Multinational corporation
A multinational corporation ; also called a multinational enterprise, transnational enterprise, transnational corporation, international corporation, or stateless corporation, is a corporate organization that owns and controls the production of goods or services in at least one country other than its home country. Control is considered an important aspect of an MNC to distinguish it from international portfolio investment organizations, such as some international mutual funds that invest in corporations abroad solely to diversify financial risks.
Most of the current largest and most influential companies are publicly traded multinational corporations, including Forbes Global 2000 companies.
History
Colonialism
The history of multinational corporations began with the history of colonialism. The first multinational corporations were founded to set up colonial "factories" or port cities. The two main examples were the British East India Company founded in 1600 and the Dutch East India Company founded in 1602. In addition to conducting trade between Great Britain and its colonies, the British East India Company became a quasi-government in its own right, with local government officials and its own army in India. Other examples include the Swedish Africa Company, founded in 1649, and the Hudson's Bay Company, founded in 1670. These early corporations engaged in international trade and exploration and set up trading posts.The Dutch government took over the VOC in 1799, and during the 19th century, other governments increasingly took over private companies, most notably in British India. During the process of decolonization, the European colonial charter companies were disbanded, with the final colonial corporation, the Mozambique Company, dissolving in 1972.
Mining
Mining of gold, silver, copper, and oil was a major activity early on and remains so today. International mining companies became prominent in Britain in the 19th century, such as the Rio Tinto company, founded in 1873, which started with the purchase of sulfur and copper mines from the Spanish government. Rio Tinto, now based in London and Melbourne, Australia, has made many acquisitions and expanded globally to mine aluminum, iron ore, copper, uranium, and diamonds. European mines in South Africa began opening in the late 19th century, producing gold and other minerals for the world market, jobs for locals, and business and profits for companies. Cecil Rhodes was one of the few businessmen in the era who became Prime Minister. His mining enterprises included the British South Africa Company and De Beers. The latter company practically controlled the global diamond market from its base in southern Africa.Oil
In 1945, the United States was the world's largest oil producer. However, its reserves were declining due to high demand. Therefore, the United States turned to foreign oil sources, which had a significant impact on the recovery of the West after World War II. Most of the world's oil was found in Latin America and the Middle East, particularly in the Arab states of the Persian Gulf. This increase in non-American production was enabled by multinational corporations known as the Seven Sisters.The "Seven Sisters" was a common term for the seven multinational companies that dominated the global petroleum industry from the mid-1940s to the mid-1970s.
- Anglo-Iranian Oil Company
- Royal Dutch Shell
- Standard Oil Company of California
- Gulf Oil
- Texaco
- Standard Oil Company of New Jersey
- Standard Oil Company of New York
Worldwide oil consumption increased rapidly between 1949 and 1970. This increase in consumption was caused not only by the growth of production by multinational oil companies but also by the strong influence of the United States on the global oil market.
In 1959, companies lowered the price of oil due to a surplus in the market. This reduction dealt a significant blow to the finances of producers. Saudi oil minister Abdullah Tariki and Venezuela's Juan Perez Alfonso entered into a secret agreement, promising that if the price of oil was lowered a second time, they would take collective action against the companies. This occurred in 1960. Prior to the 1973 oil crisis, the Seven Sisters controlled around 85 percent of the world's petroleum reserves. In the 1970s, most countries with large reserves nationalized their reserves that had been owned by major oil companies. Since then, industry dominance has shifted to the OPEC cartel and state-owned oil and gas companies, such as Saudi Aramco, Gazprom, China National Petroleum Corporation, National Iranian Oil Company, PDVSA, Petrobras, and Petronas.
Dealing with OPEC (1973–1991)
A unilateral increase in oil prices was labeled as "the largest nonviolent transfer of wealth in human history." OPEC sought immediate discussions regarding participation in national oil industries. Companies were not inclined to object as the price hike benefited both them and OPEC members. In 1980, the Seven Sisters were entirely displaced and replaced by national oil companies.The rise in oil prices burdened developing countries with balance of payments deficits, leading to an energy crisis. OPEC members had to abandon their plan of redistributing wealth from the West to the post-colonial South and invest either in foreign expenditures or ostentatious economic development projects. After 1974, most of the money from OPEC members ceased as payments for goods and services or investments in Western industry.
