the US
(though it is worth noting that higher American productivity—
linked to technology—means that any comparison is tricky,
since in America the same company would probably hire far
fewer people and automate whatever process they performed in
Vietnam with manual labour), it is also the case that they tend to
pay a premium of between 10% and 100% on local labor rates.
[10]
 Finally, depending on the nature of the MNC, investment in
any country reflects a desire for a long-term return. Costs
associated with establishing plant, training workers, etc., can be
very high; once established in a jurisdiction, therefore, many
MNCs are quite vulnerable to predatory practices such as, e.g.,
expropriation, sudden contract renegotiation, the arbitrary
withdrawal or compulsory purchase of unnecessary 'licenses,'
etc. Thus, both the negotiating power of MNCs and the
supposed 'race to the bottom' may be overstated, while the
substantial benefits that MNCs bring (tax revenues aside) are
often understated
Market withdrawal
Because of their size, multinationals can have a significant
impact on government policy, primarily through the threat of
market withdrawal.[11]For example, in an effort to reduce health
care costs, some countries have tried to
force pharmaceutical companies to license their patenteddrugs to
local competitors for a very low fee, thereby artificially lowering
the price. When faced with that threat, multinational
pharmaceutical firms have simply withdrawn from the market,
which often leads to limited availability of advanced drugs. In
these cases, governments have been forced to back down from
their efforts. Similar corporate and government confrontations
have occurred when governments tried to force MNCs to make
their intellectual property public in an effort to gain technology
for local entrepreneurs. When companies are faced with the
option of losing a core competitive technological advantage or
withdrawing from a national market, they may choose the latter.
This withdrawal often causes governments to change policy.
Countries that have been the most successful in this type of
confrontation with multinational corporations are large countries
such as United States and Brazil[citation needed], which have viable
indigenous market competitors.
Lobbying
Multinational corporate lobbying is directed at a range of
business concerns, from tariff structures to environmental
regulations. There is no unified multinational perspective on any
of these issues. Companies that have invested heavily in
pollution control mechanisms may lobby for very tough
environmental standards in an effort to force non-compliant
competitors into a weaker position. Corporations lobby tariffs to
restrict competition of foreign industries. For every tariff
category that one multinational wants to have reduced, there is
another multinational that wants the tariff raised. Even within
the U.S. auto industry, the fraction of a company's imported
components will vary, so some firms favor tighter import
restrictions, while others favor looser ones. Says Ely Oliveira,
Manager Director of the MCT/IR: This is very serious and is
very hard and takes a lot of work for the owner.pk
Multinational corporations such as Wal-
mart and McDonald's benefit from government zoning laws, to
create barriers to entry.
Many industries such as General Electric and Boeing lobby the
government to receive subsidies to preserve their monopoly.[12]
Patents
Many multinational corporations hold patents to prevent
competitors from arising. For example, Adidas holds patents on
shoe designs,Siemens A.G. holds many patents on equipment
and infrastructure and Microsoft benefits from software patents.
[13]
 The pharmaceutical companies lobby international
agreements to enforce patent laws on others.
Government power
In addition to efforts by multinational corporations to affect
governments, there is much government action intended to
affect corporate behavior. The threat of nationalization (forcing
a company to sell its local assets to the government or to other
local nationals) or changes in local business laws and
regulations can limit a multinational's power. These issues
become of increasing importance because of the emergence of
MNCs in developing countries.[14]
Transnational Corporations
A Transnational Corporation (TNC) differs from a tranditional
MNC in that it does not identify itself with one national home.
Whilst traditional MNCs are national companies with foreign
subsidiaries,[15] TNCs spread out their operations in many
countries sustaining high levels of local responsiveness.[16] An
example of a TNC is Nestlé who employ senior executives from
many countries and try to make decisions from a global
perspective rather than from one centralised headquarters.
[17]
 However, the terms TNC and MNC are often used
interchangeably.
Micro-multinationals
Enabled by Internet based communication tools, a new breed of
multinational companies is growing in numbers.(Copeland,
Michael V. (2006-06-29). "How startups go global". CNN.
Retrieved 2010-05-13.) These multinationals start operating in
different countries from the very early stages. These companies
are being called micro-multinationals. (Varian, Hal R. (2005-08-
25). "Technology Levels the Business Playing Field". The New
York Times. Retrieved 2010-05-13.) What differentiates micro-
multinationals from the large MNCs is the fact that they are
small businesses. Some of these micro-multinationals,
particularly software development companies, have been hiring
employees in multiple countries from the beginning of the
Internet era. But more and more micro-multinationals are
actively starting to market their products and services in various
countries. Internet tools like Google, Yahoo, MSN, Ebay and
Amazon make it easier for the micro-multinationals to reach
potential customers in other countries.
Service sector micro-multinationals, like Facebook, Alibaba etc.
started as dispersed virtual businesses with employees, clients
and resources located in various countries. Their rapid growth is
a direct result of being able to use the internet, cheaper
telephony and lower traveling costs to create unique business
opportunities.
Low cost SaaS (Software As A Service) suites make it easier for
these companies to operate without a physical office.
Hal Varian, Chief Economist at Google and a professor of
information economics at U.C. Berkeley, said in April 2010,
"Immigration today, thanks to the Web, means something very
different than it used to mean. There's no longer a brain drain
but brain circulation. People now doing startups understand
what opportunities are available to them around the world and
work to harness it from a distance rather than move people from
one place to another."
Criticism of multinationals
Main article: Anti-corporate activism
File:Adbusters NY Billboard.jpg
Anti-corporate activism in New York
The rapid rise of multinational corporations has been a topic of
concern among intellectuals, activists and laypersons who have
seen it as a threat of such basic civil rights as privacy. They have
pointed out that multinationals create false needs
in consumers and have had a long history of interference in the
policies of sovereign nation states. Evidence supporting this
belief includes invasive advertising (such asbillboards,
television ads, adware, spam, telemarketing, child-targeted
advertising, guerrilla marketing), massive corporate campaign
contributions in democratic elections, and endless global news
stories about corporate corruption (Martha Stewart and Enron,
for example). Anti-corporate protesters suggest that corporations
answer only to shareholders, giving human rights and other
issues almost no consideration.[18] Films and books critical of
multinationals include Surplus: Terrorized into Being
Consumers, The Corporation, The Shock Doctrine, Downsize
This and others.

