Multinational

A multinational is a Entreprise of great dimension (in fact in the form of Groupe of companies) established in many countries by the means of very many Filiale S, operative either on an geographical area determined, or on the whole world.

Its decision-making centres remain in the country where it has its Head office, which can represent a minority share of the Turnover of the company (generally less than 50%). According to certain definitions, the multinational firm carries out at least 50% of its turnover abroad.

The whole of the activities of a multinational, even strategic, can be delocalized for questions of cost or strategy (Hewlett-Packard has thus in France research centres), or of management or accountancy. It is thus often advantageous to produce where the Main-d'oeuvre is more slightly remunerated - provided that it shows sufficiently productive, to sell on the most profitable markets, and to seek the least constraining taxation.

According to certain studies, the exchanges between subsidiary companies of the multinationals would represent a third of the world commerce and the exchanges between the head offices of the multinationals and their subsidiary companies another third of the world commerce.

The multinational firm is to be distinguished from the firm Transnationale: the latter being a firm which realizes more than 25% of its turnover abroad, with the example of Nestlé.

Determinants of the multinationalisation

The multinationalisation of the firms answers according to Charles-Albert Michalet 5 principal determinants:

  • the search for an direct access to the raw materials, in particular during colonization.

  • the need to circumvent certain barriers to trade. It is a question for example of producing on the market where the product will be consumed in order not to be affected by the customs tariffs with the importation.
  • the search for outlets external following the intensification of competition on the interior market. Moreover, since a firm will adopt this strategy it will be probably imitated by the concurrent firms.
  • the loss of a technological advantage over the national market can force the companies to produce it abroad, with lower costs, in order to be able to continue to produce it in a profitable way.
  • the search for weaker labor costs.

Effect of the Protectionism

In an article of 1957, Robert Mundell shows that the investment of the companies abroad constitutes an answer to the protectionist practices.

Indeed, the protectionist policy generally aims at protecting the nonpowerful national companies their foreign competitors. According to the laws of supply and demand, the obstacle created with the importation, combined with the incapacity of the national companies to answer the request, contribute to create a situation of inclined scarcity to cause an important rise in the prices of the products concerned. It then becomes interesting for the foreign companies to be installed on the territory in order to benefit from its high prices.

Effect of the life cycle of the products

According to Raymond Vernon (“ International Investment and International Trade in the Product Cycles ”, 1966) the world strategy of the firms is to be put in parallel with the life cycle of the products which they offer.

  • Initially, the product just designed must be tested: the national market is then indicated the most. This last must be enough to benefit from an innovation because of absence to competitors. Moreover the high price of this new product precisely corresponds to the standard of living of the national market (it is considered that the innovating companies are those of the rich countries).
  • Newcomer at a stage of maturity, the company about to lose exclusiveness on the product is encouraged to sell it on the overseas markets before arrived of its future competitors. The product, if he is an important success is produced in larger quantities what causes a fall of its price. It thus becomes accessible to the consumers from less easy countries.
  • When the product reaches a stage of standardization and is standardized, the company must delocalize of it the production in the countries with low wages to re-export it thereafter in the rich countries. It can possibly also delocalize of it the production in other rich countries which would benefit from technological advantages, the whole being as much as possible to reduce the production costs in a context of competition on the prices.

Later, Raymond Vernon will add that the companies producing the same product see their domestic market share being stabilized and are reduced to nibble unimportant shares of them. They must thus conquer the overseas markets in order to continue their growth, acquisition and the establishment of subsidiary companies (of production or local distribution) established on the market concerned makes it possible to increase the effectiveness of this new strategy.

Role of the request

The diversified request of the consumers for the same type of product pushes the companies of a country to sell their products in the worldwide having similar markets. One thus finds German cars French in Germany and cars in France, because of diversity of the demand for car in these two countries. It is on the basis of this reality that the firms invest in countries whose customers are similar to their. In fact, the greatest part of the world investments are carried out of a rich country to another rich country.

Classification of the multinationals

The majority of the multinational firms are originating in the developed Pays.

However, for a few years, the multinationals of the emergent Pays have gained places in the world hierarchy: thus, one could count of them 47 in “Fortune 500” in 2006, against 19 in 1990. Most important are Hutchison Whampoa (HongKong), Petronas (Malaysia), Singtel (Singapore) or Samsung (South Korea). The countries of the South represented in 2005 13% of fusion-acquisitions.

Catalog of films

  • The Corporation, documentary film criticizes towards the multinationals (2003).

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