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Transnational corporations

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CONTENTS

Introduction

Chapter I. Theoretical aspects of the multinational corporation
functioning

1.1 Maintenance, structure and the basic types of activity of the
multinational corporation

1.2 Advantages and disadvantages of politics of the multinational
corporation

Chapter II. The role of the multinational corporation of the USA in the
world economy

2.1 The operation of multinational corporations of the USA in Russian

Conclusion

Bibliography

Appendix

Introduction

The modern economy is moving towards the creation of uniform economic
space where the basic subjects of economic relations are no longer
countries, but multinational companies and their alliances. Thus, the
obvious trend to their integration, to what the wave of the
international mergers and absorption testifies is observed.

The basis of all multinational firms is made up of American companies.
The number of workers and employees who are engaged in overseas branches
is enough to tell that, is equal to half of American employees engaged
in the manufacturing industry.

The international giants have deeply taken root into economic structure
of developing states and it is, certainly, reflected in the strategy of
multinational corporations. Owing to similar changes American
multinational corporations bring certain corrective amendments to the
strategy, but, nevertheless, constantly and purposefully export the
working capital. So, this practice deserves the closest attention with
the purpose to work out effective recommendations to form domestic
multinational corporations for further functioning in the world economy.

Chapter I. THEORETICAL ASPECTS OF FUNCTIONING AND DEVELOPMENT OF THE
MULTIONATIOL CORPORATION

1.1 Maintenance, structure and the basic of activity of the
multinational corporation

The process transnationalisation is characteristic for modern economy.
In it the main characters are multinational corporations.

The organizational structure of multinational corporations, as a rule,
is represented by the head company and its foreign branches.

The head parent company is an administrative center of the system of
enterprises of the multinational corporation. Its functions usually
include decision-making on merging with other companies, purchasing new
firms; forming long-term industrial, investment and financial politics
of branches and corporations as a whole; controlling the finance and
research and development of foreign branches, at the same time the head
company should enable managers of foreign branches to make decisions
independently to satisfactory the demands of consumers of the local
market and according to the legislation of the host country.

The basic organizational forms of foreign branches are:

– affiliated company (subsidiary) –a company which is controlled by
another one. The controlling company owns over 50% – and sometimes 100%
– of the ordinary shares of the subsidiary;

– associated company (associate) – a company of which at least 20% and
not more than 50% the ordinary shares is held by another company;

– the branch (branch) – a part of a large organization that deals with
one particular type of work.

The management of the multinational corporation solves problems of
perfection of structure of management depending on assortment of goods
and services, which they offer on the world market.

The example of an ideal structure of the multinational corporation is
“General Electric”, whose market capitalization in 2000 exceeded 300
billion dollars (the highest figure in the history of USA companies). It
is one of the most versatile companies in the world; it offers a wide
assortment of goods, including aviation engines, industrial plastic,
lighting devices, power installations and many other things in different
regions.

Another example of American multinational corporations is “Ford” which
began its enterprise activity in Europe in the 60s on the basis of its
branch in Great Britain. In the 90s this corporation carried out the
development of new models, manufacture of components and assembly of
machines in five European countries, having united technological chains
of factories of each of these countries in.

When trying to expend, the multinational corporation uses various forms
of the world market. These forms are based on contract relations and are
not connected with participation in the share capital of other firms.

Thus, the modern multinational corporations are based on the theory of a
firm in the organization of manufacture and selling of goods and
services and they have become the largest characters in the modern world
economy.

1.2 Advantages and disadvantages of politics of the multinational
corporation

Actively participating in the processes of international manufacture on
the basis of the traditional international division of labor, the
multinational corporation has created its own intrafirm international
manufacture on the basis of modernized international division of labor,
taking into account developing markets. This intrafirm variant of the
international manufacture has become the core of modern international
corporations.

The organization of the intrafirm international manufacture gives the
multinational corporation a number of advantages:

1) to use benefits of the international specialization of manufacture in
different countries separately;

2) to use tax, investment and other the privileges, given by countries
to foreign investors as much as possible;

3) to maneuver loading of capacities, adapting the production programs
according to the world market;

4) to use affiliated companies as a jumping-off place for further
expansion on developing markets.

Marking the advantages of functioning of the multinational corporation
in the system of the world economy, it is necessary to tell about their
negative influence on the economies of those countries in which they
function. Experts specify:

– counteraction to economic policy of those countries, where the
multinational corporation carries out its activity;

– infringement of the state laws.

– multinational corporations really remain a source of some the negative
social consequences connected with egoistic motives of their activity.

Political and economic value of transnational corporations is so great,
that in historically foreseeable time they will remain one of the
important factors of influence strengthening of industrially developed
countries in many regions of the world.

Chapter II. The role of the multinational corporation of the USA in the
world economy

2.1 The operation of multinational corporations of the USA in Russian

Russia is gradually transforming into the country for which the economy
is characterized by greater liberalization, an open access for foreign
companies to the majority of spheres of economic activities. In
particular, large transnational corporations come to Russia, which
economic activities have a global character.

