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Multinational corporation

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A multinational company (MNC),[a][1] also referred to as a multinational enterprise (MNE), a transnational enterprise (TNE), a transnational corporation (TNC), an international corporation or a stateless corporation[2] with subtle but contrasting senses, is a corporate organization that owns and controls the production of goods or services in at least one country other than its home country.[3][4] 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 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".[5]

Most of the largest and most influential companies of the modern age are publicly traded multinational corporations, including Forbes Global 2000 companies.

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History

Colonialism

The history of multinational corporations began with the history of colonialism. The first multinational corporations were founded to build set up colonial "factories" or port cities.[6] 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 .[7][8] The two main examples were the British East India Company, and the Dutch East India Company (VOC). Others included the Swedish Africa Company, and the Hudson's Bay Company.[9] These early corporations engaged in international trade and exploration, and set up trading posts.[10]

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.[11] During the process of decolonization, the European colonial charter companies were disbanded, with the final colonial corporation, the Mozambique Company, dissolving in 1972.[10]

Mining

Mining of gold, silver, copper, and especially oil were major activities early on and remains 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 aluminum, iron ore, copper, uranium, and diamonds.[12] European mines in South Africa began opening in the late 19th century, producing gold and other minerals for the world market, jobs for locals, and business and profits for companies.[13] Cecil Rhodes (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 and De Beers. The latter company practically controlled the global diamond market from his base in southern Africa.[14]

Oil

The "Seven Sisters" was a common term for the seven multinational companies which dominated the global petroleum industry from the mid-1940s to the mid-1970s.[15]

Preceding 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).[16] 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.[17]

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 changed 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.[18]

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 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.[19]

Unilever

A prominent multinational manufacturer is Unilever, a consumer goods 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.[20] Unilever's products are sold in 190 countries.[21]

Unilever owns over 400 brands, with a turnover in 2020 of 51 billion euros.[22] The company is organized 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.[23]

Unilever was founded in 1929 by the merger of a Dutch margarine producer Margarine Unie and the British soap maker Lever Brothers. After 1950, it increasingly diversified its products and expanded its operations worldwide. Its numerous acquisitions included Lipton (1971), Brooke Bond (1984), Chesebrough-Ponds (1987), Best Foods (2000), Ben & Jerry's (2000), Alberto-Culver (2010), Dollar Shave Club (2016) and Pukka Herbs (2017).

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Neocolonialism

Neocolonialism

Neocolonialism is the continuation or reimposition of imperialist rule by a state over another nominally independent state. Neocolonialism takes the form of economic imperialism, globalization, cultural imperialism and conditional aid to influence or control a developing country instead of the previous colonial methods of direct military control or indirect political control (hegemony).

History of colonialism

History of colonialism

The historical phenomenon of colonization is one that stretches around the globe and across time. Ancient and medieval colonialism was practiced by the Phoenicians, the Greeks, the Turks, and the Arabs.

Dutch East India Company

Dutch East India Company

The United East India Company was a chartered company established on the 20th March 1602 by the States General of the Netherlands amalgamating existing companies into the first joint-stock company in the world, granting it a 21-year monopoly to carry out trade activities in Asia. Shares in the company could be bought by any resident of the United Provinces and then subsequently bought and sold in open-air secondary markets. It is sometimes considered to have been the first multinational corporation. It was a powerful company, possessing quasi-governmental powers, including the ability to wage war, imprison and execute convicts, negotiate treaties, strike its own coins, and establish colonies. They are also known for their international slave trade.

Hudson's Bay Company

Hudson's Bay Company

The Hudson's Bay Company is a Canadian retail business group. A fur trading business for much of its existence, HBC now owns and operates retail stores in Canada. The company's namesake business division is Hudson's Bay, commonly referred to as The Bay.

International trade

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.

Decolonization

Decolonization

Decolonization or decolonisation is the undoing of colonialism, the latter being the process whereby imperial nations establish and dominate foreign territories, often overseas. Some scholars of decolonization focus especially on independence movements in the colonies and the collapse of global colonial empires. Other scholars extend the meaning to include economic, cultural and psychological aspects of the colonial experience.

Mozambique Company

Mozambique Company

The Mozambique Company 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 and Sofala in central Mozambique.

Cecil Rhodes

Cecil Rhodes

Cecil John Rhodes was a British mining magnate and politician in southern Africa who served as Prime Minister of the Cape Colony from 1890 to 1896.

