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How Multinational Companies Behave Like Countries

Updated on January 19, 2014

The largest corporations in the world are multinational corporations. The annual sales of these corporations exceed the annual GDP of many nations, suggesting that such corporations could be considered actors in the international system in the same way as nations. Like nations, multinational corporations have interests in multiple regions, act in their own self-interest, generate loyalties, and form alliances. However, the key difference that sets corporations and nations apart are their ultimate goals, namely profit in the case of corporations, and security in the case of nations.

Biggest transnational companies by foreign assets (2011).
Biggest transnational companies by foreign assets (2011). | Source

Operating in Multiple Jurisdictions

Legally, there is no such thing as a multinational or global company since there is no international law under which such an entity could be formed. Rather, the parent company and its subsidiaries and affiliates have the nationalities of the various jurisdictions in which they are incorporated. A multinational is really a group of related companies operating under common ownership, resources, and strategy.

A company often becomes multinational because it can't grow any further in its home country. By expanding to other nations, it can access new markets, new resources, and spread its risk. It is at this point that multinational corporations start resembling nation-states because they are able to control and move production, resources, and money across international borders. If the corporation's home country is in a leading position, this will provide a solid starting point for the corporation's international expansion.

Pursuing Rational Self-Interest

Like a nation-state, a corporation will act to promote its own interest, and being able to act on an international scale gives it more opportunities to do so than existing only domestically. Most importantly, having multiple jurisdictions available means that a corporation is not stuck with the structures and policies of any one nation. It can seek out materials, labour, and capital from the cheapest source. It can also avoid legal constraints by choosing jurisdictions that have the most convenient legal environment.

A company can also use its international activities to play off one country against another. A corporation's economic activity and decisions may affect the ability of governments to manage their own economies and force them to deal with the corporation as a significant international entity, especially when the corporation's economic size is comparable to that of the country it is dealing with. From the corporation's point of view, national borders are merely barriers to trade, and the corporation will want to minimize or remove such barriers where possible.

Generating Loyalties

Economic strength and control of resources bring with it power and the ability to influence loyalties and ideologies. Like nations, large corporations have spheres of influence, try to exercise as much power as they can, and try to obtain the loyalty of the population. Most of this is done through advertising and marketing which create and modify consumer desires. In many cases, these commercial channels are more effective than similar attempts by governments to do the same.

Another advantage that multinational corporations have in building loyalties is that they make plans about a decade ahead and can implement long-term projects and build their brand over time, while governments tend to be limited by election cycles. In some ways, multinationals can take the long view and so are able to treat government demands as short-term. They can afford to be patient and wait until a more favourable government is elected.

Source

Forming Alliances

Multinational corporations also enter into alliances with other corporations, just as nations do. In many sectors, cooperating with another corporation to ensure stable markets or resources is more effective than outright competition.

Like powerful nations and groups of nations, multinational corporations also have hegemonic tendencies. This is most apparent in oligopolies and cartels, which try to limit competition and try to control prices or production. However, some of this tendency is also the natural result of the very capital-intensive industries that multinationals are involved in, where only the few largest companies can afford to participate in the first place.

Different Goals

The key difference between a nation-state and a corporation is the nation's concern with security. Unlike some trading companies and guilds in the past, modern corporations do not have their own military forces. While a nation's main underlying goals are survival and security, the fundamental goal and purpose of a corporation is to maximize the profit and wealth of its shareholders. Businesses generally tend to avoid unstable and conflict-prone areas, so security as a central value is less apparent in corporations than in nation-states. The main difference can basically be characterized by replacing "national interest" with "shareholder interest", but most of the other elements of international actors are common to both corporations and nation-states. However, the security element has the potential to develop as the stakes get higher in the future.

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    Howard Schneider 4 years ago from Parsippany, New Jersey

    Very interesting comparison of nation states and multinational corporations, ArchonCodex. They have many of the same characteristics and goals except for profits for shareholders. These corporations are beholden to these shareholders only while nations are to their citizens. Excellent Hub.