International Business Management
Part 1: Introduction
Multinational Enterprise (MNE) is one of the most complex forms of international business. This company uses the international approach in the search for foreign markets and the distribution of production, as well as a comprehensive global business philosophy, providing economic activities within the country of origin and abroad.
corporate integrity, based on the principle of equity participation;
focus on achieving strategic goals and address common strategic objectives of MNEs;
having a single unified management vertical and control center in the form of a holding company, a bank or a group of related companies;
open-ended nature of the existence of a multinational company.
Multinational company is a kind of holding company, engaged in business activities in the various national markets and seeks to managers through subsidiaries to adapt their products and marketing strategies to local features.
having more than six foreign subsidiaries;
the shares of which are in use in many countries and are available for purchase in all the countries of their action;
composition of senior management which is formed of citizens of different countries, which excludes one-sided orientation of the company in the interests of any one country;
having the international character of management mentality, adhering geocentric position;
organizational structure which focuses on large-scale economic activities and effective implementation of the company's strategy.
At the same time UN experts have attributed to the MNE corporations that engage in any production and (or) sales activities, as long as their activities were taken out beyond the nation-state. However, this definition is not exhaustive, because it does not take into account the most important features of the modern international business entity. Therefore, to formulate a definition of MNE, it is necessary to define its main features.
As an economic category at the present stage of evolution of the global economy MNEs reflects the phenomena and processes characteristic of the post-industrial stage of development of the public commodity production in private ownership in the means of production. MNE is always an association (corporation) of the private parent company, located in the country of origin (home) with its capital and branches belonging to it, but placed in the other (host) countries. The unit of MNE is a relatively independent company operating in the economy of the country and participate in its external economic relations, for the purposes and in the directions according to the interests of the parent company. These units, depending on their legal status, can act as affiliates (branches), subsidiaries ("daughters") and the company's association.
MNE have a long history. Already in 1939 there were about 300 of them in the world, and in 1999 the total number had reached 59 thousand MNEs with 508 thousand branches, that is increased by almost 200 times. Experts point out that by the end of 2004 there were more than 70 thousand MNEs, with 690 thousand branches worldwide. Parent companies are located primarily in developed countries (about 72%), and branches in developing ones (about 65.2%). There are various concepts that explain the emergence and development of the MNEs. One of them is the relative narrowness of the domestic market in ever-increasing production volumes at antitrust regulation of domestic markets in most developed countries. And, accordingly, the objective necessity of entering the markets of the other countries with not just a products or services, but with the competitive advantages of the big monopolies.
Part 2A: Discussion
World public opinion is very sensitive to the strengthening of MNEs in the global economy. The fact that the MNE can bring into the world economy, and especially in the economy of the host countries, both positive and negative consequences. World practice has proved that things beneficial for MNEs are not necessarily beneficial to the national economies of the host countries. The power of MNE allows them to ignore this discrepancy. You can say that today the MNE virtually unmanageable and this is a very difficult problem to solve the world community is trying for over 30 years (Kleinert, 2004).
Already in 1972, the United Nations Centre for the MNE was created. Its main purpose was to study the MNE activity, their influence on the national and world economy, the publication of information on the leading MNE, and to identify the most significant trends of their development (Caves, 2007). The result of such observations was the conclusion, indicating the recognition of the power of MNE and the very limited opportunities for the international community impacts. In particular, in a special report published by the Economic and Social Council of the United Nations says that the power concentrated in the hands of MNE raised concerns their role in the world (Kleinert, 2004). As well as the actual or potential use of this power, their ability to deform and demand to change the values, the ability to affect the lives of the people and government policies and their impact on the economy.