British South Africa Company

British South Africa Company

The British South Africa Company was chartered in 1889 following the amalgamation of Cecil Rhodes' Central Search Association and the London-based Exploring Company Ltd, which had originally competed to capitalize on the expected mineral wealth of Mashonaland but united because of common economic interests and to secure British government backing. The company received a Royal Charter modelled on that of the British East India Company. Its first directors included The 2nd Duke of Abercorn, Rhodes himself, and the South African financier Alfred Beit. Rhodes hoped BSAC would promote colonisation and economic exploitation across much of south-central Africa, as part of the "Scramble for Africa". However, his main focus was south of the Zambezi, in Mashonaland and the coastal areas to its east, from which he believed the Portuguese could be removed by payment or force, and in the Transvaal, which he hoped would return to British control.

De Beers

De Beers

De Beers Group is an international corporation that specializes in diamond mining, diamond exploitation, diamond retail, diamond trading and industrial diamond manufacturing sectors. The company is active in open-pit, large-scale alluvial and coastal mining. It operates in 35 countries and mining takes place in Botswana, Namibia, South Africa, Canada and Australia.

Anglo-Persian Oil Company

Anglo-Persian Oil Company

The Anglo-Persian Oil Company (APOC) was a British company founded in 1909 following the discovery of a large oil field in Masjed Soleiman, Persia (Iran). The British government purchased 51% of the company in 1914, gaining a controlling number of shares, effectively nationalizing the company. It was the first company to extract petroleum from Iran. In 1935 APOC was renamed the "Anglo-Iranian Oil Company" (AIOC) when Reza Shah Pahlavi formally asked foreign countries to refer to Persia by its endonym Iran.

Petroleum industry

Petroleum industry

The petroleum industry, also known as the oil industry or the oil patch, includes the global processes of exploration, extraction, refining, transportation, and marketing of petroleum products. The largest volume products of the industry are fuel oil and gasoline (petrol). Petroleum is also the raw material for many chemical products, including pharmaceuticals, solvents, fertilizers, pesticides, synthetic fragrances, and plastics. The industry is usually divided into three major components: upstream, midstream, and downstream. Upstream regards exploration and extraction of crude oil, midstream encompasses transportation and storage of crude, and downstream concerns refining crude oil into various end products.

Current status

Toyota is one of the world's largest multinational corporations with its headquarters in Toyota City, Japan.
Toyota is one of the world's largest multinational corporations with its headquarters in Toyota City, Japan.

A multinational corporation (MNC) is usually a large corporation incorporated in one country which produces or sells goods or services in various countries.[24] Two common characteristics shared by MNCs are their large size and centrally controlled worldwide activities.[25]

  • Importing and exporting goods and services
  • Making significant investments in a foreign country
  • Buying and selling licenses in foreign markets
  • Engaging in contract manufacturing — 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 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.[26]

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 has emerged during the late twentieth century.[27]

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 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 that meet the realities of the needs of source materials on a worldwide basis and to produce and customize products for individual countries.[28]

One of the first multinational business organizations, the East India Company, was established in 1601.[29] 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 general, there is a national strength of large companies as the main body, in the way of foreign direct investment or acquiring local enterprises, established subsidiaries or branches in many countries;
  • It usually has a complete decision-making system and the highest decision-making center, each subsidiary or branch has its own decision-making body, according to its 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, and fixed-point sales products, in order to achieve maximum profit;
  • 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 the world;
  • Many large multinational companies have varying degrees of monopoly in some area, due to economic and technical strength or production advantages.

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Toyota

Toyota

Toyota Motor Corporation is a Japanese multinational automotive manufacturer headquartered in Toyota City, Aichi, Japan. It was founded by Kiichiro Toyoda and incorporated on August 28, 1937. Toyota is one of the largest automobile manufacturers in the world, producing about 10 million vehicles per year.

Japan

Japan

Japan is an island country in East Asia. It is situated in the northwest Pacific Ocean, and is bordered on the west by the Sea of Japan, while extending from the Sea of Okhotsk in the north toward the East China Sea, Philippine Sea, and Taiwan in the south. Japan is a part of the Ring of Fire, and spans an archipelago of 6852 islands covering 377,975 square kilometers (145,937 sq mi); the five main islands are Hokkaido, Honshu, Shikoku, Kyushu, and Okinawa. Tokyo is the nation's capital and largest city, followed by Yokohama, Osaka, Nagoya, Sapporo, Fukuoka, Kobe, and Kyoto.