Definition
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, 1994)

Ownership criterion: 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.
(see videotape concerning the Smith-Corona versus Brothers
case) Depending on the case, each is considered an American
multinational company in one case, and each is considered a
foreign multinational in another case. Thus, ownership does not
really matter.

Nationality mix of headquarter managers: An

international company is multinational if the managers of the
parent company are nationals of several countries. Usually,
managers of the headquarters are nationals of the home country.
This may be a transitional phenomenon. Very few companies
pass this test currently.
Business Strategy: global profit maximization
According to Howard Perlmutter (1969)*:
Multinational companies may pursue policies that are home
country-oriented or  host country-oriented or world-
oriented. Perlmutter uses such terms as ethnocentric,
polycentric and geocentric.However, "ethnocentric" is
misleading because it focuses on race or ethnicity, especially
when the home country itself is populated by many different
races, whereas "polycentric" loses its meaning when the MNCs
operate only in one or two foreign countries.
According to Franklin Root (1994), an MNC is a parent
company that
1. engages in foreign production through its affiliates located
in several countries,
2. exercises direct control over the policies of its affiliates,
3. implements business strategies in production, marketing,
finance and staffing that transcend national boundaries
(geocentric).
In other words, MNCs exhibit no loyalty to the country in which
they are incorporated.

*Howard V. Perlmutter, "The Tortuous Evolution of the

Multinational Corporation," Columbia Journal of World
Business, 1969, pp. 9-18.

