Multinational
Example of vertically integrated multinational.
Down, annual consumption of Coca-Cola.
A multinational or international company is one whose parent company was created and registered in one country, but which has subsidiaries in different countries around the world.
They are also a powerful agent of globalization. They act with a global strategy to obtain the highest profit margin; they buy raw materials where it is cheapest for them; they set up their factories in the most favorable places; and, they sell their products almost anywhere on Earth. Being understood as the creation of a group of companies at an international level implanted through the economy, technology and communication, whose purpose is to attract new customers, creating a new culture of commercialization of universally recognized products.
A domestic company becomes a multinational when it makes direct investment abroad that is legally and economically organized through business units that we call affiliates or subsidiaries.
The term multinational should be understood in terms of the market, not the nature of the company: in fact, it is common for the term multinationals to be described as misleading, and it is preferred to call them transnationals, since, although they operate in several countries, their strategy and central administration are generally based in a single country.
Birth and history of multinational companies
Multinational companies were born as a consequence of the process of expanding markets. The first company that can be considered an antecedent of the current multinationals was the Muscovy Company, a company of English origin founded in London in 1555, dedicated to trade between England and Russia. Another precedent can be found in the India companies that arose in Great Britain, Holland, Sweden and Denmark in the 17th century; or, previously, the Rothschild bank, which spread to various European countries.
The germ of the current multinational companies arose at the end of the XIX century, when a group of companies decided to build factories outside from their countries of origin. In this way they reduced transportation costs and avoided the heavy tariffs established on the importation of their products.
Characteristics of multinational companies
The main characteristics of this type of company are the following:
- They spread all over the globe. Its owners carry their products or services to any territory, opening new branches even on several continents, outside their origin.
- They possess plants worldwide and work with important quantities of products.
- They use new technologies, industrial organization, marketing and advertising.
- They are strong investors in research and development for communities.
- They have deep knowledge of the structures and functioning of the political mechanisms of the countries where they are implemented.
- They usually grow through mergers and acquisitions.
- Its products are not finished on the same plant in which they start; they transport it to another plant on another continent to be finished, and they are marketed elsewhere.
Multinationals and competition
The best-known commentator on the origin and consequences of multinationals is John Kenneth Galbraith, who since 1967 proclaimed that the rise to primacy of these types of companies after World War II has profound economic, social and economic implications. policies.
Among others, he postulates that multinationals overcome the problem of risk, central to traditional companies, which they achieve mainly with the advantages they possess, on the one hand, by being in a position to obtain long-term contracts in the area both buying and selling (including with unions) and relations with countries and, on the other, by expanding its activities to the financial sector.
As a consequence of the foregoing, free competition, as conceived in classical conceptions, ceases to exist and is transformed into a situation that is, perhaps, of imperfect competition. For example, a condition of true competition is adequate and independent information. However, multinational companies distort that information through control of advertising, which then extends to the production of entire lines of magazines or newspapers.
Sure, some of the earlier or classic companies became very large and spread to various countries or regions, but in classic companies like Rockefeller, Vanderbilt, Carnegie or Rothschild companies the owner was the decision maker. That situation began to change in the first two decades of the twentieth century; Already in 1911 Schumpeter makes references to the importance assumed by what could be called the professional entrepreneur (entrepreneur), who is (in Schumpeter's words) "the individual who assumes non-personal economic risks.
Adam Smith had a very critical view of such a situation. For him, risk and reward was a matter between individuals in the free market. How could these individuals compete freely if they delegate their representation to others? In reality, how can there be free competition if the owners of some good or service (from labor to capital) band together in order to share or reduce risk? That situation is simply a market distortion.[citation needed]
Galbraith points out another consequence of the emergence of professional entrepreneurship, a consequence that follows directly from the classical perception of the economic behavior of individuals. That business will inevitably proceed to pursue their interests - both as individuals and as a group. In the same way that other individuals or groups seek to manipulate the market in order to profit, these entrepreneurs will seek to do so. Smith himself foresaw the situation: the shareholders - who in Smith's terms bear the economic risk - will only receive "what the directors deem appropriate to give them". About "the directors" he says that "without an exclusivity privilege... they have generally mismanaged the company. And, with that privilege, it has been mishandled and restricted as well."
Much has been written about the character and role of the “entrepreneur”. In general, those who consider themselves supporters of capitalism and liberalism (in their classical or neo versions) forget that aspect of the position of both Smith, Schumpeter and others to concentrate on another part of Schumpeterian analysis: the entrepreneur as innovator (see entrepreneur). While it is true that Schumpeter identifies this professional manager as an innovator, it is no less true that this innovation is not necessarily favorable to investors or to society in general because, as Galbraith points out, it is not and cannot be motivated by the best desire for others, but the staff. In a society where everyone pursues personal interest, those who control companies cannot be expected to be the exception, they are those who are motivated by the good of others.
That professional entrepreneurs manipulate companies and the market for personal gain is not just a moral or legal issue. Beyond extreme cases -such as ENRON's- the problem centers on the Smithian perception of mismanagement and restriction of the company. In this sense, the case of IBM is an example, one of the first modern multinationals, which, starting from a strong position in the market, almost went bankrupt at the end of the century XX (in 1993 IBM announced what was the largest loss in the history of that country up to that date: US$ 4.97 billion in 1992), a situation that was due to the phenomenon predicted by Galbraith: proliferation of bureaucracy in the form of more and more layers of managers: IBM is said to have had more than ten managers per employee working. At the same time, these layers became a real brake on innovation: each layer needed to do some analysis before recommending action to the higher level. The result was that months passed before a proposal reached the level that it could actually decide. And when that level was reached, it happened that competing companies had already implemented or even surpassed the innovation.
