Multinational Companies

July 5, 1972

Report Outline
Giantism in international business
Rise and Influence of Multinationals
Conditions Affecting Global Corporations
Special Focus

Giantism in international business

Groing Opposition to Multinational Corporation

An American company with head offices in Chicago manufactures a consumer item in its plant just outside of Paris. Financing for the plant was arranged in Zurich, insurance in London. Components of the finished product are shipped to France from subsidiaries in San Francisco and Bonn. After assembly by French workers, the item is sold in Amsterdam, Islamabad, Tel Aviv and even Chicago. Such are the imaginary but typical operations of a multinational company. MNCs, as they are called, might employ labor, pay taxes, search for capital, engage in export trade and sell products in scores of countries. Many of these corporate octopi are larger, in terms of economic assets, than the countries they operate in. The 1971 sales of General Motors, more than $28 billion, exceeded the Gross National Product in 130 countries.

Multinational corporations are arousing strong feeling here and abroad. On one hand, they are seen as vehicles for spreading technology and prosperity throughout the world. Courtney Brown, former dean of the Columbia Graduate School of Business, has described them as “the hoped-for force that will ultimately provide a means of unifying and reconciling the aspirations of mankind.” But Professor Melville Watkins of the University of Toronto insists that “no institution is more undemocratic and more vulnerable to the charge of authoritarianism.” Organized labor in the United States has accused multinationals of “exporting” jobs abroad during a time of high unemployment at home. Many industrial countries fear their sovereignty is being eroded by companies owned by foreigners. And poor countries, most in need of foreign development capital, frequently charge that international companies are instruments of “nee-colonialism” and agents of American “economic imperialism.”

Whatever the differences of opinion, multinational corporations are recognized as important factors in the world economy. Commerce Department projections indicate that American concerns plan to spend $15.2 billion on plant and equipment in foreign countries during 1972, bringing direct U.S. business investments abroad to $107.2 billion by the year's end.. Raymond Vernon, a leading authority on the multinational company, estimates that “perhaps as much as 80 per cent” of the total is held by 187 companies. Vernon's definition of a multinational company, now widely accepted, is that it operates in at least six countries, has sales of over $100 million a year, and has foreign subsidiaries that account for at least 20 per cent of its total assets, sales and labor force. While not all multinational companies have their head offices in the United States, this country “represents the largest single home base of such enterprises and is the source of the largest multinational firms.”

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