Three Stages of Evolution

1. Export stage
  initial inquiries => firms rely on export agents
 expansion of export sales
 further expansion þ foreign sales branch or assembly
operations (to save transport cost)

2. Foreign Production Stage

There is a limit to foreign sales (tariffs, NTBs)
DFI versus Licensing
Once the firm chooses foreign production as a method of
delivering goods to foreign markets, it must decide whether to
establish a foreign production subsidiary or license the
technology to a foreign firm.

Licensing
Licensing is usually first experience (because it is easy)
e.g.: Kentucky Fried Chicken in the U.K.

 it does not require any capital expenditure

 it is not risky
 payment = a fixed % of sales
Problem: the mother firm cannot exercise any managerial
control over the licensee (it is independent)

The licensee may transfer industrial secrets to another

independent firm, thereby creating a rival.
 

Direct Investment
It requires the decision of top management because it is a critical
step.

 it is risky (lack of information) (US -> Canada)

 plants are established in several countries
 licensing is switched from independent producers to its
subsidiaries.
 export continues

3. Multinational Stage
The company becomes a multinational enterprise when it begins
to plan, organize and coordinate production, marketing, R&D,
financing, and staffing. For each of these operations, the firm
must find the best location.
Rule of Thumb
A company whose foreign sales are 25% or more of total sales.
This ratio is high for small countries, but low for large countries,
e.g. Nestle (98%: Dutch), Phillips (94%: Swiss).
Examples: Manufacturing MNCs
24 of top fifty firms are located in the U.S.
9 in Japan
6 in Germany.
Petroleum companies: 6/10 located in the U.S.
Food/Restaurant Chains. 10/10 in the U.S.

Motives for Direct Foreign Investment

New MNCs do not pop up randomly in foreign nations. It is the

result of conscious planning by corporate managers. Investment
flows from regions of lowanticipated profits to those
of high returns.

1. Growth motive A company may have reached a plateau

satisfying domestic demand, which is not growing.
Looking for new markets.
2. Protection in the importing countries
Foreign direct investment is one way to expand bypassing
protective instruments in the importing country.
 o European Community: imposed common external
tariff against outsiders. US companies circumvented
these barriers by setting up subsidiaries.
o Japanese corporations located auto assembly plants in
the US, to bypass VERs.
3. Market competition
The most certain method of preventing actual or potential
competition is to acquire foreign businesses.
GM purchased Monarch (GM Canada) and Opel (GM
Germany). It did not buy Toyota, Datsun (Nissan) and
Volkswagen. They later became competitors.
4. Cost reduction
United Fruit has established banana-producing facilities in
Honduras.
Cheap foreign labor. Labor costs tend to differ among
nations. MNCs can hold down costs by locating part of all
their productive facilities abroad. (Maquildoras)

Supplying Products to Foreign Buyers

Export versus Direct Foreign Investment

MES is the minimum rate of output at which Average Cost (AC)

is minimized. If minimum efficient scale (MES) is not achieved,
then export.
In other words, if there exists excess capacity, why not utilize it
and export outputs to other countries? There is no point in
creating another plant overseas when domestic capacity is not
fully utilized.

If foreign demand exceeds the minimum efficient scale, then

FDI.
Figure 1. Minimum efficient scale and FDI.

International Joint Ventures

JV is a business organization established by two or more
companies that combines their skills and assets.

1. A JV is formed by two businesses that conduct business in

a third country. (US firm + British firm jointly operate in
the Middle East)
2. joint venture with a local firm
3. joint venture includes local government.
Bechtel Company, US
Messerschmitt-Boelkow-Blom, Germany => Iran Oil
Investment Company
National Iranian Oil Company

 Large capital costs - costs are too large for a single

company
  Protection - LDC governments close their borders to
foreign companies
 bypass protectionism.
e.g.: US workers assemble Japanese parts. The finished
goods are sold to the US consumers.
Problems
Control is divided. The venture serves "two masters"
Welfare Effects
The new venture increases production, lowers price to
consumers.
The new business is able to enter the market that neither
parent could have entered singly.
Cost reductions (otherwise, no joint ventures will be
formed) increased market power => not necessarily good.

A view from the mountain top. Many multinational companies

are housed in tall buildings in Hong Kong.

