Multinational corporations have emerged as one of the principal sources of foreign direct investment since the late 1970's by the world's major industrialized nations. These firms allocate many different theories to achieve the status of a multinational. Internalization, product cycle, obsolescing bargain, and oligopoly theories along with the tariff-jumping hypothesis, shed light on how these foreign operations continue their path of vertical integration. However, even with these lucrative investment strategies it is difficult to distinguish help or hurt to the host country. Because of this proponents and critics of these practices have argued to whom is the greater advantage and why. A critique of these arguments will help in discussing the effectiveness of MNC's to illicit the policy goals of local governments; economic efficiency, growth, and improvement in the standard of living.
A multinational corporation (MNC) is an enterprise that engages in foreign direct investment (FDI) and that owns or controls value-added activities in more than one country (Spero & Hart, 1997, 96). Firms are considered to be more multinational if (1) they have many foreign affiliates or subsidiaries in foreign countries; (2) they operate in a wide variety of countries around the globe; (3) the proportion of assets, revenues, or profits is high; (4) their employees, stockholders, owners, and managers are from many different countries; (5) their overseas operations are much more ambitious than just sales offices, including a full range of manufacturing and research and development (R & D) activities (Ibid, 96).
Four theories and one hypothesis provide explanations of how structural goals are achieved by the MNC's. The internalization theory "...contends that firms expand abroad in order to "internalize” activities in the presence of market imperfections just as they expand domestically for similar reasons” (Ibid, 109). There are three p...
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