The Importance of Multinational Corporations

What are MNCs?

Multinational corporations (MNCs) are another type of nongovernmental actor and are private businesses headquartered in one state that invest and operate extensively in other states. They are sometimes called transnational corporations or international corporations.

Much controversy surrounds MNCs. There are many individuals and organisations who have critical and negative views about MNCs, and then of course there are those who support them.

MNCs generate enormous global sales -- approximately $5.2 trillion pa.

A conservative estimation of the number of jobs associated with MNCs is 150 million.

Transnational Banks (TNBs) have played a major role in the expansion of MNCs. TNBs have made capital highly mobile and their contribution to globalization has led to worldwide financial integration.

MNCs' Global Reach and Economic Power

Before WWII, most MNCs established foreign operations to secure sources of raw materials.

After 1957, when the EEC was created, large numbers of MNCs began investing in Europe, mainly in manufacturing. It was advantageous for US firms to build production facilities in Europe, where they too could be protected by the tariff wall of the EEC. In other words, goods could be produced and sold within the EEC as domestic products, and not as imports with tariffs.

However, the reasons for foreign investments are not as simple as that. MNCs usually have a headstart in the development and initial production of new products, and according to the product-cycle theory, foreign expansion is in fact a manoeuvre aimed at suppressing foreign competition. Once the technology or know-how required for manufacturing a new product becomes widespread, MNCs relocate production facilities abroad.

On page 197, Table 7.4 shows the rankings of the 100 biggest economies and revenues in 1996. By examining the list, you will be able to see that there are numerous MNCs whose revenues are higher than whole countries!

Foreign Direct Investment (FDI) measures the investment activities of MNCs, and it can be formally defined as "ownership of assets in one country by residents of another for purposes of controlling the use of those assets".

Unlike the "bipolar" investment configuration of earlier times (which was dominated by the United States and a few European countries acting independently), we now have a "tripolar" investment configuration consisting of European Union, Japan and the United States. Networks of affiliates clustered around their home countries have been constructed, and as a result, FDI is now increasingly regional and principal host countries in the Global South receive the bulk of its funds from a single member of the investment triad -- usually the one geographically closest to it.