What are the major objectives of multinational corporation?

Answer 1

LEARNING OBJECTIVES

About the international operations of Coca-Cola Company.

About the nature of multinational corporations.

How to measure the international dimensions of a multinational corporation.

How foreign direct investment is a measure of the impact of multinational corporations on foreign economies.

How progressive interests are attempting to use the Alien Tort Claims Act to control multinationals.

About the role of codes in regulating the conduct of multinationals.

About the role of the United Nations Global Compact as a leading international code of conduct.

The story of Union Carbide Corporation and the Bhopal, India gas leak.

SUMMARIZING OUTLINE

This chapter defines and characterizes the multinational corporation and explains its impact in the global economy, particularly in less developed nations. Then, the chapter discusses efforts to stop abuses of power by multinationals, including Alien Tort Claims Act lawsuits and the development of international codes of conduct.

ć The introductory story is a sketch of Coca-Cola Company as a multinational corporation.

ƒá The company is the world¡¦s largest manufacturer of nonalcoholic beverages. It does business in 200 countries. It makes billions of dollars of investments in foreign countries. However, the vast majority of them are in the U.S. and Europe.

ć Coca-Cola has encountered severe criticism of its foreign operations. Examples are given. The company has adopted an array of social responsibility programs.

ć A multinational corporation (MNC) is an entity headquartered in one country that does business in one or more foreign countries.

ć MNCs vary greatly in their strategies and structures. Overall, there are five tiers of internationalization that represent alternative ways to extend business into foreign markets. These are export sales, foreign sales offices, licensing, foreign direct investment, and global production.

ć The United Nations calculates there are today about 77,000 MNCs and they have 770,000 foreign affiliates. Their international operations, as measured by foreign direct investment, have grown rapidly over the last two decades.

ć One method of measuring the multinationality of a corporation is to calculate its transnationality index, which is the average of three ratios: foreign assets to total assets, foreign sales to total sales, and foreign employment to total employment.

Part 2: Chapter Objectives, Summarizing Outlines, And Case Notes

ć The story of Weatherford International illustrates how multinational corporations can loosen the bonds of attachment to their home country by operating through foreign affiliates.

ć The best measure of the power and activity of multinationals is foreign direct investment, or funds invested by an MNC for starting, acquiring, or expanding an enterprise in another nation.

ć MNCs make foreign direct investments to enter markets, to grow by expanding beyond small domestic markets, and to lower production costs by creating cross-border value chains.

ć Most FDI goes to developed countries, but FDI in less developed countries is significant because it can have a great impact on local economies. Progressive activists believe that this impact is often very negative and have sought to limit the power of MNCs.

ć Activists seek to use the Alien Tort Claims Act to apply elevated standards of human rights, labor rights, and environmental protection to the actions of MNCs in developing nations.

ć This is a 1789 law permitting foreign citizens to litigate alleged violations of international law in U.S. federal district courts.

ć Most litigation under the Alien Tort Claims Act has failed. The story of the Drummond Company, sued by widows of murdered union leaders in Colombia, is told to illustrate a specific case. A jury found the company not guilty of violating human rights laws.

ć International Codes of Conduct are voluntary, aspirational statements applying to MNCs that set forth standards for foreign operations. They are proliferating.

ć In 1977 the Rev. Leon Sullivan, an American minister, created a code of conduct requiring multinational corporations in South Africa to do business in a nondiscriminatory way. This pioneering effort inspired later codes.

ć Codes come from many sources.

ć Corporate codes set forth aspirations and principles of action for operations in emerging economies. They are usually adopted to protect brand images in response to the criticisms of progressive activists.

ƒá Corporate codes of large MNCs sometimes contain snowball clauses requiring a corporation¡¦s contractors and suppliers to comply with the company¡¦s conduct code.

ć Most corporations reject outside monitoring of how their codes are implemented. Critics believe that most corporate codes are shallow efforts.

Part 2: Chapter Objectives, Summarizing Outlines, And Case Notes

ć Case examples of Wal-Mart and Mattel are used to illustrate the efforts that two prominent MNCs made to enforce their international labor codes.

ć Industry codes are created to level the playing field for all firms in an industry and to avoid the disorder of multiple codes. They are loosely enforced and often lack credibility with activists.

ć Other codes come from a range of entities, including nongovernmental organizations, multistakeholder initiatives, governments, and business groups. Multiple examples are given.

ć The most conspicuous effort to promote MNC social responsibility is the United Nations Global Compact.

ć The Global Compact requires corporations to implement a set of 10 principles based on established and emerging global norms. More than 3,000 corporations had volunteered to join by 2008.

ć It is supported by six United Nations agencies and administered by an office in the Secretariat.

ć Member corporations agree to report their progress on a UN Web site as they implement the 10 principles. A sampling of their reports is given.

Critics believe that the Global Compact principles are vague and too loosely enforced