Since the beginning of decolonization, the UN and other international organizations have begun to search for ways to establish a new international economic order, which would have favored the countries liberated from colonial oppression (developing countries). UN, ILO, UNESCO and other international organizations have come to the conclusion that the development of third world countries need external assistance, but because it was necessary to find a compromise between foreign capital, especially in the face of MNEs, and developing countries (Caves, 2007). The regulation of the activities of MNCs of developed countries of market economy a significant place should take a "Charter of Economic Rights and Duties of States". This Charter had to regulate and exercise authority over foreign investment within its national jurisdiction in accordance with its laws and regulations; in accordance with its national objectives and priorities of any state shall be compelled to grant preferential treatment to foreign investment (Garretsen and Brakman, 2008). Also, the Charter was to regulate and control the activities of transnational corporations within its national jurisdiction and take measures to ensure that such activities comply with its laws, rules and regulations and conform with its economic and social policies. Transnational corporations should not interfere in the internal affairs of the host state. The role of the said Charter was gradually decreased by the US initiative. In 1987, the UN General Assembly discussed the concept of international economic security. According to its objectives, it was close to the "Charter of Economic Rights and Duties of States", but did not contain the basic apparatus necessary for its implementation in the form of a system of Economic Rights and Duties of States, and therefore was impossible (Kleinert, 2004).
However, the world community does not leave attempts of international regulation MNE activities, which proved unsuccessful. Moreover, some of the results in this direction that were achieved by the time now are gradually lost. In 1992 the United Nations adapt to the realities of the Charter. As a result, it has practically ceased to be one of the basic international instruments of interaction and coexistence of the countries of the world community, and MNEs have gained complete freedom for their economic activities. In 1993, he ceased to exist and the United Nations Centre for MNEs. He was transformed into the Department of Foreign Direct Investment and MNEs. By the early 1990s a compromise between MNEs and host countries was formed in the following way: the countries receiving MNEs and foreign investment, have agreed to weaken the control of MNEs activity (Garretsen and Brakman, 2008). They had to create favorable conditions for admission of Foreign Direct Investment: more guarantees and incentives, liberalization of FDI entry procedures and regulations in sectors of the economy to foreign ownership. MNEs home countries for implementation in the host country's economy away from compliance unascertained corporation - capital mono-national - and went on to create in them the branches with the capital of the host country or under its auspices, as well as the creation in these countries national MNEs (mainly small and medium-sized ). Subsequently, this compromise was realized through the establishment of joint ventures with the participation of mutual capital in the host country.
Attempts to regulate the social aspects of the activities of MNCs have been more successful. Now in host countries, the “Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy governs them. It marked standards in matters of recruitment, training, conditions of work and life, industrial relations. In 1980, the UN General Assembly approved the system of multilateral agreed equitable principles and rules for the control of restrictive business practices; in 1994, a review on the accounting and reporting of multinational corporations was published making the information on their activities more transparent (Caves, 2007). An important legal basis for the activities of MNEs have become agreement of two or more corporations of industrial cooperation. In the 1982-1985 agreement on international co-operation, 151 largest corporations have been concluded. This form of legal support of MNEs, increasing its effectiveness most effective for contracting with each other MNEs. Cooperative Agreement between MNE provide not only gain in the production process, but also improve the possibilities of joint (of the host country and MNEs) performances in the market (Caves, 2007).
In 2003, the Commission on Human Rights adopted the draft convention of "Norms of Responsibilities of Transnational Corporations", in which MNEs were placed on the same obligations as the countries (Dunning and Lundan, 2008). According to this Convention, MNEs are obliged to refrain from environmental pollution and violations of human rights, adhere to the rules of fair play in business, marketing and advertising activities. MNEs are also obliged to ensure consumer safety and high quality of products and services offered, as well as safe and healthy working conditions. The main role in the regulation of MNEs activities currently operates the national legislation, governing the admission and conditions of FDI activities in their economies (Dunning and Lundan, 2008). This is understandable, since it is FDI for more than half of all financial flows to developing countries, far exceeding in its level of official development assistance.
Part 2B: Analysis
The scale of international financial transactions provide MNCs privileged position as borrowers or savers Eurocurrency market, at their disposal is about $8 trillion. MNEs control up to 90% of the export of capital. Total foreign exchange reserves of multinational companies is 5-6 times greater than the reserves of central banks around the world.
Expanding its transnational activities, they create economic preconditions for the organization of international production with the single market and the information space and the international capital market, labor, scientific, technical, advisory and other services (Wallace, 2002). Fighting for global markets, MNEs increase the level of competition that is the need for constant innovation, changing technologies and the acceleration of scientific and technical progress. Promoting circulation of capital, people and technology, they significantly contribute to economic growth and development.
