INTERNATIONAL BUSINESS AND MULTINATIONAL CORPORATIONS

INTERNATIONAL BUSINESS

AND MULTINATIONAL CORPORATIONS

INTRODUCTION
In the second half of the twentieth century, international business has become an important economic force. Today few, if any, countries are economically self-sufficient. Even China, with its vast human and natural resources, has not been able to remain aloof from the world economy. In the United States, international business touch people's lives daily. Common goods and services, often identified with the United States, are, in fact, foreign owned. Examples include Burger King, Pillsbury, Scotty's hardware stores, Shell and Citgo gasoline stations, Stouffer'sfrozen foods and Carnation evaporated milk. So, what is international business? Who engages in international business? What are the rules governing it and who sets them? What are the major contemporary international business issues? This guide will address these and other issues.

DEFINITION:

International business is business conducted in more than one country. It is buying and selling goods and services in foreign countries. Other international business activities include marketing, manufacturing, mining, and farming. In sum, international business is all the practices a business in a single country does, but at the international level.

FRAMEWORK:
International business does not function in a vacuum. It operates within the context of international and, sometimes, regional rules and regulations set by appropriate governmental organizations. Although each organization is distinct, some of their common characteristics are fostering trade among member countries, establishing common rules and regulations, promoting air trade practices among members, and protecting members from competition from non-member countries. Other organizations exist to facilitate financial transactions among nations or the particular interest of members, such as trade in a specific commodity. The following are some international and regional organizations:
MAJOR INTERNATIONAL ORGANIZATIONS

• Bank for International Settlements (BIS)
• General Agreement on Tariffs and Trade (GATT)
• International Coffee Organization (ICO)
• International Financial Corporation (IFC)
• International Monetary Fund (IMF)
• Organization for Economic Cooperation and Development (OECD)
• Organization of Petroleum Exporting Countries (OPEC)
• Paris Club
• UN Food and Agricultural Organization (FAO)
• Union of Banana Exporting Countries
• World Intellectual Property Organization (WIPO)
• World Bank

MAJOR REGIONAL ORGANIZATIONS

• Andean Pact (Venezuela, Colombia, Ecuador, Peru, and Bolivia)
• Caribbean Community (CARICOM)
• Central American Common Market (CACM)
• Commonwealth (UK and former members of the British Empire)
• European Union (EU)
• European Free Trade Association (EFTA)
• Group of Three (G-3) (Mexico, Venezuela, and Colombia)
• Organization for African Unity (OAU)
• Organization of American States (OAS)
• Southern Cone Common Market (MERCOSUR) (Argentina, Brazil, Paraguay, and Uruguay)
• UN Economic Commission for Latin America (ECLA)

INTERNATIONAL BUSINESS: RESEARCH
In addition, the following institutes conduct research into international business:

Center for World Business San Francisco State University 1600 Holloway Ave. San Francisco, CA 94132 (415) 338-1180	North-South Center 1500 Monza Ave. Coral Gables, FL 33146 (305) 284-4414 (aff. with U. Miami)
International Marketing Institute 314 Hammond St. Chestnut Hill, MA 02167 (617) 552-3690 (affiliated with Boston College)