Import

Import

An import is the receiving country in an export from the sending country. Importation and exportation are the defining financial transactions of international trade.

Export

Export

An export in international trade is a good produced in one country that is sold into another country or a service provided in one country for a national or resident of another country. The seller of such goods or the service provider is an exporter; the foreign buyer is an importer. Services that figure in international trade include financial, accounting and other professional services, tourism, education as well as intellectual property rights.

Logistics

Logistics

Logistics is generally the detailed organization and implementation of a complex operation. In a general business sense, logistics manages the flow of goods between the point of origin and the point of consumption to meet the requirements of customers or corporations. The resources managed in logistics may include tangible goods such as materials, equipment, and supplies, as well as food and other consumable items.

East India Company

East India Company

The East India Company (EIC) was an English, and later British, joint-stock company founded in 1600 and dissolved in 1874. It was formed to trade in the Indian Ocean region, initially with the East Indies, and later with East Asia. The company seized control of large parts of the Indian subcontinent, colonised parts of Southeast Asia and Hong Kong. At its peak, the company was the largest corporation in the world. The EIC had its own armed forces in the form of the company's three Presidency armies, totalling about 260,000 soldiers, twice the size of the British army at the time. The operations of the company had a profound effect on the global balance of trade, almost single-handedly reversing the trend of eastward drain of Western bullion, seen since Roman times.

Dutch East India Company

Dutch East India Company

The United East India Company was a chartered company established on the 20th March 1602 by the States General of the Netherlands amalgamating existing companies into the first joint-stock company in the world, granting it a 21-year monopoly to carry out trade activities in Asia. Shares in the company could be bought by any resident of the United Provinces and then subsequently bought and sold in open-air secondary markets. It is sometimes considered to have been the first multinational corporation. It was a powerful company, possessing quasi-governmental powers, including the ability to wage war, imprison and execute convicts, negotiate treaties, strike its own coins, and establish colonies. They are also known for their international slave trade.

Decision-making

Decision-making

In psychology, decision-making is regarded as the cognitive process resulting in the selection of a belief or a course of action among several possible alternative options. It could be either rational or irrational. The decision-making process is a reasoning process based on assumptions of values, preferences and beliefs of the decision-maker. Every decision-making process produces a final choice, which may or may not prompt action.

Profit maximization

Profit maximization

In economics, profit maximization is the short run or long run process by which a firm may determine the price, input and output levels that will lead to the highest possible total profit. In neoclassical economics, which is currently the mainstream approach to microeconomics, the firm is assumed to be a "rational agent" which wants to maximize its total profit, which is the difference between its total revenue and its total cost.

Foreign direct investment

When a corporation invests in a country which it is not domiciled, it is called foreign direct investment (FDI).[30] 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,[31] although some of these restrictions were eased in 2019.[32] Similarly, the United States Committee on Foreign Investment in the United States scrutinizes foreign investments.

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 of China, in part to reduce capital outflow.[33] 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 US market by trading with Iran.[34]

International investment agreements also facilitate direct investment between two countries, such as the North American Free Trade Agreement and most favored nation status.

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Foreign direct investment

Foreign direct investment

A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a business in one country by an entity based in another country. It is thus distinguished from a foreign portfolio investment by a notion of direct control.

Committee on Foreign Investment in the United States

Committee on Foreign Investment in the United States

The Committee on Foreign Investment in the United States is an inter-agency committee of the United States government that reviews the national security implications of foreign investments in U.S. companies or operations. Chaired by the United States secretary of the treasury, CFIUS includes representatives from 16 U.S. departments and agencies, including the Defense, State and Commerce departments, as well as the Department of Homeland Security.

International sanctions

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 international law, and defend against threats to international peace and security. These decisions principally include the temporary imposition on a target of economic, trade, diplomatic, cultural or other restrictions that are lifted when the motivating security concerns no longer apply, or when no new threats have arisen.

Capital outflow

Capital outflow

Capital outflow is an economic term describing capital flowing out of a particular economy. Outflowing capital can be caused by any number of economic or political reasons but can often originate from instability in either sphere.

Sanctions against Iran

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. Iran was the most sanctioned country in the world until it was surpassed by Russia following its invasion of neighboring Ukraine in February 2022.

