A multinational company (MNC) is a firm that is based in one country (the parent country) and has production and marketing activities in one or more foreign (host) countries. More than 50 percent of the sales of firms such as Nestle, Electrolux, Unilever, Sony, Gillette, Colgate, Coca-Cola, and Caterpillar are made outside their parent countries.8 PepsiCo is Mexico’s largest consumer products company.
The traditional MNC tends to treat its foreign operations as distant appendages for producing products designed and engineered in the parent country. The firm’s nationality is clear.
Some of the terms used to describe an evolving type of MNC are borderless company, global company, World Company, transnational company, and stateless company. Such firms make decisions with little regard to national borders. Nestle, for example, has production operations in sixty-one countries. The headquarters, in Vevey, Switzerland, houses employees of some fifty different nationalities. The firm’s chief executive is German bom.”
Most foreign subsidiaries of U.S.-based MNCs are wholly owned. But there is a strong worldwide trend toward requiring joint ventures. In international business a joint venture is a partnership of two or more parties, based in different countries, who share ownership and control of the venture’s operations and property rights. Toys “51” Us entered Japan through a joint venture with McDonald’s of Japan, which is 50 percent owned by McDonald’s Corporation.
In a strategic alliance two or more firms may join together to share manufacturing, marketing, or research. Notice in the Sunkyong ad that this Korean firm is seeking to form alliances with U.S. firms. Often such efforts are called strategic partnering.
Foreign Manufacturing Operations
MNCs set up plants overseas for a variety of reasons. One is that growth in buying power in some countries creates enough demand to justify local production.
The growing spirit of nationalism, especially in less-developed countries (LDCs) that export raw materials, is another reason MNCs set up plants overseas. These countries want MNCs to set up plants in their countries instead of simply exporting their raw materials. This creates jobs, increases the tax base, and gives the government some control over the MNC’s operations.
Another factor is the lower cost of producing in some countries. This can be due to lower labor costs, lower interest rates, lower taxes, government subsidies, and so on.
Finally, the formation of regional trading blocs may favor foreign manufacturing operations. A regional trading bloc is a group of countries that agree to eliminate barriers to trade among member nations. For example, there are no tariffs on exports and imports of member countries of the European Community (EC), which is a regional trading bloc. All members also apply a common tariff on products entering from nonmember countries. Thus a U.S. exporter is at a disadvantage is competing with a French firm to export products to other EC countries (Belgium, Italy, Luxembourg, the Netherlands, Germany, Denmark, Ireland, the United Kingdom, Greece, Spain, and Portugal). Many U.S. firms have set up subsidiaries in the EC to get behind the tariff wall.
Foreign Operations in the United States
At the end of World War II, U.S.-based MNCs started making direct investments in many foreign countries. More recently, foreign-based MNCs have been making direct investments in the United States. Some foreign firms build plants here. Among them are Honda, Nissan, Toyota, and Mazda. BMW announced in the summer of 1992 that it would build a factory in South Carolina. Other firms buy and modernize existing plants. Some foreign investors buy U.S. government securities, stocks and bonds of U.S. corporations, and real estate. Today foreigners own such “American” firms as Carnation, Smith & Wesson, Chesebrough-Pond’s, Burger King, Pillsbury, and Wyndham Food, the San Francisco baker that makes Girl Scout cookies.