US Tax Policy towards MNCs

Operating in many countries, MNCs are subject to multiple tax
jurisdictions, i.e., they must pay taxes to several countries.
National tax systems are exceedingly complex and differ
between countries.
Differences among national income tax systems affect the
decisions of managers of MNCs, regarding the location of
subsidiaries, financing, and the transfer prices (the prices of
products and assets transferred between various units of MNCs)
Multiple Tax Jurisdictions creates two problems, overlapping
and underlapping jurisdictions. When overlapping occurs, two
or more governments claim tax jurisdictions over the same
income of an MNC. The overlapping may result in double
taxation.
Conversely, when underlapping occurs, an MNC falls between
tax jurisdictions and escape taxation. Underlapping encourages
tax avoidance.
National governments may choose a territorial jurisdiction or
national tax jurisdiction or both.

Territorial Tax Jurisdiction: The government taxes

business income that is earned on the national territory.

 Any business income earned on the US territory is subject

to income tax, regardless of whether the business is owned
by foreigners.
 any foreign source income earned by the nationals are
exempt from taxation. This approach is used by France,
Italy, Netherlands. About 30 countries
 Tax comptition: Since countries have different tax rates,
multinational companies choose low tax countries to save,
invest, and produce. Governments may compete to attract
multinational enterprises by offering them lower tax rates
and other incentives. This is called tax competition. Since
 high tax countries lose lucrative businesses, they want to
harmonize tax rates, especially within a free trade area or
customs union (e.g., European Community). For more
information on this subject, see Daniel Mitchell's
article, Heritage Foundation article on tax competition.

National Tax Jurisdiction: Both domestic and foreign

source income of national companies are subject to income tax.
US government taxes both domestic and foreign source incomes
of US MNCs.

Remark: Most governments that exercise NTJ also claim a

Territorial Tax Jurisdiction. This creates the problem of
double taxation.

US Taxation of Foreign Source Income

1. In general the US government does not distinguish
between income earned abroad and income earned at home
(NTJ).

However, to avoid double taxation, the US government

gives credit to MNEs headquartered in the US for the
amount of tax paid to foreign governments.
2. Foreign Trade and Investment Act of 1972 (Burke-
Hartke Bill) was defeated.
 According to this plan, foreign taxes would be treated as
business expenses. For example,
Assume: t = 46% t* = 30%

Pretax profit = $1,000

MNC's profit after foreign tax = 1,000 - 300 = 700
If foreign tax is treated as business expense, then
MNC's tax to IRS = 700 x 46% = 322.
Total taxes = 300 + 322 = 622

Current method:
Taxes to foreign government = 1000 x 30% = 300

US taxes = 1000 x 46% = 460

but foreign tax credit = 300
Net tax to IRS = 460 - 300 = 160.
Total taxes = 300 + 160 = 460.

Transfer Pricing
MNCs try to reduce their overall tax burden. An MNC reports
most of its profits in a low-tax country, even though the actual
profits are earned in a high tax country.

tp = tax rate in the parent country

th = tax rate in the host country
If tp > th, then underprice its exports to the subsidiary in the host
country, and overprice its imports from the subsidiary. => lower
tax.
Purpose: manipulate prices between the headquarter and the
subsidiaries so that profits are highest in the low tax country.
Thus, a multinational company's overall tax could be paid at the
minimum of all tax rates of the countries in which it operates.
Abuses in pricing across national borders are illegal (if they can
be proved). MNCs are required to set prices at "arms length" (set
prices as if they are unrelated).
IRS argued that Toyota Inc. of Japan had systematically
overcharged its US subsidiary for years on most of trucks,
automobiles and parts sold to the US.
Because of abuses in transfer pricing, taxable profits were
shifted to Japan. Toyota recently agreed to pay $1 billion to IRS.

Taxation and Gains from Factor Mobility

US firms invest overseas because the returns are higher there.

