Indice
Technological innovation and the skilful use of regulatory leverage have greatly facilitated the internationalisation processes of companies, whose power depends not only on their production capacity, but also, and now perhaps above all, on the trade, corporate and financial relations that ensure their integration – albeit in a fragmented manner – in global markets.
The term ‘multinational’ refers to a firm that organises and coordinates activities across national borders[i]. Another very effective definition considers the multinational in the modern sense as ‘integration of fragmentation’[ii]. Economic theory has only recently started to address this issue, starting in the 1960s, around a century later than the large-scale emergence of this new economic player in globalised markets.
The United Nations Conference on International Trade and Development (UNCTAD) proposes the following definition: ‘A firm that has at least one subsidiary abroad, in which it owns at least 10 per cent of the capital and over which it exercises control’[iii]. The control and shareholding of companies when identifying the multinational shows how, from a legal standpoint, the internationalisation of firms passes through the group model, namely, the organisation and management of the firm through a number of affiliated companies.
An important economic indicator of the link between the development of multinationals and the use of subsidiaries is the Foreign Direct Investment (FDI) that a market operator makes in a country other than the one in which the management centre of its activity (the holding company) is located. The investment is carried out through acquiring stakes in the company that is to be controlled abroad (Brownfield FDI or M&A), or through the creation of a subsidiary in the country in which it is to be established (Greenfield FDI); this is to allow the ‘parent’ company to be able to exercise the direction and management powers of the investee or incorporated company.
Global market integration has increasingly been driven by FDI through international corporate mergers and acquisitions.
FDIs can take the form of horizontal or vertical investments. The former consists of the transfer of capital, technology and more generally of the factors that enable production to take place locally in order to satisfy the local market; this strategy is defined as anti-trade as it eliminates the need for exportation. Conversely, vertical investments occur when the firm’s internationalisation process entails the delocalisation of the various production stages, whose goods, it should be noted, are not intended to be consumed where they are produced but are intended to meet the consumption needs of other countries. For this reason, this form of FDI is considered to be pro-trade, i.e. it stimulates international trade. This latter type of direct investment has developed considerably since the second half of the 1990s, resulting in large-scale production relocation plans.
In this respect, international intra-group trade represents a sub-category of FDI.
The control of foreign activities as an alternative to contractual transactions with firms operating in the foreign territory meets the need to ensure that the various phases of the production process are managed through a number of affiliated and/or subsidiary companies. The ‘unitary’ management of the firm activity is severed from the territory, becoming independent from it and company policy is designed with a view to a ‘virtual’ amalgamation of places and functions.
[i] See Andrea Goldstein and Lucia Piscitello, Le multinazionali [Multinationals], Il Mulino, Bologna, 2007, p. 9.
[ii] See Giovanni Balcet, Economia dell’impresa multinazionale, [Economics of the multinational firm] Giappichelli, Turin, 2009, Introduction.
[iii] Ibid, p. 9.