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This article provides information about the detailed account of multinational or transnational companies and their functioning:
Multinational companies, also known as transnational corporations depending on nature of operations, are a very important feature of the modern, globalised economy. A multinational company may be defined as one, which operates in a number of countries and has production or service facilities outside its country of origin. The history of multinational companies could be said to have begun with the founding of the British East India Company in 1600.
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Since the end of the Second World War there has been a rapid growth of such companies. According to United Nations estimates, there are 5,000 companies with direct investments outside their headquarters country. The 100 largest of them account for about 40 per cent of cross-border assets. It is possible that they account for about one-quarter of world trade. Much trade is intra-company trade, i.e., taking place between different branches of the same company.
There are a number of reasons why companies decide to become multinational by investing in overseas operations. There may be a desire to have production facilities nearer to the market or the source of raw materials in order to keep down transport costs. If a country has high tariffs on imported goods, establishment of a factory in that country may be seen as a way of obtaining tariff-free access to that market.
The deregulation of economies and financial markets led to a sharp increase in financial transactions across national boundaries. The process of globalisation has brought to the fore a new set of international actors the multinational corporations (MNCs). The MNCs are often described as corporate giants. The annual turnover of certain MNCs is equal to the combined GDP of a few countries. These institutions have financial activities in different countries simultaneously. During the 1990s the process of globalisation intensified the activities of the MNCs across the world.
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This process further intensified towards the end of the 20th century resulting in a larger concentration and monopolisation of economic resources and power by transnational corporations, a process Martin Khor calls transnationalisation. Here fewer and fewer transnational corporations are gaining a large and rapidly increasing proportion of world economic resources, production and market shares.
Where a multinational company used to dominate the market of a single product, a big transnational company now typically produces or trades in multitude of products, services and sectors. Through mergers and acquisitions, fewer and fewer of these TNCs now control a larger and larger share of the global market, whether in commodities, manufactures or services.
Although multinational companies, like all businesses, are primarily motivated by a desire to make profits, their establishment of production facilities in developing countries may be both beneficial and detrimental to the peoples of such countries in certain ways. It may be beneficial, for example, in terms of a creation of jobs, bringing in improved technological process and thereby higher labour and environmental standards, provide revenue by way of paying taxes, etc.
It may be detrimental by way of (a) influencing the policies of the host governments, (b) providing vulnerable and exploitative labour conditions for making maximum profits, (c) repatriating their profit to the home countries rather than reinvesting in the host nation, (d) driving small scale companies out of business (e) evasion of taxes, (f) violation of human right and damaging the environment, etc.