Assume both countries have the same corporate tax rates = 40%
US Canada
Pretax profits 10% 12%
Tax 4% 4.8%
Net to investors 6% 7.2%
Total Gains from domestic investment = 10% (= 4% + 6%)
because tax revenues can be used for public purposes.
Total Gains from foreign investment = 7.2% (because US
government gets nothing). The tax revenue which could have
been used to build US highways would be used by Canadian
government to build their highways.
Multinational companies are the organizations or enterprises that
manage production or offer services in more than one country.
And India has been the home to a number of multinational
companies.
In fact, since the financial liberalization in the country in 1991,
the number of multinational companies in India has increased
noticeably. Though majority of the multinational companies in
India are from the U.S., however one can also find companies
from other countries as well.

Destination India

The multinational companies in India represent a diversified

portfolio of companies from different countries. Though the
American companies - the majority of the MNC in India,
account for about 37% of the turnover of the top 20 firms
operating in India, but the scenario has changed a lot off late.
More enterprises from European Union like Britain, France,
Netherlands, Italy, Germany, Belgium and Finland have come to
India or have outsourced their works to this country. Finnish
mobile giant Nokia has their second largest base in this country.
There are also MNCs like British Petroleum and Vodafone that
represent Britain. India has a huge market for automobiles and
hence a number of automobile giants have stepped in to this
country to reap the market. One can easily find the showrooms
of the multinational automobile companies like Fiat, Piaggio,
and Ford Motors in India. French Heavy Engineering major
Alstom and Pharma major Sanofi Aventis have also started their
operations in this country. The later one is in fact one of the
earliest entrants in the list of multinational companies in India,
which is currently growing at a very enviable rate. There are
also a number of oil companies and infrastructure builders from
Middle East. Electronics giants like Samsung and LG
Electronics from South Korea have already made a substantial
impact on the Indian electronics market. Hyundai Motors has
also done well in mid-segment car market in India. 

Why are Multinational Companies in India?

There are a number of reasons why the multinational companies

are coming down to India. India has got a huge market. It has
also got one of the fastest growing economies in the world.
Besides, the policy of the government towards FDI has also
played a major role in attracting the multinational companies in
India. 

For quite a long time, India had a restrictive policy in terms of

foreign direct investment. As a result, there was lesser number
of companies that showed interest in investing in Indian market.
However, the scenario changed during the financial
liberalization of the country, especially after 1991. Government,
nowadays, makes continuous efforts to attract foreign
investments by relaxing many of its policies. As a result, a
number of multinational companies have shown interest in
Indian market. 
Following are the reasons why multinational
companies consider India as a preferred destination
for business:

 Huge market potential of the country

 FDI attractiveness
 Labor competitiveness
 Macro-economic stability

List of Multinational Companies in India

The list of multinational companies in India is ever-growing as a

number of MNCs are coming down to this country now and
then.
Following are some of the major multinational companies
operating their businesses in India:

 British Petroleum
 Vodafone
 Ford Motors
 LG
 Samsung
 Hyundai
 Accenture
 Reebok
 Skoda Motors
 ABN Amro Bank
Multinational companies are the organizations or enterprises that
manage production or offer services in more than one country.
And India has been the home to a number of multinational
companies. In fact, since the financial liberalization in the
country in 1991, the number of multinational companies in India
has increased noticeably. Though majority of the multinational
companies in India are from the U.S., however one can also find
companies from other countries as well.
India, since the past few years, has experienced a paradigm
shift due to its competitive stand in the business world. Being a
huge market itself, as well as the home to cheap and skilled
labors in abundance, India became the favorite hunting ground
for the companies to explore the market and grow their business.
The presence of a number of top companies in India only
seconds the thought that the country's market has got enormous
potential. The economy of the country, with robust growth
trajectory and stable annual growth rate, also helps the top
Indian companies, along with the smaller operators, to grow at a
better pace. Foreign exchange reserves and the thriving capital
markets are also the other factors that the top companies in India
make use of.
Following are some of the top companies in India in respective
sectors.
Top Multinational Companies

