Multinational Enterprises

Multinational Enterprises. Multinational enterprises are firms that control facilities—other than those exclusively devoted to sales—in two or more countries. This control of foreign subsidiaries can be exercised through either total or partial ownership, joint ventures, or less binding agreements. Success abroad depends upon some firm‐specific skills, such as expertise in marketing, management, technology, or finance. Foreign direct investment (FDI) also relies upon the extraordinary transformations in transportation, communication, and corporate organization that began in the late nineteenth century. Political considerations, especially in the host countries, vitally shape the size and direction of multinational investment.

The first wave of American direct investment abroad occurred between the 1880s and 1920s, in a response to the great organizational and technological changes of that era. The Singer Sewing Machine Company, seeking markets for its innovative machines, led the way. As sales mounted abroad, Singer built factories to assemble and eventually build sewing machines in Scotland. Other mass‐production manufacturers followed, initially seeking markets in developed countries such as Canada, Great Britain, France, and Germany. After 1900, the focus of most American investment shifted to less developed countries, as American corporations vied to exploit these nations’ natural resources. U.S. funds flowed into the Western Hemisphere, especially into agriculture—for tobacco, coffee, sugar, and bananas—and into mining and drilling, to extract oil, silver, gold, lead, zinc, and copper. These capital‐intensive ventures yielded raw materials that were shipped to the United States for refining (if necessary) and then consumption domestically and abroad.

The second great wave of American multinational investment dates from 1955. As Europe rapidly recovered from the devastation of World War II, the United States had the needed capital, management, and especially technology. By 1966, American FDI exceeded that of the rest of the noncommunist world combined. This burst of FDI aroused alarm in Europe about the “American invasion” and Europe's “technology gap.” In contrast to the previous era, when most investment went into raw‐material ventures in developing countries, early post–World War II FDI tended to be concentrated in manufacturing in Europe and Canada. After an initial flurry of investment in petroleum, money flowed into industries such as automobiles, chemicals, machinery, foods, and fabricated metals. This multinational spread was typically accomplished through the acquisition of foreign firms rather than the construction of new facilities by an American company.

The post‐1970 period brought a bewildering array of developments, as the complexity of multinational activity increased. As other nations closed the technological and organizational gap, they began to invest abroad as well. The United States, with its huge open market, became the largest target of FDI by British, Dutch, German, and increasingly Japanese firms. U.S. investments, meanwhile, sought ever wider outlets geographically, particularly as production became more specialized. Increasingly, American firms relied upon foreign subsidiaries not to produce for their own national markets, but to build products for shipment to the United States or elsewhere for final assembly. By the end of the twentieth century, perhaps half of the United States’ foreign trade consisted of imports and exports within multinational companies. While American service firms such as banking always had some multinational spread, others such as management consulting, consumer finance, automobile rental, hotels, and legal services grew rapidly after 1980.

American multinational enterprises have historically been the nation's largest, most technologically and managerially sophisticated, and, on the whole, most profitable companies. While their beneficial impact upon the economic well‐being of Americans seemed clear, their political clout, sheer size, and geographical flexibility, posed problems domestically and abroad. As multinationals formed strategic alliances and grew ever more powerful, the ability of governments even in developed economies to regulate their activities remained in doubt.
See also Banking and Finance; Business; Capitalism; Economic Development; Economic Regulation; Foreign Relations: The Economic Dimension; Industrialization; Post–Cold War Era.

Bibliography

Mira Wilkins , The Emergence of Multinational Enterprise: American Business Abroad from the Colonial Era to 1914, 1970.
Mira Wilkins , The Maturing of Multinational Enterprise: American Business Abroad from 1914 to 1970, 1974.

Diane Lindstrom