International investment agreement

International investment agreement

An 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 foreign direct investment (FDI) and portfolio investment, but some exclude the latter. Countries concluding IIAs commit themselves to adhere to specific standards on the treatment of foreign investments within their territory. IIAs further define procedures for the resolution of disputes should these commitments not be met. The most common types of IIAs are bilateral investment treaties (BITs) and preferential trade and investment agreements (PTIAs). International taxation agreements and double taxation treaties (DTTs) are also considered IIAs, as taxation commonly has an important impact on foreign investment.

North American Free Trade Agreement

North American Free Trade Agreement

The North American Free Trade Agreement was an agreement signed by Canada, Mexico, and the United States that created a trilateral trade bloc in North America. The agreement came into force on January 1, 1994, and superseded the 1988 Canada–United States Free Trade Agreement between the United States and Canada. The NAFTA trade bloc formed one of the largest trade blocs in the world by gross domestic product.

Most favoured nation

Most favoured nation

In international economic relations and international politics, most favoured nation (MFN) is a status or level of treatment accorded by one state to another in international trade. The term means the country which is the recipient of this treatment must nominally receive equal trade advantages as the "most favoured nation" by the country granting such treatment. In effect, a country that has been accorded MFN status may not be treated less advantageously than any other country with MFN status by the promising country.

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.[35] 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 suggests that the Netherlands has become a popular choice, as its company laws have fewer requirements for meetings, compensation, and audit committees,[36] and Great Britain had advantages due to laws on withholding dividends and a double-taxation treaty with the United States.[36]

Corporations can legally engage in tax avoidance through their choice of jurisdiction, but must be careful to avoid illegal tax evasion.

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"[37]), 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.[38]: 115  Geographic diversification can be measured across various domains, including ownership and control, workforce, sales, and regulation and taxation.[38]

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Domicile (law)

Domicile (law)

Domicile is relevant to an individual's "personal law," which includes the law that governs a person's status and their property. It is independent of a person's nationality. Although a domicile may change from time to time, a person has only one domicile, or residence, at any point in their life, no matter what their circumstances. Domicile is distinct from habitual residence, where there is less focus on future intent.

The Economist

The Economist

The Economist is a British weekly newspaper printed in demitab format and published digitally. It focuses on current affairs, international business, politics, technology, and culture. Based in London, the newspaper is owned by The Economist Group, with its core editorial offices in the United States, as well as across major cities in continental Europe, Asia, and the Middle East. In 2019, its average global print circulation was over 909,476; this, combined with its digital presence, runs to over 1.6 million. Across its social media platforms, it reaches an audience of 35 million, as of 2016. The newspaper has a prominent focus on data journalism and interpretive analysis over original reporting, to both criticism and acclaim.

Tax avoidance

Tax avoidance

Tax avoidance is the legal usage of the tax regime in a single territory to one's own advantage to reduce the amount of tax that is payable by means that are within the law. A tax shelter is one type of tax avoidance, and tax havens are jurisdictions that facilitate reduced taxes. Tax avoidance should not be confused with tax evasion, which is illegal.

Tax evasion

Tax evasion

Tax evasion is an illegal attempt to defeat the imposition of taxes by individuals, corporations, trusts, and others. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities to reduce the taxpayer's tax liability, and it includes dishonest tax reporting, declaring less income, profits or gains than the amounts actually earned, overstating deductions, using bribes against authorities in countries with high corruption rates and hiding money in secret locations.

Transnational corporation

Transnational corporation

A transnational corporation is an enterprise that is involved with the international production of goods or services, foreign investments, or income and asset management in more than one country. It sets up factories in developing countries as land and labor are cheaper there.

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.[39] In some cases, the jurisdiction can help to avoid burdensome laws, but regulatory statutes often target the "enterprise" with statutory language around "control".[39]

as of 1992, the United States and most OECD countries have the legal authority to tax a domiciled parent corporation on its worldwide revenue, including subsidiaries;[38]: 117  as of 2019, the US applies its corporate taxation "extraterritorially",[40] which has motivated tax inversions 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.[40]

In practice, even under an extraterritorial system taxes may be deferred until remittance, with possible repatriation tax holidays, and subject to foreign tax credits.[38]: 117  Countries generally cannot tax the worldwide revenue of a foreign subsidiary, and taxation is complicated by transfer pricing arrangements with parent corporations.[38]: 117 

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International taxation

International taxation

International taxation is the study or determination of tax on a person or business subject to the tax laws of different countries, or the international aspects of an individual country's tax laws as the case may be. Governments usually limit the scope of their income taxation in some manner territorially or provide for offsets to taxation relating to extraterritorial income. The manner of limitation generally takes the form of a territorial, residence-based, or exclusionary system. Some governments have attempted to mitigate the differing limitations of each of these three broad systems by enacting a hybrid system with characteristics of two or more.