The following companies – «General Electric», «Westinghouse Electric»,
«GEC-Alston», etc. – while showing care, take steps to gain profit on
newly created markets.

American automobile companies are also entering the markets of the
countries with transitive economy, by means of investments very
cautiously. The company “Ford” has been producing cars at a new assembly
factory in Poland since autumn 1995, but the volumes of the assembly
were small. The company «General Motors» has created in Gilwice an
assembly factory of family cars «Opel Astra» from imported accessories.
In Russia «General Motors» has set up organized a small manufacture
(assembly) on the basis of the factory Elabuga capacities..

In Belarus market ” Ford ” has adjusted coproduction of the car
“Ford-Transit” which is greatly exported to the CIS countries. It
invested 30 million dollars in it, this is very small capital for
investments abroad. In Russia «Ford» has recently started a small
manufacture of elite cars in Leningrad region. Investments are also not
so greater (150 million dollars), but the project is remarkable because
the enterprise in Russia was constructed from zero while projects of
other foreign companies use operating capacities of their Russian
partners. Though the part of the Russian accessories in the cost of the
car is also insignificant (6 %), but in the long term this part will
increase.

Thus analyzing the activity of large transnational corporations, it is
possible to note successful factors which success for the introduction
and promotion of the multinational corporation in the Russian market:

1) the success in Russia is often promoted by “a non-standard behavior”:
many western businessmen note the specificity of conditions in the
countries with transitive economy, especially in Russia where the
methods used in other countries, do not always work;

2) because of high risk in the Russian economy;

3) the market of foodstuffs and consumer goods in Russia is undergoing
if not boom, but obvious revival and growth. Therefore many western
manufacturers of the foodstuffs consider Russia a perspective commodity
market.

The conclusion

Observing obvious trends on the world market, we can draw the conclusion
that transnational corporations are one of the most powerful elements of
internationalization of the society. “Global” transnational
corporations, first of all American ones, have transferred into the
dominating factor of development of the world economy and international
economic relations today. Direct investments of the multinational
corporations play a key role in the functioning of national economies
and expansion of international industrial system – a material core of
modern globalized economy.

The analysis of activity of the multinational corporation allows to
allocate the following basic sources of effective activity of the
multinational corporation (in comparison with only national companies):

· Use of advantages of possession by natural resources: the capital and
knowledge, especially the results of research and development;

· Opportunity of an optimum arrangement of enterprises in different
countries in view of sizes of their home market, rates of economic
growth, the price and qualification of a labor, prices and availability
of other economic resources, development of an infrastructure;

· Use in the purposes of financial resources of all world;

· Constant knowledge of a conjuncture of the commodity, currency and
financial markets in different countries;

· Experience of the international management, including the optimum
organization of manufacture and selling, maintenance of high reputation
of a firm.

Sources of effective activity of this type are dynamical: they usually
increase in process of growth of actives of the company and in
diversification of its activity. Thus, with necessary conditions of
realization of these sources, reliable and inexpensive communication of
the head company with foreign branches, a wide network of business
contacts of foreign branches with local firms of the host country ,
skilful use of the opportunities given by the legislation of this
country can be used.

The multinational corporation can continue function effectively by
reducing the bureaucratic device, improving the control system and
advertising activity mastering old market more deeply and getting on new
foreign markets.

Thus, the carried out research s allows to draw the conclusion that now
it is possible to speak about a division of labor not so much between
the countries, but between transnational corporations.

There is a complex and continuously developing phenomenon of the
international corporation in the system of intereconomic communications,
which demands constant attention, studying and international control.

Appendix.

Figure 1.

The largest multinational corporations of the USA which have enclosed
greater volumes of investments in the Russian economy

The companyVolume of investmentsThe form of investment
cooperationSpecialization«Coca-Cola»750 million dollars20 factories on
pouring drinks are constructed,

350 distributive centers

in 11 cities of RussiaNonalcoholic –

drinks«Pepsi-Cola»200 million dollars 13 Factories on pouring drinks,

50 warehouses in 5 cities of RussiaNonalcoholic –

drinks«General Motors»The Designed capacity-150 thousand pieces a
yearCars«Ford»150 million dollarsThe Designed capacity, 50 thousand
pieces a yearCars«McDonald»215 million dollarsThe company has opened 71
restaurant in 22 cities of Russia,

Including 39 outlets in Moscow,

14 – in Moscow area,

8 – in St.-Petersburg fast food restaurants «RJRInternational»400
million dollarsOwns the enterprises in St.-Petersburg.

20 % of the Russian marketTobacco products«Philip Morris »250 million
dollars3 tobacco factories – Kuban, , NevaTobacco products«Conaco»550
million dollarsJoint venture « Polar light » in the Republic
KomiOil«Exxon»300 million dollarsParticipation in projects on
development oil

deposits of the shelf Sakhalin-1 and

Sakhalin-3Oil

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