Multinational corporations

Definition Companies that have capital assets in—and conduct business within—one or more foreign countries

American-based multinationals have contributed to the growth of the U.S. economy by acquiring greater access to foreign markets and increasing international sales. Foreign-based multinationals have provided additional employment opportunities to the American workforce, as well as greater product choices for consumers. These multinational corporations have also increased competition among business firms in the United States and contributed to the maintenance of a free market economy.

Multinational corporations may be organized according to three different structures: horizontal, vertical, and diversified. If a multinational corporation is structured horizontally, it manages production facilities in different countries that all produce the same product. Each facility performs the same operations, from beginning of production to completion of the finished product. Vertically structured multinationals manage facilities in different countries that perform usually only one part of the production process. The facility produces a part or good that will be used in another facility to continue the manufacture of the product or receives a part or good from another facility that it will use to continue the manufacturing process. Multinationals that have a diversified structure produce a variety of products. The various facilities in the different countries are not integrated either horizontally or vertically.

Multinational corporations play an important role in the global economy with their direct foreign investment. Corporations make direct foreign investment by either establishing production and marketing facilities or purchasing existing facilities to create a subsidiary in a foreign country, or by acquiring an ownership interest in a foreign business. Most countries welcome direct foreign investment. The installation of a multinational in a country provides additional tax revenue and increased employment opportunities, and it acts as a stimulus to economic activity. Thus, multinationals are usually offered incentives to set up facilities in other countries. These incentives may include tax breaks, assurance of government assistance, and even at times a relaxation of environmental or other standards.

The United States and Multinationals

One of the first American multinational corporations was the sewing machine manufacturer I. M. Singer and Company, later called the Singer Manufacturing Company. Isaac Merrit Singer established his first European manufacturing and marketing facilities in 1890. By the end of the century, Westinghouse, General Electric, Western Electric, and Eastman Kodak had opened manufacturing facilities in Europe, and Standard Oil had established refineries on the continent as well. During the early years of the twentieth century, American-based firms began to set up factories and offices in Canada and Mexico. During the century, an increasing number of American-based companies—including Ford, General Motors, Coca-Cola, International Business Machines (IBM), and McDonald’s—established facilities and factories in foreign countries.

European multinationals including Nestlé and Japanese companies such as Toyota and Sony joined the American business community. In 1984, Nestlé acquired Carnation, and in 2002, it bought animal food manufacturer Ralston Purina, Dreyer’s (sold as Dreyer’s Ice Cream and Edy’s Ice Cream), and Chef America, the manufacturer of Hot Pockets. In 1982, through a joint venture with General Motors, Toyota established its first manufacturing facility in the United States. Sony Corporation, headquartered in Tokyo, set up its subsidiary Sony Corporation of America. These and other developments increased the role of multinationals in the American economy.

Multinational corporations have faced considerable criticism on various fronts. Human rights advocates and watchdog groups protest the expansion of a company into countries with poor civil rights records, while environmentalists similarly criticize the potential impact of rampant globalism on the environment. Some economists claim that the structure of multinationals disproportionately benefits capital interests while damaging local communities and workers. Perhaps most notably, many multinational corporations have been accused of various forms of tax avoidance and tax evasion, helping them to earn huge profits and outcompete smaller businesses unable to take advantage of such loopholes.

Multinationals as Employers

Approximately 70 percent of the workers in foreign countries employed by American multinationals are in developed countries with high wage scales as of 2013. The greatest number of these employees are found in Western Europe. The greatest number of foreign employees of American multinationals are working in the manufacturing sector. The transportation sector plays a significant role in this employment, as many of the workers are employed in the foreign assembly plants of American automakers. In 2012, the biggest overall transnational company was the US-based General Electric.

In 2011, 5.6 million US workers were employed by affiliates of foreign-based multinational corporations. European-based foreign multinationals made up the largest percentage of foreign-based firms employing American workers in the United States. However, in regard to the actual number of workers employed, United Kingdom-based multinationals and Japanese-based multinationals were the largest foreign employers of American workers in the United States. Canadian-based firms were the next largest employer.

Bibliography

Almond, Phil, and Anthony Ferner. American Multinationals in Europe: Managing Employment Relations Across National Borders. New York: Oxford University Press, 2006. Examines American multinationals operating in foreign countries such as the United Kingdom, Germany, Spain, and Ireland from a cultural viewpoint. The analysis of what is American and how it contrasts with local customs and practices is especially useful.

Chandler, Alfred, and Bruce Mazlish, eds. Leviathans: Multinational Corporations and the New Global History. New York: Cambridge University Press, 2005. A good overview of reasons for development of multinationals, how they operate, and their significant impact worldwide, both culturally and socially.

Geppert, Mike, Dirk Matten, and Karen Williams, eds. Challenges for European Management in a Global Context: Experiences from Britain and Germany. New York: Palgrave Macmillan, 2002. Discusses the problems faced by American multinationals operating in foreign countries in their employment of local workers. It stresses that the expectations of these employees are different from those of American employees.

Jones, Geoffrey, and Lina Gávez-Muñoz, eds. Foreign Multinationals in the U.S.: Management and Performance. New York: Routledge, 2001. Offers a good overview of the experiences, successes, and failures of foreign multinationals with offices and production facilities in the United States. There are sections on Japanese, French, Dutch, and British multinationals.

Norris, Floyd. "Apple's Move Keeps Profit Out of Reach of Taxes." New York Times. New York Times, 2 May 2013. Web. 15 Jul. 2015.

Osterhammel, Jurgen, and Niels P. Petersson. Globalization: A Short History. Translated by Dona Geyer. Princeton, N.J.: Princeton University Press, 2005. Appropriate for both the general reader and the student of economic history, this work traces the evolution of globalization from early trading among European countries, through the expanding trade that developed with exploration and colonization, to modern-day international trade. The focus is on economic developments; cultural and political events play a secondary role. There is a large section on the Bretton Woods Agreement negotiations.

Pomerleau, Kyle. "How Much Do US Multinational Corporations Pay in Foreign Income Taxes?" Tax Foundation. Tax Foundation, 19 May 2014. Web. 15 Jul. 2015.

"Summary Estimates for Multinational Employment, Sales, and Capital Expenditures for 2011." Bureau of Economic Analysis. US Dept. of Commerce, 18 Apr. 2013. Web. 15 Jul. 2015.