Governance Institutions and Outcomes
- New Directions in Modern Economics series
Edited by Mehmet Ugur and David Sunderland
Chapter 5: Strategies of Transnational Companies in the Context of the Governance Systems of Nation-states
1 Grazia Ietto-Gillies INTRODUCTION The transnational or multinational companies (TNCs or MNCs) are much talked about as if they were a totally different type of institution from the normal company or firm.2 Are they? And if they are, what makes them so? The distant antecedents of the transnational company can be dated back centuries to the Medici Bank in Renaissance Florence or to the trading companies from Northern Europe in the seventeenth and nineteenth centuries. Many business historians (Cox, 1997; Jones, 2002) agree that the main factor that led to the development of the TNC was the formation of joint stock companies. Nonetheless a TNC is not just another joint stock company. What are the key elements that make a company a TNC? The defining element is operations across frontiers. But not just any type of cross-border operations. Imports and exports on their own are not operations that identify a company as a TNC. The specific characteristics that identify the TNC are: (1) ownership of assets abroad leading to (2) direct business operations; and (3) the ability to control those operations. Control has two main connotations in the context of a TNC. The first connotation is the equity stake in the foreign enterprise. What percentage of the foreign assets must be owned by the main company for the latter to have control? The International Monetary Fund (1977) guidelines set a minimum of 10 per cent. Equity control is a necessary condition but not a sufficient condition to ensure control of...
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