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Unformatted text preview: Lecture 8 The next five lectures are concerned with the international movement of money: why people invest internationally, which countries generate and receive investments, how countries that want to receive investments can make themselves attractive to international investors, exchange rates, international development banks and the International Monetary Fund. Its probably the most technically demanding part of the course, so three weeks from now youll have the happy knowledge that the worst is behind you. Todays lecture is concerned with multinational enterprises: what they are, what the reason for having them is, how their forms of organization vary by industry and by country. What are multinational enterprises and why have them? Definition . A corporation is a business entity that is formed under the laws of a particular country. It is formed by investors, who each contribute a certain amount of money and receive percentage shares of ownership in the company, called shares of stock. A multinational corporation or multinational enterprise (MNE) is a company formed in one country which controls companies formed in other countries by owning all or a controlling interest in the shares of those companies (called subsidiaries ). Thus, Toyota is incorporated in Japan. It wants to have a subsidiary in the US to manufacture Toyotas here, so it goes to an American state, forms a corporation called Toyota of America, and holds a controlling percentage of the shares of Toyota of America. This involves investing in Americasending money from Japan to America to form the subsidiary. As well discuss next time, creating a foreign subsidiary and funding it is also known as foreign direct investment (FDI). Alternatives: Subcontracting; exporting. This definition raises the question of why do we have multinational corporations at all. Theres a chart on page 17 of the text that shows the typical evolution of a business firm, from a purely national company to a company that exports to other countries to one that opens a sales and distribution office abroad to one that owns subsidiaries abroad. But what propels this evolution, particularly past the export stage. If Toyota is in the business of building and selling cars, why doesnt it build cars in Japan and sell them in other countries instead of creating Toyota subsidiaries in those other countries to build cars? This question is especially salient because, as the text points out, local businesses are probably more familiar with local laws and customs, more familiar with local politicians and other powerful...
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This note was uploaded on 10/15/2008 for the course GEOG 20 taught by Professor Acker during the Spring '08 term at University of California, Berkeley.
- Spring '08