In February 1974, the first Washington Energy Conference convened. The most significant contribution of this conference was the establishment of the International Energy Agency, enabling states to coordinate policy, gather data, and monitor global oil reserves.
In the 1970s, OPEC gradually nationalized the Seven Sisters. The Kingdom of Saudi Arabia, as the world's largest oil producer, could leverage this. However, Saudi Arabia opted for the correct approach and maintained consistent oil prices throughout the 1970s.
In 1979, the "second oil shock" came from the collapse of the Shah's regime in Iran. Iran had become a regional power due to oil money and American weapons. The Shah eventually abdicated and fled the country. This prompted a strike by thousands of Iranian oil workers, significantly reducing oil production in Iran. Saudi Arabia tried to cope with the crisis by increasing production, but oil prices still soared, leading to the "second oil shock."
Saudi Arabia significantly reduced oil production, losing most of its revenues. In 1986, Riyadh changed course, and oil production in Saudi Arabia sharply increased, flooding the market with cheap oil. This caused a worldwide drop in oil prices, hence the "third oil shock" or "counter-shock." However, this shock represented something much bigger—the end of OPEC's dominance and its control over oil prices.
Iraqi President Saddam Hussein decided to attack Kuwait. The invasion sparked a crisis in the Middle East, prompting Saudi Arabia to request assistance from the United States. The United States sent a million troops to help, and by February 1991, Iraqi forces were expelled from Kuwait. Due to the oil boycott from Kuwait and Iran, oil prices rose and quickly recovered. Saudi Arabia once again led OPEC, and thanks to assistance in defending Kuwait, new relations emerged between the US and OPEC. Operation "Desert Storm" brought mutual dependence among the main oil producers. OPEC continued to influence global oil prices but recognized the United States as the largest consumer and guarantor of the existing oil security order.
The new normal (1991–2016)
Since the Iraq War, OPEC has had only a minor influence on oil prices, but it has expanded to 11 members, accounting for about 40 percent of total global oil production. This is a decline from nearly 50 percent in 1974. Oil has practically become a common commodity, leading to much more volatile prices. Most OPEC members are wealthy, and most remain dependent on oil revenues, which has serious consequences, such as when OPEC members were pressured by the price collapse in 1998–1999.The United States still maintains close relations with Saudi Arabia. In 2003, U.S. forces invaded Iraq, intending to remove the dictatorship and gain access to Iraqi oil reserves, giving the United States greater strategic importance from 2000 to 2008. During this period, there was a constant shortage of oil, but its consumption continued to rise, maintaining high prices and leading to concerns about "peak oil".
From 2005 to 2012, there were advances in oil and gas extraction, leading to increased production in the United States from 2010. The USA became the leading oil producer, creating tension with OPEC. In 2014, Saudi Arabia increased production to push new American producers out of the market, leading to lower prices. OPEC then reduced production in 2016 to raise prices, further worsening relations with the United States.
By 2012, only 7% of the world's known oil reserves were in countries that allowed private international companies free rein; 65% were in the hands of state-owned companies that operated in one country and sold oil to multinationals such as BP, Shell, ExxonMobil and Chevron.
Manufacturing
Down through the 1930s, about 80% of the international investments by multinational corporations were concentrated in the primary sector, especially mining and agriculture. Most went to the Third World colonies. That changed dramatically after 1945 as investors turned to industrialized countries and invested in manufacturing as well as trade.Sweden's leading manufacturing concern was SKF, a leading maker of bearings for machinery. In order to expand its international business, it decided in 1966 that it needed to use the English language. Senior officials, although mostly still Swedish, all learned English, and all major internal documents were in English, the lingua franca of multinational corporations.