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Multinational Business Enterprises: A New Category of International Organizations (Part #7)

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The list published in Table 3 can be considered as a selection of cases on which criteria may be tested. It does not however include any of the mixed category of profit organizations mentioned earlier in this note.

All the examples of multinational corporations previously cited in published articles appear to have been included. They tend to lie in the higher groups and have a high index of ' internationality '. The list includes 70% of the 180 corporations mentioned in an unpublished list of American corporations which an in the ' Fortune ' list but which have a minimum of 6 foreign manufacturing subsidiaries. This is being used as a basis for research at Harvard University by Professor Raymond Vernon. The organizations included from this ' manufacturer ' list represent 48% of the U.S. organizations included in Table 3.

As stated earlier the list does not include business enterprises from a number of important countries Including Canada, Japan and the Eastern European countries. Nor was it possible to obtain information on the parent com- panies registered in the tax havens.

From Table 1 however, the number of parent companies correlates quite strongly with the figure for export trade. The countries for which data on parent companies was available, with the exception of Spain, Portugal and Luxem- burg, all had an export figure of at least $1.7 thousand million dollars. The only other countries with comparable exports are Canada (10.6), Japan (10.4), Australia (3.4), Venezuela (2.7), South Africa (1-9), and Brazil (1.7), together with some Eastern European countries. Of these countries only Canada and Japan are probably hosts to many parent companies which should be included in the list.

The list itself contains a number of unexpected cases due to the sources used and the method employed in the short time available. Examples are Pan American Airways (USA) in the 40 plus group and the travel agents Agence Havas (France) in the 10-12 group which are included because of the number of offices in foreign countries. The index for Agence Havas is however only 8 which makes it one of the least ' international ' in the list according to the criteria employed. Unfortunately the sources used did not provide sufficient comparable information on Pan American.

The lack of adequate distinction between branches and subsidiaries or associates in the source on U.S. corpo- rations makes it difficult to compare details on European and American organizations in the tables. Due to the inclusion of more information on branches in the American source the figures for American organizations are all scaled upwards. Some indication of the extent of this upward scaling can be obtained by comparing the figures for Belgium (461 U.S. organizations) with those from a detailed American Embassy list published in December 1967 of U.S. organizations in that country. The list also included some representatives and information offices of American companies and had a total of 657 U.S. organizations mentioned. Of these 21 % were indicated as branches or other entities directly dependent on the American parent. This gives approximately 525 affiliates in comparison with the Table 2 figure of 461.

Information on European organizations has however all been obtained from the same source. The position of the Compagnie Nationale Air France (France) in the list in the 10 -12 group, is probably more indicative of the status of national airlines as multinational companies. The index in this case was zero, since all foreign affiliates were listed as associates.

The question raised by such organizations, which depend on an international network of sales bureaus, is whether and to what extent they can be considered as multinational. It is at this point that data on the nationality breakdown of the Board of Directors would prove useful. But, even if the directors are all nationals of the head- quarters country, such organizations should perhaps be considered as a special type of multinational corporation. A study of types of multinational corporation which has received a great deal of publicity is that of Professor Howard Perlmutter (Institut pour I'étude des méthodes de direction de I'entreprise, Lausanne). He distinguishes the following groups of corporations in what he considers to be an evolutionary chain (although every corporation Is considered to have a combination of a!l the characteristics):

  • Ethnocentric corporation : senior management suspicious of foreigners and unfamiliar business methods; head- quarters maintains responsibility for all main decisions; priority is given to nationals from the headquarters country in filling important posts in foreign subsidiaries; parent company considered to be superior and have a monopoly of know-how. In practice this type of organization arouses the suspicion of local governments and can lead to nationalistic attacks.
  • Polycentric corporations : recognition that local situations are different from one another and from the parent country; subsidiaries operated by the nationals of each country; parent company relies on financial controls rather than command structure to achieve a profit; company becomes a confederation of loosely connected subsidiaries, many of which have access to all financial and research data; parent company remains in the hands of nationals of the headquarters country who occupy all important posts.
  • Geocentric corporations : posts filled without regard to nationality; policies formulated without regard to national preferences; subsidiary directors participate in the formulation of general policies; headquarters location consi- dered to be an accident of history to be changed according to the convenience of tax laws.

It might be possible to establish arbitrarily sets of quantitative criteria which would group corporations into three such groups, or preferably more in order to split up the higher proportion of organizations at the ethnocentric end of the range. In this way degrees of multinationality could be recognized which would permit satisfactory classification of the sales bureau type of organization. Such a scale could possibly be developed by using the index technique with more ratio criteria, since low index values indicate organizations which are more likely to be ethnocentric as defined above.

The ratio of headquarters country directors to foreign directors does appear to represent the most easily obtain- able and least confidential additional criterion. It is the closest approximation to the nationalities of the sharehol- ders and may in fact be preferable since it gives a real picture of the ethnocentrism of the Board and decision ma- king. Information on the shareholders would only give a theoretical picture of the operation of the organization on the assumption that the Board decisions reflected the day-to-day opinions of shareholders. In addition it is normally by its Board or management that a corporation is judged, rather than by its shareholders.

In examining suitable criteria in the future, provision will have to be made for the consortium arrangement and the bi-national joint venture which is becoming important and widespread. Another type of structure which may not fall within any of the criteria yet suggested is that of a large corporation which controls a complex network of bi-national operations. A further problem is created by individuals families, and national corporations which create and completely control multinational corporations as a means of conducting their international operations. There is also the highly charged question of the distinction, or the necessity for a distinction, between multinational corpo- rations, multinational groups (which have been broadly defined as a collection enterprises between which any form of fink may exist which is sufficiently strong and durable to permit a common economic policy), and international cartels (which have been defined as voluntary agreements among independent enterprises in closely related indus- tries in two or more countries with the purpose of exerting a monopolistic control of the market).

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