Extraterritorial jurisdiction

Extraterritorial jurisdiction

Extraterritorial jurisdiction (ETJ) is the legal ability of a government to exercise authority beyond its normal boundaries.

Tax inversion

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 moving its tax residence to the foreign country. Executives and operational headquarters can stay in the original country. The US definition requires that the original shareholders remain a majority control of the post-inverted company.

Controlled foreign corporation

Controlled foreign corporation

Controlled foreign corporation (CFC) rules are features of an income tax system designed to limit artificial deferral of tax by using offshore low taxed entities. The rules are needed only with respect to income of an entity that is not currently taxed to the owners of the entity. Generally, certain classes of taxpayers must include in their income currently certain amounts earned by foreign entities they or related persons control.

Base erosion and profit shifting

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 or no-tax locations where there is little or no economic activity, thus "eroding" the "tax-base" of the higher-tax jurisdictions using deductible payments such as interest or royalties. For the government, the tax base is a company's income or profit. Tax is levied as a percentage on this income/profit. When that income / profit is transferred to another country or tax haven, the tax base is eroded and the company does not pay taxes to the country that is generating the income. As a result, tax revenues are reduced and the government is detained. The Organization for Economic Co-operation and Development (OECD) define BEPS strategies as "exploiting gaps and mismatches in tax rules". While some of the tactics are illegal, the majority are not. Because businesses that operate across borders can utilize BEPS to obtain a competitive edge over domestic businesses, it affects the righteousness and integrity of tax systems. Furthermore, it lessens deliberate compliance, when taxpayers notice multinationals legally avoiding corporate income taxes. Because developing nations rely more heavily on corporate income tax, they are disproportionately affected by BEPS.

Repatriation tax holiday

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 earned in other countries. The theory supporting such an action is that multinational companies headquartered in one country, but which earn income in a second country will be unlikely to bring income from the second country back to their home country if high taxes will be assessed on this income when it is brought back. By allowing those companies to bring income back to the home country at a reduced tax rate, money will be injected into the economy of the home country that otherwise would remain in the second country.

Foreign tax credit

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 taxation. The credit may also be granted in those systems taxing residents on income that may have been taxed in another jurisdiction. The credit generally applies only to taxes of a nature similar to the tax being reduced by the credit and is often limited to the amount of tax attributable to foreign source income. The limitation may be computed by country, class of income, overall, and/or another manner.

Transfer pricing

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 taxable income, tax authorities in many countries can adjust intragroup transfer prices that differ from what would have been charged by unrelated enterprises dealing at arm’s length. The OECD and World Bank recommend intragroup pricing rules based on the arm’s-length principle, and 19 of the 20 members of the G20 have adopted similar measures through bilateral treaties and domestic legislation, regulations, or administrative practice. Countries with transfer pricing legislation generally follow the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations in most respects, although their rules can differ on some important details.

Alternatives and arrangements

For small corporations, registering a foreign subsidiary can be expensive and complex, involving fees, signatures, and forms;[41] a professional employer organization (PEO) is sometimes advertised as a cheaper and simpler alternative,[41] but not all jurisdictions have laws accepting these types of arrangements.[42]

Dispute resolution and arbitration

Disputes between corporations in different nations is often handled through international arbitration.