Due to its huge market potential, India has attracted a number of

top multinational companies. Though the majority of the
multinational companies operating in the country are from the
U.S., however, a growing number of MNCs from other parts of
the world are also coming to India. Following are the top
multinational companies in India:

 IBM
 Microsoft
 Coke
 Pepsi Co
 Pfizer
 Aventis
 Novartis
 Procter and Gamble
 Siemens
 Nestle
 Cadbury
 Nokia Communication
 Samsung
 LG
 British Petroleum
 Vodafone
 Reebok
The economic power of the United States is one that is virtually
unrivaled in the international community. This economic
supremacy, which is driven in large part by multinational
corporations, remains a contentious  issue in terms of the
obligations of these organizations to developing nations.
Clearly, multinational corporations can provide developing
countries with critical financial infrastructure for economic and
social development. However, these institutions also bring with
them relaxed codes of ethical conduct that serve to exploit the
neediness of developing nations, rather than to provide the
critical support necessary for countrywide economic and social
development.

With the realization that multinational corporations create such a

mixed bag of pros and cons for developing nations, there is a
clear impetus to examine what has been written about the
advantages and disadvantages of these institutions. To this end,
this investigation considers what benefits and problems are
engendered when multinational corporations establish
themselves in developing nations. Through a careful
consideration of the benefits and drawbacks of these institutions,
it will be possible to identify critical businesses standards that
should be used by these organizations. Further, by examining
the advantages and disadvantages of multinational corporations,
recommendations for what role the American government
should play in policing these organizations will be identified.
Santoro (2002) in his examination of the impact of multinational
corporations (MNCs) on developing nations argues that most of
what has been written about the negative impact of these
institutions is based more on  anecdote than on empirical
evidence. According to this author, "" (p. 94). Although these
allegations remain the central arguments posited by critics and
their analysis of multinational corporations, Santoro notes that a
study conducted by economists found that in most cases,
multinational organizations have a positive impact on
developing nations overall. To illustrate this point Santoro notes
the case of China: "In their study of 118 business ventures in
China...Christmann and Taylor find that MNCs and their
suppliers were more likely than local firms to comply with local
regulations and to adopt internationally recognized
environmental management standards such as ISO 14000" (p.
94).

Although Santoro is able to effectively argue that multinational

corporations are having a positive impact on developing
countries-in terms of providing sustainable economic and
environmental development-other authors examining the same
issue have not drawn the same conclusions. For example,
Youngelson-Neal, Neal and Fried (2001) contend that
multinational corporations are having a negative impact on the
development of local cultures. As noted by these scholars, when
multinational organizations infiltrate a developing country, the
very context of local economic development changes. As a
direct result the basic economic infrastructure of the country
changes along with significant parts of local culture and
tradition. In an effort to illustrate how this process occurs,
Youngelson-Neal and coworkers examine the issue of
economies of scale in the Canadian media.

As noted by Youngelson-Neal, Neal and Fried the growth of

Canada's economy as a direct result ofglobalization has placed
notable strain on Canada's media outlets. Although these outlets
have pushed for more economic stability, the reality is that many
Canadian media outlets have found that it is cheaper to import
media-magazines, syndicated newspapers and cable shows-from
the United States. As a result of this situation, Canada is losing
local cultural variations in its media that makes it unique from
the US. As the infiltration of US media into Canada occurs,
Canada has begun to lose some of its cultural variations. Over
the course of time, there is concern that Canadian culture will
become Americanized and in terms of the global community,
there will be no real differences between the US and Canada.
 The process of cultural erosion that is occurring in Canada is
a process that is occurring all over the globe. As multinational
corporations from the US continue to infiltrate developing
countries, the push toward a
  free market economy is eroding traditional cultural
infrastructure that is seen as critical for maintaining global
diversity.
Despite this central issue however, it is evident that the
process of globalization does afford developing nations the
opportunity to improve overall standards of living through
the adoption of technology and modernization. Thus, the
true dichotomy created in this case is one that poses a
unique challenge for those seeking to reduce the ill-effects
of multinational corporations in developing nations.

