Useful Notes on the Classifications of Multinational Enterprises

1. Global Corporation:

A global firm consists of closely integrated international subsidiaries controlled and coordinated from central head quarters (a centralised hub where most assets and decisions are centralised). It is less bound and less tied to the traditions of a single nation. It becomes a stateless person, one which is known for its products but whose national links are less clear. It opts for “global strategies to achieve economies of scale through worldwide integration and standardisation.” Such a firm obtains factors of production from all countries without restriction and/or discrimination against by both home and host countries. It markets its products/services around the globe for profit (the World Bank and the International Finance Corporation). These organisations serve all of their stakeholders regardless of their socio-political and economic differences.

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According to Rugman, in the year 2001, only nine of the largest MNEs could be labelled as global (IBM, Sony, Philips, Nokia, Intel, Canon, Coca-Cola, Flextronics, and LVMH). These firms generate their revenues across the triad. Except LVMH, all global companies are in the manufacturing sector.

2. Multinational Corporation (MNC):

An MNC is a highly developed organisation with worldwide involvement; it obtains the factors of production from multiple countries. An MNC manufactures its products and markets them in specific international markets (e.g., Exxon in energy, IBM in computers, and General Electric in electrical equipments).

3. International Corporation (INC):

A firm, which is a domestic entity and operates its production activities at home and markets products/services beyond its national political boundaries, without an FDI component, is known as an international corporation. Even if it establishes partial or complete operations in other countries, its organisational structure and culture are consistent with the practices and norms of the home country.

4. Foreign Corporation:

It is a business entity, whose assets have been invested by a group of foreigners, to operate its production system and markets in host country to make profits (e.g. Japanese Sanwa Bank Ltd. in the US).

5. Transnational Corporation (TNC):

A corporation, whose ownership and management is divided evenly among two or more nations, and acquiring factors of production around the world and marketing them in specific countries (e.g., Royal Dutch shell Group with head quarters in the Netherlands and UK), is known as transnational corporation. This particular term is most commonly in use in the European countries. Transnational firm consists of subsidiaries that fulfill varying roles with some subsidiaries playing a strategic role that in the global firm is reserved for head quarters.

6. Super National Corporations (SNC):

These are small domestic corporations which create large market share and position product in the regional markets. SNCs are emerging from e- commerce and are heavily dependent on logistics and transportation services.

7. Maquiladora Corporations:

Such corporations are known as “twin plants”. Mexican corporations are being paid a fee for processing material for foreign corporations. Maquilas are assembly plant operations in Mexico under special arrangement and foreign investment regulations, whereby they import duty free materials into Mexico, on a temporary basis, and export finished goods from Mexico paying only a value added tax on exports. Their number has increased from 12 plants in 1965 to 2400 in 1997.

8. Multidomestic Corporation (MDC):

An enterprise with multiple international subsidiaries that are relatively independent from head quarters is called as a multidomestic firm.

Rugman has classified MNCs apart from Global firms as – Bi-regional firms (who have more than 20% sales in 2 major regions including their own, like British Petroleum whose 36.3% of sales comes from the European market and 48.1% from the US market); Host-region oriented ( who have over 50% of sales in a region other than their own, like Honda Motors); Home-region oriented (more than 60% of the Fortune 500 companies come under this category as 90% of their sales are intra-regional, like Wal-Mart stores 94% sales is generated within NAFTA market – the US alone 83.7%), and “near Miss” global firms (who very closely miss the requirement of a global company like McDonald’s, Nike, Colgate Palmolive, etc).

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