Explain why and how firms become multinational enterprises Essay

Explain why and how firms become multinational enterprises - Essay Example re than one country and so linked that they may co-ordinate their operations in various ways† (OECDS, 2008, p.12) It is the most common way among several by which foreign direct investments are transmitted outward by the home country, or invested inward into the host country. At times multinational firms are described in terms of equity proportion; some jurisdictions peg a multinational as one whose voting rights are 10% owned and controlled by a foreign entity; other dispensations say 50%. The OECD definition is thus an interesting one in that it specified no ownership proportion, but stresses the operational link among internationally engaged organizations in different countries. These internationally engaged firms are systematically different from those domestically oriented; they are as a rule larger and have a more complex organizational structure and processes. Multinationals are thus more complex to manage (Yeaple, 2009). A multinational enterprise (MNE) is, simply put, a business organization the operations of which spans different countries and is intricately linked to its subsidiaries or other subsidiaries of the same mother firm. Therefore, what then makes a firm into an MNE is the nature of its activities, that its activities are geographically expanded across borders under a common ownership. There are times when a stage of the firm’s operations is intended to be performed in another country, for any number of reasons such as greater cost-effectiveness or locating closer to raw material or human resources. But rather than outsourcing that stage of operations to another, domestic, firm, the company instead sets up its own subsidiary or unit in that country to perform that stage of the operations. There are several ways how a company can internationalize its operations: In all these methods, a substantial amount of long-term funds is committed in the productive activity, which infusion is called the foreign direct investment, or FDI. Forms