The Role of the American Government

When the overall impact of multinational corporations on

developing nations is summarized, it seems reasonable to
argue that several decades of globalization has afforded
MNCs the information and data necessary to understand the
ethical issues that must be addressed in the context of
undertaking business operations in developing countries. As
noted by Santoro (2002), most MNCs have developed clear
 ethical standards and guidelines for operations in
developing nations. Despite this however, it is evident that
there are still violations of ethics principles by some
organizations. With this in mind, it seems reasonable to
argue that the ethical standards used by MNCs should be
established by the American government as statues for the
governance of MNCs in developing nations. By putting
laws into effect, MNCs will have no choice but to ensure
that all actions by these organizations are ethically sound.

In addition to creating clear rule for operation, the

American government should consider some degree of
regulation with respect to foreign investment. For instance,
if Wal-Mart wishes to begin operations in India, the
American government should limit the organization's
amount of investment in the country. This will help ensure
that Wal-Mart does not fully infiltrate and monopolize the
retail industry in India. By preventing a monopoly, the
American government would be able to ensure that US
domination of economic and cultural infrastructure does not
occur. In short, limiting foreign operations of multinational
corporations would help ensure that local diversity is not
completely eroded. In addition, by limiting the investment
capabilities of MNCs, the American government could
work toward building greater political strength by working
with governments of developing nations, rather than just
steamrollering them.
Conclusion
 When the specific impact of multinational corporations on
developing nations is examined, it seems reasonable to
argue that overall, MNCs are providing notable benefits to
 the international community. In addition to  improving the
standard of living in many developing nations, these
organizations are also providing a strong source of
economic development. Despite these benefits however, it
is clear that regardless of the benefits, these organizations
are eroding cultural diversity in all regions of the globe. In
order to prevent the complete and irrevocable loss of
cultural diversity in the international community there are
definitive steps that the American government can take to
mitigate this situation. By ensuring that ethical statues are
followed by all multinational organizations and further by
limiting foreign investment of MNCs in developing nations,
the US government can make notable strides toward
reducing the cultural erosion that is occurring as a result of
globalization. In the end, these steps will help preserve the
unique character of the global community.

Multinational Business
Advantages include:
 Gaining a strong foothold into the international market
 Low-cost locations
 Cheaper labor costs
 Cheaper raw materials and distribution costs
 Taking advantage of the many tax breaks offered by
foreign countries
 Access to new technologies and methods
 Availability of government grants

Disadvantages include:
 Trade restrictions imposed at the government-level
 Taxes or tariffs imposed on imports from other countries
 Limited quantities (quotas) of imports
 Effective management of a globally dispersed organization

Benefits:
 Create wealth and jobs around the world.
 Their size enables them to Benefit from Economies of scale
enabling lower costs and prices for consumers.
 Large Profits can be used for research & Development. For
example, oil exploration is costly and risky which could
only be taken out because they make high profits.
 Ensure minimum standards. The success of multinationals
is often because consumers like to buy goods and services
where they can rely on minimum standards. i.e. if you visit
any country you know that the Starbucks coffee shop will
give something you are fairly familiar with. It may not be
the best coffee in the district, but, it won’t be the worst.
People like the security of knowing what to expect.

Criticisms of Multinational Coporations

 Companies interested in profit at the expense of the
consumer. Multinational companies often have monopoly
power which enables them to make excess profit. For
example, Shell made profits of £14bn last year
  Their market dominance makes it difficult for local small
firms to thrive. For example, it is argued that big
supermarkets are squeezing the margins of local corner
shops leading to less diversity.
 In the pursuit of profit, Multinational companies often
contribute to pollution and use of non renewable resources
which is putting the environment under threat.
 MNCs have been criticised for using ‘slave labour’ workers
who are paid a pittance by Western standards
Evaluation
 Some criticisms of MNCs may be due to other issues. For
example, the fact MNCs pollute is perhaps a failure of
government regulation. Also, small firms can pollute just as
much.
 MNCs may pay low wages by western standards but, this is
better than the alternatives of not having a job at all.