Some of the international business research topics are trade flows, effects of exchange fluctuations, effects of regional trade blocs on international business patterns, and the effectiveness of trade sanctions on efforts to improve human rights in countries such as China and Cuba.
AGREEMENTS AFFECTING INTERNATIONAL BUSINESS
Besides international organizations which attempt to provide a structure to international business activity, there are agreements among or between countries to address specific business issues. For example, the free trade agreement between Mexico and Chile aims to eliminate bilateral trade barriers. The goal of the free trade agreement among the Group of Three is to promote trade and investment among Venezuela, Colombia, and Mexico. There are scores of similar agreements, some between neighboring states, such as the United States and Canada, and others between distant states, such the one between the United States and Israel. Two agreements, however, affect American consumers and businessmen the most. They are the General Agreement on Tariffs and Trade (GATT) and the North American Free Trade Agreement (NAFTA).
GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT)
The General Agreement on Tariffs and Trade (GATT) is an organization based in Geneva, Switzerland. It was founded in 1947. Most developed countries are members. Increasingly, less developed countries are joining, for example several Central American countries became members in the early 1990s. Although membership is considered prestigious, it requires eliminating, usually over a number of years, protectionist trade policies, often to the detriment of long protected domestic industries. As was the case in Mexico, this can be a painful process and can lead, at least initially, to balance of payment deficits where none occurred before.
GATT's purpose is to promote international free trade. It does this mainly through trade negotiations conducted in "rounds" which usually last several years. The most recent was the "Uruguay Round", named for the country where the opening negotiating session was held. The Uruguay Round focused on liberalizing trade in services and agricultural products. The round almost collapsed due to differences between the United States and France over agricultural subsidies and French efforts to protect its domestic film industry. After a last minute compromise, the round was concluded in December 1993.
NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA)
The North American Free Trade Agreement (NAFTA) is a free trade accord among the United States, Canada, and Mexico. It took effect January 1, 1994. Essentially, NAFTA extends the United States-Canada Free Trade Agreement to include Mexico. NAFTA, originally proposed by Mexican President Carlos Salinas de Gortari in 1990, is a lengthy, complex, and comprehensive agreement negotiated over a three year period. The chief negotiators were U.S. Trade Representative Carla Hills, Canadian Foreign Trade Minister Michael Wilson, and Mexican Commerce and Industrial Development Secretary Jaime Jose Serra Puche. NAFTA's key points are:

* opening Mexico's financial and insurance sector to foreign banks, brokerage houses and insurance companies,

*establishing rules of origin for the automobile industry that effectively bars non-North American automobile makers that did not have operations in Mexico at the time NAFTA went into effect (i.e., Toyota, Honda, Volvo, etc.) from opening plants in Mexico to manufacture vehicles for duty-free export to the United States and Canada. Rules of origin also protect textile and apparel industries in member countries,

* liberalizing trade in agricultural products over a fifteen year period. This is a boon for U.S. grain producers, but will hurt sugar, vegetable, and fruit growers,

* phasing out restrictions against U.S. and Canadian transportation companies operating in Mexico and vice versa,

* establishing intellectual property protection for U.S. and Canadian companies and individuals in Mexico,

* creating innovative trade dispute settlement mechanisms.

From an American perspective, NAFTA is important because it institutionalizes Mexican President Carlos Salinas de Gortari's free market economic and trade liberalization policies that will eventually create economic stability in a strategic neighboring country of more than 85 million people. Although NAFTA does not address immigration, the hope is that economic growth and more employment opportunities in Mexico will make Mexicans less likely to emigrate to the United States in search for jobs and a better life.
MULTINATIONAL CORPORATIONS
If international business is the process of conducting business across national boundaries, then multinational corporations are the principal participants in this activity. They are, so to speak, the actors or players in the international business "game". Most multinational corporations are based in developed countries.
MULTINATIONAL CORPORATIONS: DEFINITION
Multinational corporations are companies that operate in more than one country. The name "multinational corporation" is distinct from "international corporations". The latter name was used in the 1960s to designate a company with a strong national identification. The home market was the company's primary focus. Foreign operations were usually wholly owned subsidiaries controlled by home country nationals. By the 1980s, international corporations had evolved into more globally oriented companies. While still maintaining a domestic identity and a central office in a particular country, multinational corporations now aim to maximize profits on a worldwide basis. The corporation is so large and extended that it may be outside the control of a single government. Besides subsidiaries, a multinational corporation may have joint ventures with individual companies, either in its home country or foreign countries.
Some multinationals enter foreign markets by buying stakes in companies of a particular country. For example, Anheuser-Busch companies, Inc. sought to expand into the Mexican beer market by buying a stake in Mexico's leading brewery, Grupo Modelo, SA. The following are some examples of multinational corporations:

• American Telephone and Telegraph (U.S.)
• Bayerische Motoren Werke, AG (BMW) (Germany)
• Bayer, AG (Germany)
• Daimler-Benz, AG (Germany)
• General Motors Corporation (U.S.)
• Goldstar Company, Ltd. (South Korea)
• Grand Metropolitan, PLC (UK)
• Hitachi, Ltd. (Japan)
• L'Oreal, SA (France)
• Mitsubishi Corporation (Japan)
• Nestle, SA (Switzerland)
• Northern Telecom, Ltd. (Canada)
• PepsiCo (U.S.)
• Philips Electronics, NV (Netherlands)
• Rhone-Poulenc, SA (France)
• Royal Dutch Petroleum (Netherlands)
• Siemens, AG (Germany)
• SmithKline Beecham (UK)
• Sony Corporation (Japan)
• Telefonica de Espana (Spain)
• Toyota Motor Corporation (Japan)
• Uniliver PCL (Netherlands)
• Volkswagen, AG (Germany)
• Volvo, AB (Sweden)

MULTINATIONAL CORPORATIONS: STAFFING
Staffing increasingly reflects the global orientation of multinational corporations. Employees, including key executives, are natives of the country where operations are located. Thus, Mexican executives are in charge of Mexican operations. In some cases, top corporate executives are non- native of the parent company's home country. For example, General Motors Corporation promoted Spaniard (actually Basque) executive Jose Ignacio Lopez de Arriortua to head its supply operations at its Detroit headquarters. Lopez de Arriortua later left for Germany's Volkswagen company. The trend, then, is for employment to be based on merit, not nationality. Boards of directors also may reflect a corporation's international activities. For example, two executives from Mexico's Grupo Modelo, SA, sit on Anheuser-Busch's board of directors, and Mexican businessman Carlos Slim Helu is on Southwestern Bell's board of directors. Both Anheuser-Busch and Southwestern Bell have important operations in Mexico. Since multinational corporations are engaged in a variety of activities, there are no generic requirements for entry level positions. Top executives, however, usually have at least a Bachelor of Arts or a Bachelor of Science degree, often in business or a related field. It is not unusual for top U.S. executives to have a graduate degree, usually a Masters of Business Administration.
MULTINATIONAL CORPORATIONS: RESEARCH
The following are a sample of institutions that study multinational corporations:

Center for Human Resources University of Pennsylvania Wharton School Philadelphia, PA 19104 (215) 896-5606	Center For Transnational Corportations United Nations DC-2 New York, NY 10017
Global Information Services 1605 South Bend Blvd. St. Louis, MO 63117 (314) 647-0081	Program on Multinational Corporations and Third World Development University of Notre Dame 106 Hurley Notre Dame, IN 46556 (219) 647-7616

Some of the issues researched at these and other institutions include the economic, political, environmental, and social effects of multinational corporations in Third World countries, development and enforcement of ethical standards for multinational corporations, and how these companies operate within regional trade blocs.
KEY MULTINATIONAL ORGANIZATIONS
Key organizations for multinational organizations include the following:

The Conference Board 845 Third Ave. New York NY 10022 (212) 759-0900	United States Council for International Business 1212 Avenue of the Americas New York, NY 10036 (212) 354-4480
Fund for Multinational Management Education 425 Madison Ave. Room 501 New York, NY 10017 (212) 758-3007	American Society of International Executives 18 Sentry Parkway, Suite 1 1777 Walton Road Blue Bell, PA 19422 (215) 540-2295

