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Multinational Business Enterprises: A New Category of International Organizations (Part #5)

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No information is available on the acceptable number of countries to qualify for ' multinationality '. It would have been possible to select some minimum figure and merely prepare a list of those companies which exceeded this. Two is the logical minimum, but the criteria for the other organizations in this Yearbook is three. The study at Harvard University is based on six.

Due to the limitation on space available for this preliminary list in the Yearbook a compromise solution was chosen. It was decided to analyse all the companies listed in the two directories to determine exactly how many there with affiliates in 1,2, 3... etc. countries. On the basis of the analysis the minimum figure could then be chosen so that the maximum number of companies could be listed in the Yearbook. This minimum figure was developed from the results of the analysis shown in Table 1. [Tables separate]

Table 1 Number of countries (excepting the country of the parent company) in which parent companies have affiliates (i.e. subsidiaries and associates). This table shows for the major European countries and the U.S.A. how many, for example. German parent companies have affiliates in 9 foreign countries (13 from the table).

Table 2 Number of parent companies for each major industrialized country having affiliates (i.e. subsidiaries and associates) in a given foreign country. Whilst preparing Table 1 it was convenient to prepare Table 2. This shows for each of the major European countries and the U.S.A. how many, for example, Swedish parent companies, have affiliates in Brazil (21 from the table).

Table 3 Preliminary list of possible multinational business enterprises. Using the data in Table 1 the minimum number of countries was fixed arbitrarily at 10. This gave a preliminary fist of 600 enterprises which is printed as Table 3.

The parent corporations listed have been arbitrarily split into groups having affiliates in 10-12, 13-15, 16-20, 21- 25, 26-30, 31-40, and 41 plus countries. Within each group the corporations have been placed In alphabetical order within headquarters country to facilitate consultation.

This list should contain a high proportion of corporations which will fall Into the category of multinational once general criteria have been defined. The list arbitrarily excludes (due to the minimum of 10) many corporations which might be considered as multinational, but the data in Table 1 gives some indication of the number of these. The list includes a number of corporations which might be excluded from a future list. These are the cases where :

  • a very large corporation has a relatively minor proportion of its affiliates in other countries, but because of the size of the corporation the number of these affiliates is equivalent to or greater than that of a smaller organization with interests more equally balanced between countries.
  • the affiliates in foreign countries are not owned or controlled (i.e. they are not ' subsidiaries ') but pri- marily associates in which the corporation has a non-controlling interest. Using the information in the directory ' Who Owns Whom ', it was possible to analyse each European company included in Table 3 in greater detail in order to establish a scale on the basis of which cases falling into these groups could perhaps be specified. Four columns of figures follow the name of each parent corporation as an aid to any future definition of ' mutinational '. Only two columns could be completed for American companies.

The meaning of the columns is a follows :

  • Column ' a ' r Number of foreign countries in which the parent company has affiliates (i.e. subsidiaries plus associates). This figure formed the basis for the analysis in Table 1.
  • Column ' b ' : Percentage of the total number of affiliate companies (i.e. subsidiaries plus associates) of the parent company which are in foreign countries. No distinction was made between subsidiaries, sub-subsidiaries and sub-sub-subsidiaries, etc.
  • Column ' c ' : Percentage of the total number of foreign affiliate companies (i.e. subsidiaries plus associates) which are owned or controlled subsidiaries, as opposed to associates. Dormant companies were treated as associates. Since no data was available to distinguish between U.S. parent company subsidiaries and associates an attempt was made to approximate the policy of the company in this respect. Information on the percentage of subsidiaries amongst European affiliates only is given in brackets.
  • Column ' d ' : An index of ' internationality ' combining the information in the previous column to facilitate comparison between companies. The index is derived as follows : (col. ' a ') X (col. ' b ') X (col. ' c ')/1000 = index of ' internationality '. This gives an index for each parent company in the range 0 - 17000 if all possible countries and territories are taken into account. In practice the majority of companies fall into the range 20 - 150. The upper end of the range includes the companies which have been cited as examples of multinatio- nal corporations. The lower end of the range includes the companies which are more likely to be excluded from any future list of multinational corporations.

Comment on Initial Criteria and Sources

The criteria used to distinguish between possible candidates have largely been dictated by published information available. They represent different attempts to isolate the quality of ' internationality '. The results of this survey have been expressed in a manner which does not preclude a more or less stringent definition of multinationality. None of the criteria listed in Table 3 is wholly satisfactory :

  • number of countries. Even in the limiting case where a company has no foreign affiliates, it can be of considerable international economic importance by operating through intermediate trading and import-export companies. All that can be said is that the probability of a parent company being ' international minded ' is higher if it has operating affiliates in a number of foreign countries.
  • percentage of foreign affiliates. This criteria does not distinguish between large monolithic companies with relatively few financially significant subsidiaries and companies with a considerable number of subsidiaries of much less financial importance. In a particular country or industry it may be convenient to adopt one or other structure, it has been assumed that the number of foreign affiliates corresponds approximately to the geographical division of financial interests. It has also been assumed, following on from this, that the higher the percentage of foreign affiliates, the lower the probability that the company will be primarily interested in its affairs within the country of its headquarters. This criterion is therefore a crude approximation to a determination of the position of a company on the line between purely national (ethnocentric) and completely international (geocentric).
  • percentage of foreign affiliates controlled. It has been suggested that multinational corporations should only include those cases where the parent company has a controlling interest in affiliates. This distinguishes such corporations from those which in the extreme merely have a minority interest. It could also be argued that a corporation with a vast network of minority interest was less centralized and therefore more international.

It was not possible to check the two directories used so that It had to be assumed that together they represented a fairly complete and accurate coverage of the parent companies in the European countries and the USA. A certain amount of inconsistency over the definitions of subsidiary and associate is to be expected. The defi- nitions used by the editors of ' Who Owns Whom ' are

' A subsidiary is defined as a company more than 50 per cent of the share capital of which is owned by another company which in the directory is therefore defined as a parent company. A company is classified as an associate when it is so described by itself or where it has annouced that it has acquired a substantial interest in another company or where published information is available that it owns not less than 10 per cent of the share capital of the other company. Members of industrial consortia are listed as associates. Any company of which another company is the associate as already defined is regarded as being In asso- ciation with that other company '.

The definitions used by the editors of ' Directory of American Firms Operating in Foreign Countries ' are :

' This Directory includes only those firms in which American firms or individuals have a substantial direct capital investment in the form of stock, as the sole owner, or as a partner in the enterprise '. ' Bran- ches ' and ' subsidiaries ' are included but not distinguished or defined.

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