However, their economic strength becomes a source of potential conflicts with those states on whose territory they operate. In fact, MNEs are increasingly determined by international politics (Wallace, 2002).
Incentives globalization of business in the financial and credit sector are reduction of tax rates and customs duties, the possibility of prolongation of the deadline for paying taxes, obtaining permission for accelerated depreciation, the free transfer of profits or return on capital and the base amount of external borrowing. The money saved on taxes, give the company financial mobility needed, in particular for highly profitable projects abroad.
Multinational enterprise has greater flexibility in the use of benefits provided by the host country in relation to foreign investment in the form of government guarantees, exemption or reduction of taxes and duties and other support measures (Garretsen and Brakman, 2008). This company is able to move funds and profits through internal mechanisms of financial transfers that are part of its finances, due to the differences in the national tax systems and the significant costs and restrictions on foreign, international, and financial transfers. Using in-house resources and funds flows. MNEs are able to monitor and influence the tax system, financial markets and government regulation methods.
The sectorial focus of MNEs is determined by the main area of its activity. Raw MNEs are distinguished by the following: corporations engaged in basic and secondary manufacturing industries and industrial conglomerates. At this time, multinational enterprises keep their power in the basic fields of manufacturing and mining production (Dunning and Lundan, 2008).
Multinational enterprises operate abroad with various types of research and development work. The choice of the type of work and their industry specialization depends on the region in which the level at which development is the host country. For instance, in India dominates the sphere related to the service and technical support; in Southeast Asia dominates the innovations connected with electronics, in South America it is possible to distinguish the manufactures of transport equipment and different chemicals (Wallace, 2002).
For multinational enterprises, the conglomerate type gives a possibility to determine their specialization within a certain industry, which the United Nations considers as having a significant amount of foreign assets, the largest number of sales outside the parental country and the most significant number of employees worldwide. It is in this sector sent the largest number of corporate investment, and that it gives the highest profit corporation. The basis for the distribution of a particular industry MNEs is the calculation of the index of trans-nationalization of individual branches of the corporation (Wallace, 2002). This index is recommended organ of the UN General Assembly. It is calculated as the arithmetic mean of three indicators: the proportion (ratio) of volumes of foreign assets, sales, number of employed to total assets, sales and number of employees in the sector specific MNEs.
With respect to MNEs in the integral economic sense of this indicator is that it can be used to determine what role does this or that MNEs in the world economy. This integral index, which is calculated as a percentage. According to its value can be determined and compared MNEs activity abroad and on the domestic market of the home country. Generally, the higher the index in the more diversified operations MNEs abroad. It is interesting to note that between MNEs size and the level of trans-nationalization is no direct relationship. Moreover, often small MNEs increasingly transnational.
Part 3: Recommendations
The major areas of MNEs activity are developed countries. They are the main exporters and importers of FDI. They account for more than half of global FDI inflows and more than 80% of global outward FDI. However, FDI flows have recently intensified from and to developing countries. Among those countries, the main recipients of FDI are China, Asia and Oceania, South-East Europe and the CIS. This is largely due to the global geopolitical changes that have occurred in the world, with the creation of their own MNEs in the most advanced developing countries, including post-socialist economy, as well as the intensification of the processes of globalization in the world economy.
Part 4: Conclusion
Multinational Enterprises today are about 60 thousand basic (parent) companies and more than 500 thousand of their foreign affiliates and refined (dependent) companies worldwide. MNEs role in the formation of nodes defining in the modern World economy development tendencies cannot be overestimated. MNEs are truly transnational centers of decisions and actions and they have a significant impact on the global economy.
Bibliography
Caves, R. (2007). Multinational enterprise and economic analysis. 3rd ed. Cambridge: Cambridge university press.
Dunning, J. and Lundan, S. (2008). Multinational enterprises and the global economy. Cheltenham, UK: Edward Elgar.
Garretsen, H. and Brakman, S. (2008). Foreign Direct Investment and the Multinational Enterprise (CESifo seminar series). MIT Press.
Kleinert, J. (2004). The role of multinational enterprises in globalization. Berlin: Springer.
Wallace, C. (2002). The multinational enterprise and legal control. New York: Martinus Nijhoff.