However, it cannot be denied that a central characteristic of every company -from the classical period onwards- is the planning of present production in relation to the future market. It is that planning, complemented by its control of the market, which has largely been behind the success and rise of the internationals, and that planning has benefited greatly from the introduction of a professional management system.
In this sense, and perhaps considering the experience of his company, is that Sam Palmisano, general manager of IBM, has proposed that the logical development (facilitated by technology) would be a "globally integrated company", In In this view, back office services (administration and management, etc.) could be located anywhere it is convenient. Those services or functions that cannot be centralized can be subcontracted or 'outsourced', for example, IBM instead of having a series of transport systems (by region, production area, etc) now has a single system, transferring much of the previous activity to companies that specialize in transportation.
Should such globally integrated companies become a reality, it would perhaps mean the final severing of a company's relationship with a given country: administrative and production centers could be located wherever such services are "cheaper" (or increasingly, to be "outsourced" to other companies, multinational or not, specialized in providing them). Research and development could be carried out in universities and other intellectual centers scattered throughout the world and the "executive center" for income and tax purposes could be in a tax haven while managers could live where they like and "meet" via Internet.
That leaves us with the aspect of company ownership. And related to this is another aspect of change that has not often been considered, the development that is meaning that "the classic capitalist" is becoming more and more of an endangered species. For example, China recently announced a "sovereign" (i.e., state) investment fund consisting of between US$200 and US$300 billion. While that is the latest of the big ones, it is not the biggest, others " sovereign investment funds” (Sovereign Funds in English) far exceed it: that of the United Arab Emirates has 675 billion dollars. One of Singapore's consists of 330 billion dollars, Saudi Arabia's and Norway's 300 billion each, etc. US) dollars, enough to buy all US companies in existence
The Norwegian fund makes another interesting point, it is called the “Government Pension Fund” and it reminds us that at the moment the most numerous and powerful private investors are workers and their retirement funds, whether managed by the State (such as in the case of Norway) either by themselves or through private companies. These "retirement funds" had in common, a little before 2005, the figure of six trillion US dollars (millions of millions, or billions of Hispanics)
Looking at the above, one could perhaps conclude that Marx's call for workers to control the means of production (through the State as a first phase) is becoming reality in an unforeseen way not only by his followers. Equally surprising is the apparent enthusiasm with which the "entrepreneurs" or those who consider their representatives par excellence embrace or at least do not reject this "state intervention". But it is here that Galbraith's point about the importance of the new difference between shareholders and management is fully realized. It is not just that these new administrators manipulate the markets and decide for themselves if and what will be the rewards they will grant to the risk takers, it is that along with that control, the companies acquire the influence and political power that they once possessed. the capital owners. Where previously the capitalist enterprise oppressed the proletariat, today the multinational, Galbraith suggests, oppresses all inhabitants, in their roles as workers, consumers, shareholders and, increasingly, as citizens.[citation needed]
Classification
According to its structure
According to their structure, multinational companies can be classified as:
- Horizontally integrated frames: They have production bases in different countries but produce the same or very similar product. (Examples McDonald's, United Fruit Company, BHP Billiton and Mercadona).
- Vertically integrated structures: They mainly produce intermediate goods in certain countries, which serve as supplies for final production in other countries. (Example: Timex, General Motors, Adidas and Nutella)
- Diversified Corporations: They produce different goods or services in different production centers at the international level. For example, Alstom; Altria Group; Novartis (producer of medicines and other chemicals, food, pesticides, seeds, etc.). and Samsung (not only electronic products but also heavy industry, entertainment, commercial and financial services, sale to the public, etc.).
Depending on their degree of decentralization
According to Howard Perlmutter's typology, multinational companies can be classified as:
- Ethnocentric: with a strong centralisation in the country of origin of the company and a fairly simple external structure. All important decisions are made in the parent house.
- Policentrics: It is sought to decentralize, transferring a greater degree of freedom to subsidiaries.
- Geocentric: Decentralization leads to the maximum, so that each branch develops its own policy.
Defenders
Followers of this type of company argue that the establishment of these in a certain country contributes to the employment of people from the country in which they are established; that is, they generate employment for many workers in this place.
In the same way, these multinational companies must also face competition from other multinationals or from strong local companies in the markets in which they sell their products. This competition requires that these companies respond to the needs and demands of local markets without losing efficiency at the global level, making them invest resources in research and look for technological, administrative and productive advances with which they can obtain benefits. By applying these technologies and knowledge, there is a transfer of these to the countries in which such companies are present.
Criticism
Critics of multinational companies, for their part, argue that these companies become exploitative and aggressive in their politics in the countries in which they are located, as they are often located in countries in which wages of workers workers are low and their labor rights are minimal, which makes the costs of the products are lower.
While defenders argue that transnationals are the very essence of the global economy and that they are crucial for the progress of the populations of a developing world (see Washington Consensus), critics think that their existence enriches a a small group of people at the cost of destroying competition and exploiting their workers.
Transnational corporations employ only 3% of the global workforce (and less than half of these employees are in the South). In those places where they are, the contest between governments to attract investment from transnationals has caused a spectacular drop in working conditions, giving way to precariousness that has harmed workers' rights. And while large corporations use their immense buying and sourcing power to take over local markets, local companies are literally being wiped out of the picture.
Some examples of this exploitation are the destruction of entire ecosystems by large mining and oil corporations, the thousands of people killed in disasters like the one in Bhopal, India.
Various organizations, unions, parties and NGOs carry out different campaigns against the abuses of these industrial corporations. On the Internet, cyberactivism stands out as a mode of action.
These are some of the pros and cons of multinational companies, which, despite great criticism, are a phenomenon that is becoming stronger and stronger worldwide.
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