Theoretical background

The actions of multinational corporations are strongly supported by economic liberalism and free market system in a globalized 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 a free market system where there is little government interference. As a result, international wealth is maximized with free exchange of goods and services.[43]

To many economic liberals, multinational corporations are the vanguard of the liberal order.[44] 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.[45]

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:

Ernest Dichter, architect, of Exxon's international campaign, writing in the Harvard Business Review in 1963, was fully aware that the means to overcoming cultural resistance depended on an "understanding" of the countries in which a corporation operated. He observed that companies with "foresight to capitalize on international opportunities" must recognize that "cultural anthropology will be an important tool for competitive marketing". However, the projected outcome of this was not the assimilation of international firms into national cultures, but the creation of a "world customer". The idea of a global corporate village entailed the management and reconstitution of parochial attachments to one's nation. It involved not a denial of the naturalness of national attachments, but an internationalization of the way a nation defines itself.[46]

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Economic liberalism

Economic liberalism

Economic liberalism is a political and economic ideology that supports a market economy based on individualism and private property in the means of production. Adam Smith is considered one of the primary initial writers on economic liberalism, and his writing is generally regarded as representing the economic expression of 19th-century liberalism up until the Great Depression and rise of Keynesianism in the 20th century. Historically, economic liberalism arose in response to feudalism and mercantilism.

Free market

Free market

In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any other external authority. Proponents of the free market as a normative ideal contrast it with a regulated market, in which a government intervenes in supply and demand by means of various methods such as taxes or regulations. In an idealized free market economy, prices for goods and services are set solely by the bids and offers of the participants.

Internalization theory

Internalization theory

Internalization theory is a branch of economics that is used to analyse international business behaviour.

Eclectic paradigm

Eclectic paradigm

The eclectic paradigm, also known as the OLI Model or OLI Framework, is a theory in economics. It is a further development of the internalization theory and published by John H. Dunning in 1979. Modern Trade Theory incorporates this paradigm using the Grossman-Hart-Moore Theory of the firmOwnership advantages specific advantages refer to the competitive advantages of the enterprises seeking to engage in Foreign direct investment (FDI). The greater the competitive advantages of the investing firms, the more they are likely to engage in their foreign production. Location advantages Locational attractions refer to the alternative countries or regions, for undertaking the value adding activities of multinational enterprises (MNEs). The more the immobile, natural or created resources, which firms need to use jointly with their own competitive advantages, favor a presence in a foreign location, the more firms will choose to augment or exploit their specific advantages by engaging in FDI. Internalization advantages Firms may organize the creation and exploitation of their core competencies. The greater the net benefits of internalizing cross-border intermediate product markets, the more likely a firm will prefer to engage in foreign production itself rather than license the right to do so.

Harvard Business Review

Harvard Business Review

Harvard Business Review (HBR) is a general management magazine published by Harvard Business Publishing, a wholly owned subsidiary of Harvard University. HBR is published six times a year and is headquartered in Brighton, Massachusetts.

Cultural anthropology

Cultural anthropology

Cultural anthropology is a branch of anthropology focused on the study of cultural variation among humans. It is in contrast to social anthropology, which perceives cultural variation as a subset of a posited anthropological constant. The portmanteau term sociocultural anthropology includes both cultural and social anthropology traditions.

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.[47] 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 costs.[48]

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.[49]

Anti-corporate advocates criticize multinational corporations for being without a basis in a national ethos, being ultimate 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 or environmental standards.[50] 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 benefits capital while workers and communities lose. Some negative outcomes generated by multinational corporations include increased inequality, unemployment, and wage stagnation.[51] For the debate from a neo-liberal perspective see Raymond Vernon, Storm over the Multinationals (1977).

The aggressive use of tax avoidance schemes, and multinational tax havens, allows multinational corporations to gain competitive advantages over small and medium-sized enterprises.[52] 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.[53]

Discover more about Criticism related topics

Anti-globalization movement

Anti-globalization movement

The anti-globalization movement or counter-globalization movement, is a social movement critical of economic globalization. The movement is also commonly referred to as the global justice movement, alter-globalization movement, anti-globalist movement, anti-corporate globalization movement, or movement against neoliberal globalization. There are many definitions of anti-globalization.

Anti-corporate activism

Anti-corporate activism

Anti-corporate activism refers to the idea of activism that is directed against the private sector. It stems from the idea that big business needs to be held to account for its activities and impacts that may be to the detriment to the public good and democratic processes.

Sanjaya Lall

Sanjaya Lall

Sanjaya Lall was a development economist and Professor of Economics at the University of Oxford. Lall's research interests included the impact of foreign direct investment in developing countries, the economics of multi-national corporations, and the development of technological capability and industrial competitiveness in developing countries. One of the world's pre-eminent development economists, Lall was also one of the founding editors of the journal Oxford Development Studies and a senior economist at the World Bank.

