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

MAJOR REGIONAL ORGANIZATIONS

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:

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.


BIBLIOGRAPHY

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Prepared by Susan J. Lacey, 4/94