CURRENT ISSUES--MULTINATIONAL CORPORATIONS
Multinational corporations face many of the same issues as domestic companies. These include maximizing profits, meeting customer demands, and adapting to technological change. In addition, multinational corporations must stay current with trends and events in the various countries where they operate. Politcal reforms in South Africa, economic liberalization in China, and social trends in Europe are examples of matters that are important to corporations operating in these countries.
Accountability is also an issue multinational corporations face. Because they are so large (their annual revenues often exceed the Gross Domestic Product of some developing countries), multinational corporations can, and sometimes have, exerted questionable political and economic power in some countries. As a result, critics view multinational corporations suspiciously and sometimes seek to have host countries impose restrictions on them .
International Business Issues
Simultaneous efforts to promote free trade and protect domestic industry from foreign competition is one of the most pressing issues in international business today. As noted earlier, this dispute almost derailed the GATT Uruguy Round negotiations. Intellectual property rights is another important issue. International business is hindered when companies fear that their patents, trademarks, and industrial secrets will be violated abroad. Countries which fail to protect these rights may be shunned, and consequently may suffer from lack of foreign investment and access to cutting edge technology. Environmental protection efforts are another international business issue. In the business context, this issue centers, in part, on the extent natural resources in less developed countries should be exploited for the benefit of developed countries. For example, should Philippine forests be destroyed to satify the Japanese demand for lumber.
INFORMATION NEEDS
Based on this discussion of international business and multinational corporations, it is obvious that those engaged in these activites have broad and diverse information needs. These needs include:

-- political, economic and social analysis

-- market conditions in different countries and regions

-- demographic trends

No single source can fulfill all these information needs. Therefore, the information professional working in the international business environment must be familiar with current information sources outlined in the accompanying PATHFINDER. He or she must also keep informed about daily world events. The best way to do this is to read, or at least scan, the Wall Street Journal, the New York Times or Washington Post, and the local newspaper daily and the Economist weekly. Television and radio news programs, especially the Nightly Business Report, Wall Street Week, and Washington Week in Review are excellent supplements.
CONCLUSION
International business is business conducted across national boundaries. It is concerned with political, economic, social, and cultural conditions in a variety of countries. As technology improves international communication and transportation links, international business and international corporate activities will expand. Information professionals must understand and keep abreast of these developments. Now more than ever, no country is an island unto itself.

Source:  http://www.cis.drexel.edu/faculty/shelfer/public_html/busrefpapers/intmulti.html

Tax evasion by multinationals under scrutiny

DPP Keriako Tobiko says tax evasion by multinationals under scrutiny

By STANDARD REPORTER

Updated Wednesday, March 5th 2014
By STANDARD REPORTER
Nairobi, Kenya: The role of multinational corporations in corporate financial crimes such as tax evasion and avoidance has taken the centre stage at the on-going third International Association of Prosecutors (IAP) regional conference in Zambia.
The five-day conference featuring key national prosecutors drawn from the African and Indian Ocean Region including Director of Public Prosecutions (DPP) Keriako Tobiko has expressed concern at the growing cases of corporate financial crimes, particularly those perpetrated by multinational corporations.
Featuring delegates from more than 21 African countries, the conference is titled: “Getting a fair bargain for Africa and the developing world: The role of the Prosecutor in combating corporate financial crime including tax evasion and environmental degradation in the extractive and other significant industries”.
Speaking when he chaired a plenary session on tax crimes committed by multinational corporations in the extractive industry, Mr Tobiko noted that the robust administration of national and international laws would need to be applied to curb rampant tax evasion and avoidance cases.
The role of financial and non-financial professionals in facilitating tax crimes and illicit financial flows, Tobiko added, cannot be understated as some of the crimes routinely bear traces of professional fraud necessitating forensic examinations.
The DPP expressed regret that lack of specialist prosecutorial personnel had emboldened unscrupulous multinational corporations to an extent of wantonly committing financial crimes.

“As prosecutors, we must now raise the bar in assessing these crimes through the lens of new generation financial crime investigation procedures, which may also require partnering with forensic experts to assist in evidence gathering,” Tobiko said in the Zambian city of Livingstone.

https://www.standardmedia.co.ke/mobile/?articleID=2000106082&story_title=tobiko-tax-evasion-by-multinationals-under-scrutiny

Multinational Corporations, Stateless Income and Tax Havens

Multinational Corporations, Stateless Income and Tax Havens

Sinclair Davidson, March 2014. This report provides evidence to show that the corporate income tax system is not ‘broken’ and that the corporate income tax base is not being eroded. It offers a critique of the stateless income doctrine and the interaction between tax havens and multinational corporations.