Ethos

Ethos

Ethos is a Greek word meaning "character" that is used to describe the guiding beliefs or ideals that characterize a community, nation, or ideology; and the balance between caution, and passion. The Greeks also used this word to refer to the power of music to influence emotions, behaviors, and even morals. Early Greek stories of Orpheus exhibit this idea in a compelling way. The word's use in rhetoric is closely based on the Greek terminology used by Aristotle in his concept of the three artistic proofs or modes of persuasion. It gives credit to the speaker, or the speaker is taking credit.

Human rights

Human rights

Human rights are moral principles or norms for certain standards of human behaviour and are regularly protected in municipal and international law. They are commonly understood as inalienable, fundamental rights "to which a person is inherently entitled simply because she or he is a human being" and which are "inherent in all human beings", regardless of their age, ethnic origin, location, language, religion, ethnicity, or any other status. They are applicable everywhere and at every time in the sense of being universal, and they are egalitarian in the sense of being the same for everyone. They are regarded as requiring empathy and the rule of law and imposing an obligation on persons to respect the human rights of others, and it is generally considered that they should not be taken away except as a result of due process based on specific circumstances.

Environmental law

Environmental law

Environmental law is a collective term encompassing aspects of the law that provide protection to the environment. A related but distinct set of regulatory regimes, now strongly influenced by environmental legal principles, focus on the management of specific natural resources, such as forests, minerals, or fisheries. Other areas, such as environmental impact assessment, may not fit neatly into either category, but are nonetheless important components of environmental law.

Social inequality

Social inequality

Social inequality occurs when resources in a given society are distributed unevenly, typically through norms of allocation, that engender specific patterns along lines of socially defined categories of persons. It is the differentiation preference of access of social goods in the society brought about by power, religion, kinship, prestige, race, ethnicity, gender, age, sexual orientation, and class. Social inequality usually implies the lack of equality of outcome, but may alternatively be conceptualized in terms of the lack of equality of access to opportunity. The social rights include labor market, the source of income, health care, and freedom of speech, education, political representation, and participation.

Unemployment

Unemployment

Unemployment, according to the OECD, is people above a specified age not being in paid employment or self-employment but currently available for work during the reference period.

Tax avoidance

Tax avoidance

Tax avoidance is the legal usage of the tax regime in a single territory to one's own advantage to reduce the amount of tax that is payable by means that are within the law. A tax shelter is one type of tax avoidance, and tax havens are jurisdictions that facilitate reduced taxes. Tax avoidance should not be confused with tax evasion, which is illegal.

Small and medium-sized enterprises

Small and medium-sized enterprises

Small and medium-sized enterprises (SMEs) or small and medium-sized businesses (SMBs) are businesses whose personnel and revenue numbers fall below certain limits. The abbreviation "SME" is used by international organizations such as the World Bank, the European Union, the United Nations, and the World Trade Organization (WTO).

Tax Justice Network

Tax Justice Network

The Tax Justice Network is an advocacy group consisting of a coalition of researchers and activists with a shared concern about tax avoidance, tax competition, and tax havens.

Base erosion and profit shifting

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 or no-tax locations where there is little or no economic activity, thus "eroding" the "tax-base" of the higher-tax jurisdictions using deductible payments such as interest or royalties. For the government, the tax base is a company's income or profit. Tax is levied as a percentage on this income/profit. When that income / profit is transferred to another country or tax haven, the tax base is eroded and the company does not pay taxes to the country that is generating the income. As a result, tax revenues are reduced and the government is detained. The Organization for Economic Co-operation and Development (OECD) define BEPS strategies as "exploiting gaps and mismatches in tax rules". While some of the tactics are illegal, the majority are not. Because businesses that operate across borders can utilize BEPS to obtain a competitive edge over domestic businesses, it affects the righteousness and integrity of tax systems. Furthermore, it lessens deliberate compliance, when taxpayers notice multinationals legally avoiding corporate income taxes. Because developing nations rely more heavily on corporate income tax, they are disproportionately affected by BEPS.

Source: "Multinational corporation", Wikipedia, Wikimedia Foundation, (2022, November 25th), https://en.wikipedia.org/wiki/Multinational_corporation.

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See also
Notes
  1. ^ It is important to note the difference between a "corporation" and a "company" in general, hence the difference between a "multinational corporation" and a "multinational company" in its modern sense.
References
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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 textbook 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

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