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Possible criteria


Multinational Business Enterprises: A New Category of International Organizations (Part #3)


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For the purpose of preparing a definitive list of these organizations as been done for the other two types of international organization, the Union of International Associations considers that a detailed analysis of possible multi- national corporations should consider the use of all the following characteristics which measure different aspects of the concept of internationality.

It may be impracticable to obtain information systematically on some of the items. It will almost certainly be necessary to consider a number of criteria together in any final definition to cover the many different types of profit organization. Possible criteria include:

1. Shareholding in parent company: Ideally the shareholding should be balanced such that, for example, nationals of no country have control of more shares than nationals two other countries combined. This ignores all the realities of the respective financial importance of different countries. A balance of voting strength has not been used as an absolute criterion in evaluating non-profit organizations for this reason. In many cases this depends on the financial contribution as in profit organizations. An additional difficulty is the impossibility of obtaining systematic data on the nationality of the shareholder. There is also the difficulty of indirect shareholdings via holding companies and investment clubs. This criterion may however be useful in certain simple cases.

2. National stock exchanges on which the shares are quoted: A minimum could be specified for the number of foreign stock exchanges on which the shares are quoted. This is a crude approximation to the international shareholding balance. The disadvantage of this criterion is that it might exclude some corporations partially or wholly owned by governments particularly those ofsocialist persuasion. This criterion might however be useful in evaluating those corporations which expect to be quoted on a stock exchange.

3. Composition of Board of Directors: The national origin or current citizenship of members of the Board may be of great importance to the decision-making process of an international corporation, and to the acceptability of its affiliates in host countries. In the case of non-profit organizations, the nationalities of members of the governing body are used as a guide to the significance of the stated geographical spread of membership. In the absence of precise information on the nationalities of shareholders, those of members of the Board (who are the elected representatives of the shareholders) could be considered as a first approximation. An arbitrary acceptable ratio of headquarters country voting directors to foreign country directors could be defined.

4 Composition of executive staff within companies controlled by the parent company: A multinational management has been suggested as one characteristic. An ideal balance of nationalities is unrealistic but it would be possible to define some minimum acceptable ratio of headquarters country staff, to foreign staff. The criterion could be used to exclude excessively ethnocentric organizations. It has the advantage that the information would not be considered confidential.

5. Balance of factories or installations (excluding sales offices and licensed producers): A multinational manufacturing enterprise should have its installations in a number of countries. Minimum criteria could be based on the total number of countries in which the company has installations, or, more stringently, on the ratio of headquarters country installations to foreign country installations. This criterion is clearly not suited to an evaluation of a trading or service company, or a highly diversified company.

6. Balance of sales offices (excluding representatives on commission): A trading or service company could be evaluated on the basis of the total number of countries in which the company has offices, or, more stringently, on the ratio of headquarters country offices to foreign-country offices.

7. Continental or regional head offices: A possible convenient indication of multinationality is the existence of regional head offices. These can be considered as evidence of a decentralization of decision-making out of the headquarters-country. This criterion may be less applicable to smaller corporations.

8. Languages: A possible convenient indication of multinationality is the acceptance of a number of working languages both in dealing with customers and for internal communication between the principal head office and the regional or foreign national offices.

9. Income ratio for whole group controlled by the parent company: The ratio of income earned in the headquarters country to that earned in all other countries can be considered as one measure of the relative interest of the directors in home and foreign operations. The disadvantage of this criterion is that the information may be considered confidential. Income is often difficult to define consistently.

10. Tangible assets ratio for whole group controlled by the parent company: The ratio of tangible assets in the headquarters country to those in all other countries can be considered as one measure of the relative interest of the directors in home and foreign operations. The disadvantage of this criterion is that information may be considered confidential. The definition of tangible assets will vary.

11. Relationship between parent group and foreign affiliates: The degree of independence in decision-making accorded to foreign affiliates by the parent company can be considered as a measure of the diminution of the influence of one national viewpoint in the conduct of the affairs of the company. This is an important concept but the effects are difficult to measure and are easily confused with a unified management policy.

12. Tax status: The tax position of the parent company and subsidiaries could be used as a criterion. Tax treaties and tax laws as applied to corporations doing international business are so very complex that this would seem to be unworkable. The information is also likely to be highly confidential. This may however become an important criterion in the future when special international legislation is created to deal with multinational corporations.

13. Relationships with non-governmental, non-profit organizations: A possible measure of " other-directedness ' on the part of the corporation is membership of trade associations or any other such body for the exchange of technical or commercial information (e.g. European Indus- trial Space Study Group, Inter-American Council of Commerce and Production, International Association of Food Distribution, International Copper Research Association, International Superphosphate Manufacturers' Association, This criterion may become important since such organizations will have to make provision for multinational corporation membership as distinct from that of individual national companies).

14. Relationships with intergovernmental organizations: Another possible measure of ' other-directedness ' on the part of the corporation is any form of consultative relationship with intergovernmental organizations (e.g. with the International Telecommunications Union, or as a partnership with the International Finance Corporation in joint ventures stimulated by the World Bank, or as membership of the General Committee of the FAO/lndustry Cooperative Program or the FAO Fertilizer Industry Advisory Committee, etc.). The greater the effort made to produce a stringent definition of internationality, the more complex measurement becomes and the fewer the number of organizations which will fulfil the resultant criteria. Existing organizations must be assumed to lie on a scale between extreme protective nationalism and a form of ideal internationalism.

The position of some organizations on this scale may be governed more by the requirements of the business with which they are concerned than with any desire to be nationalistic or internationalistic. The desirable multinational corporation characteristic of centralized control and decentralized decision-making may not be suitable in a particular trade or industry.


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