The corporate income tax system is not broken. It is true that some multinational corporations do not pay as much tax in their host economies as their consumers and voters in those economies might expect. Yet this does not necessarily imply any wrongdoing on the part of those corporations. As Kleinbard makes clear, multinational corporations are fully compliant with the law of the land in those economies where they operate and the governments of those economies have been unwilling to change the international income tax norms and tax architecture.

It is in this environment that fiscal illusion can be deployed to increase the tax burden on corporations. Yet there is no evidence to support the view that the revenue already collected by corporate income tax has declined in recent decades. There is no evidence to support the view that the corporate income tax base has been eroded in recent years. There is no evidence to support the view that a decline in corporate tax revenue has contributed to current budget deficits. If anything it is clear that expenditure decisions, not decreased revenue, has contributed to these deficits.

Nonetheless, the stateless income doctrine may be used as a catalyst for re-writing the corporate income tax system. In the same way that an old tax is a good tax, so an old tax system is likely to be a good tax system. If one were the accept Kleinbard’s argument at face value, then governments would need to modify substantially how corporate income tax works and various norms underpinning international double taxation agreements in order to redefine stateless income as being sourced in either the UK or the US (or indeed in any other economy).

The question that needs to be answered is this: ‘What would be the consequences of expanding the definition of source for corporate income tax purposes?’ At present ‘stateless’ income is not stateless at all, it is simply not UK- or US-source income. Stateless income is not some form of economic rent, as Kleinbard would have us believe. Rent can be taxed with impunity. To the extent that stateless income is really a return on the development and ownership of intellectual property, then increasing taxation will have allocative efficiency consequences. At the same time it would also adversely affect the Irish and Dutch tax bases. It is known, however, that multinational corporations add value to both their home economies and their host economies. Tax havens add value by allowing multinationals to reduce their tax liabilities while increasing their investments in high-tax economies. An increase in their tax burdens would reduce those levels of investment, leading to reduced employment opportunities, reduced consumption and reduced innovation.

It is not clear that tampering with the tried and tested norms of corporate income tax to (possibly) generate more corporate income tax revenue while reducing the corporate income tax collected in foreign economies, and possibly reducing investment at home, employment at home and consumption at home, is good policy.

Source: http://www.accaglobal.com/zm/en/technical-activities/technical-resources-search/2014/march/multinational-corporations-stateless-income-and-tax-havens.html

Why We Need More Powerful Multinational Corporations

Why we need more powerful Multinational Corporations

(But only after we make some changes in them)

Presenter: Professor William H. Starbuck (Professor emeritus at New York University and Courtesy professor-in-residence at the Lundquist College of Business of the University of Oregon)

The world faces very serious challenges and existing social institutions have been unable to address these challenges effectively. There is need for more powerful institutions that can cross national boundaries and act rather speedily and with purpose. The corporation is the most effective organizational form that mankind has created, and it is possible for corporations to counteract and compensate for some of the deficiencies of governments. However, we dare not give more power to corporations in their present form. We need to reformulate the concept of corporation so as to moderate corporations’ propensity for sociopathic behavior. Is it possible to make corporations more beneficial without undercutting their advantages?

http://www.essec.edu/news-programs/programs-news-detail/article/why-we-need-more-powerful-multinational-corporations.html?no_cache=1

Codes of Conduct for Multinational Corporations

Codes of Conduct for Multinational Corporations

External Codes of Conduct

Since the 1970s, public and private expectations of multinational corporate behavior have grown commensurate with the boom in foreign investment. This change in expectations, however, has not resulted in a clear-cut set of directions for governments or businesses to follow in developing codes of conduct. At times, purely voluntary codes evolved into codes that subsequently were adopted as national legislation.

