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The Multinational Business Enterprise: What Kind of International Organization?

Published online by Cambridge University Press:  22 May 2009

Louis T. Wells Jr
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Extract

The recent growth in the size and number of private business enterprises that operate in many countries has generated a great deal of speculation as to whether a form of international organization has been created which is able to frustrate the policies of the traditional nation-state. The enterprise with subsidiaries scattered around the globe clearly has the potential to evade the influence of many governmental policies. The firm can circumvent a tight monetary policy in one country by having an affiliate borrow in another country and transfer the funds across national borders. If direct transfers of capital from abroad are restricted, transfer prices, royalty payments, or open accounts between affiliates can be adjusted to bring in the needed financial resources. If taxes are high in one jurisdiction, profits that would be subject to tax can be shifted to another tax jurisdiction through manipulation of affiliate transactions. National labor unions and comparatively harsh labor legislation can be frustrated by moving production to facilities in another country when strikes or higher costs threaten a particular market. A governmental program aimed at increasing technical and managerial training to provide a larger domestic supply of skilled personnel may only generate technicians or managers for the multinational enterprise to shift out of the country, back to its head office or to other countries. Technology developed in one country—often through governmental support and often related to defense needs of governments—can be leaked quickly to other countries through the communication network of the multinational enterprise.

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Articles
Information
International Organization , Volume 25 , Issue 3 , Summer 1971 , pp. 447 - 464
Copyright
Copyright © The IO Foundation 1971

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References

1 Simmonds, Kenneth, “Multinational? Well, Not Quite,” Columbia Journal of World Business, Fall 1966 (Vol. 1, No. 4), p. 118Google Scholar. Simmonds concluded that one-fifth of the total employment of the fifteen largest United States industrial corporations was foreign, but only 1.6 percent of their top corporate managers entered the United States after age 25 or remained outside the United States.

2 The material in this essay draws heavily on work done by John Stopford, Lawrence Fouraker, and Lawrence Franko. The results of a study of the organization of the multinational enterprise, authored by John Stopford and Louis T. Wells, Jr., will soon be published by Basic Books, Publishers. See also Fouraker, Lawrence E. and Stopford, J. M., “Organizational Structure and Multinational Strategy,” Administrative Science Quarterly, 06 1968 (Vol. 13, No. 1), pp. 47–64CrossRefGoogle Scholar; Stopford, , “Growth and Organizational Change in the Multinational Firm” (D.B.A. diss., Graduate School of Business Administration, Harvard University, 1968)Google Scholar; and Franko, Lawrence G., “Strategy Choice and Multinational Corporate Tolerance for Joint Ventures with Foreign Partners” (D.B.A. diss., Graduate School of Business Administration, Harvard University, 1969)Google Scholar.

3 MacKenzie, F. A., The American Invaders (London: Grant Richards, 1902)Google Scholar.

4 This sample was common to several studies conducted under the general direction of Raymond Vernon in connection with the project, “The Multinational Enterprise and the Nation-State,” financed by the Ford Foundation. Data for the first tabulation is drawn from the United States Department of Commerce Survey of Current Business.

5 Rolfe, Sidney E., The International Corporation (Paris: International Chamber of Commerce, 1969)Google Scholar.

6 See Wells, Louis T. Jr, “Test of a Product Cycle Model of International Trade: U.S. Exports of Consumer Durables,” Quarterly Journal of Economics, 02 1969 (Vol. 83, No. 1), pp. 152–162CrossRefGoogle Scholar; and Stobaugh, Robert B. Jr, “Where in the World Should We Put That Plant?” Harvard Business Review, 01–02 1969 (Vol. 47, No. 1), pp. 129–136Google Scholar.

7 See Jay, Antony, Management and Machiavetti: An Inquiry into the Politics of Corporate Life (New York: Holt, Rinehart & Winston, 1967)Google Scholar, for a fascinating and instructive attempt to apply some of the concepts of political analysis to the management of a large business enterprise. This particular analogy is drawn from Jay.

8 See Stobaugh, Robert B. Jr, “Financing Foreign Subsidiaries of U.S. Multinational Enterprises,” Journal of International Business Studies, Spring 1970 (Vol. 1), pp. 43–64CrossRefGoogle Scholar.

9 See Fouraker, and Stopford, , Administrative Science Quarterly, Vol. 13, No. 1Google Scholar.

10 Franko, “Strategy Choice and Multinational Oirporate Tolerance for Joint Ventures with Foreign Partners.”

11 Ibid.

12 See Vernon, Raymond, “Foreign Enterprise and Developing Nations in the Raw Material Industries,” American Economic Review, 05 1970 (Vol. 60, No. 2), pp. 122–126Google Scholar.

13 See Wells, Louis T. Jr, The Evolution of Concession Agreements (Economic Development Reports, No. 117) (Cambridge, Mass: Harvard Development Advisory Service, 1969)Google Scholar. Joint ventures with other multinational firms have, of course, been common. There was littlechance for conflicts of interest; both parties were interested in quality and regularity of. supply. There was no chance that the partner would sell to the firms that were outside the oligopoly.

14 Sidney M. Robbins and Robert B. Stobaugh, Jr., under the auspices of the study, “The Multinational Enterprise and the Nation-State,” directed by Raymond Vernon.

15 See Stobaugh, , Journal of International Business Studies, Vol. IGoogle Scholar.

18 Aylmer, Richard, “Marketing Decisions in the Multinational Firm” (D.B.A. diss., Graduate School of Business Administration, Harvard University, 1968)Google Scholar; and Buzzell, Robert, “Can You Standardize Multinational Marketing?” Harvard Business Review, 11–12 1968 (Vol. 46, No. 6), pp. 102–113Google Scholar.

17 See Vernon, Raymond, “Indonesia's Policies toward Foreign Direct Investment,” Djakarta, 09 15, 1969. (MimeographedGoogle Scholar.)

18 United States Congress, Joint Economic Committee, A Foreign Economic Policy for the 1970's, Hearings, statement by Stobaugh, Robert B. Jr, before the Subcommittee on Foreign Economic Policy, 91st Cong., 2nd sess., 07 29, 1970, pp. 874–887Google Scholar.

19 First Hickenlooper amendment to the Foreign Assistance Act of 1961, United Stales Code, Vol. 22, section 2370(6).

20 This is consistent with my experience of having a United States ambassador instruct United States government employees not to cooperate with me when I was advising an African government in negotiations with a United States investor. The instructions of the local ambassador were quickly reversed when complaints reached Washington.