 

The United Nations lists ten major principles that are recognized by international declarations and agreements that have been developed by the three main organizations, the UN, the ILO, and the OECD. These main principles comprise the UN Global Compact which covers four main areas: human rights; labor standards; environment; and anti-corruption. The ten principles of the UN Global Compact are:

1. Businesses should support and respect the protection of internationally proclaimed human rights.

2. Businesses should make sure that they are not complicit in human rights abuses.

3. Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining.

4. Businesses should uphold the elimination of all forms of forced and compulsory labor.

5. Businesses should uphold the effective abolition of child labor.

6. Businesses should uphold the elimination of discrimination in respect of employment and occupation.

7. Businesses should support a precautionary approach to environmental challenges.

8. Businesses should undertake initiatives to promote greater environmental responsibility.

9. Businesses should encourage the development and diffusion of environmentally friendly techniques.

10. Businesses should work against corruption in all its terms, including extortion and bribery.

 Corporate and Industry-Specific Codes of Conduct

A broad range of factors are influencing firms to adopt codes of conduct. Some firms see it as enlightened self-interest, while others see it as a necessary part of risk management. Corporate codes of conduct and industry-specific codes now exist in one form or another among most large multinational corporations and among most of the developed countries. A recent study by the OECD concluded that most corporate codes tend to be highly specific and to deal with the idiosyncrasies of a particular company, project, or location. Industry-specific corporate codes dealing with environment and labor issues appear to be the most common, and most U.S. manufacturers and retailers in the apparel industry have adopted corporate codes that prohibit using child, sweatshop, or prison labor. U.S. companies in such diverse industries as footwear, personal care products, photographic equipment and supplies, stationary products, hardware products, restaurants, and electronics and computers have adopted corporate codes of conduct.

Multinational corporations generally support the concept of codes of conduct that standardize rules of corporate behavior across a broad range of countries and industries. While the motivation behind adopting corporate codes of conduct can be quite complex, multinational firms generally adopt codes of conduct because they believe they represent good business practices. Generally, multinational corporations desire national treatment as a basis for any investment agreement, but are concerned that standards negotiated in one agreement could be applied to their worldwide operations, regardless of the disparity in economic conditions between locations, local customs, jurisprudence, or differences in local business practices. Some firms also argue that codes which allow foreign groups to submit complaints to U.S. regulatory bodies concerning the overseas operations of the subsidiaries of U.S. firms could be used as a competitive tool to damage the worldwide reputations of U.S. firms.

Industry-specific codes of conduct are as varied and as extensive as the multitude of industries they cover. Labor and environmental issues, however, are the two most frequently covered areas in the codes, regardless of industry. Environmental standards often comprise commitments from firms to be open to the concerns of the communities in which they locate. The most common labor codes include commitments for firms to provide a reasonable working environment, provisions against discrimination and a commitment to obey laws regarding child labor and compensation. Concerns over child and sweatshop labor, in particular, have spurred some public groups to take action on their own.

Concerns of Stakeholders

While traditional economic theory holds that corporations strive to maximize their profits to benefit the stockholders, a broad group of “stakeholders” is pressing to have their interests represented as well. These stakeholders argue that corporations have responsibilities beyond the narrow scope of their legal charters, or that they should abide by a “social contract” that reflects society’s changing social and cultural mores. The size of the group of stakeholders and the social responsibilities they expect varies with the size of the firm, the industrial sector it is involved in, and its products and operations. This group of stakeholders and the associated social responsibilities also become vastly larger for firms that operate in more than one country and can include issues beyond the common areas of workers’ rights, environmental concerns, and business production or financing operations. At times, the issues sought by stakeholders in one country can clash with those sought by stakeholders in another country, for instance when workers in developed countries push for job security, health care and other benefits, and environmental issues, while workers in developing countries push for more local jobs and local managers, worker training and education, technology transfers, and higher levels of local production.