Why Are Multinational Organizations Relocating Parts Of Their Corporate Headquarters

This topic explores the argument that manufacturing organizations are more likely to diversify their investments into international countries where labor cost are low, or the organization has low uncertainties about raising labor cost. Fisch, and Zschoche (2012) argues that, “manufacturing firms are more likely to erect subsidiaries exogenous of the host country’s firm when their assets and invest portfolios are exclusive or synergistic to overseas resources” (p. 1542). Six hypothesis were developed to test these arguments.

When a company decides that it is time for it to grow from a national into a multinational company (MNC) there are cost and benefits involved. A multinational corporation is a company that has productive assets, which they own and control in countries other than their own. An MNC is unlike an enterprise, which exports products and services, but the MNC directly invests into developing countries, where it can benefit from producing products at a lower cost, while increasing its market share. Whether this has a positive or a negative impact for the company and its host state, is dependent on the

Regarding location, companies going offshore must use the Porter's Five Forces model. A location where the threat of buyers, threat of new entrants, threat of rivalry, threat of substitutes and threat of suppliers are all low would be an ideal place to do business and exploit opportunities. The choice of country will be based on the efficiencies or competitive advantages it can gain from being located in that country. These include proximity to market, cheaper labour costs, production efficiencies, etc (FITT, 6th ed). In addition, if the country has trade or economic sanctions, is politically instable, has high tax rates, inadequate transportation systems and undeveloped banking systems, firms should consider going into other markets.

What the author, Pat Regnier, is saying in his work “Everything You Need to Know About Companies Leaving America for Taxes” is that large American companies are abandoning their American domain and hanging Uncle Sam out to dry just to save on tax cuts. To be more direct, the author argues that these companies are taking over smaller corporations where tax rates are lower than in the US. They do this over and over again till they find a suitable location to “safely”escalate their profits. He writes, “The large American company is now a foreign one, and taxed accordingly.” In this section of the author’s argument, Pat is suggesting that there is a “loophole” in the American tax system and it is creating all kinds of havoc, domestically and abroad. Putting it all together, the author`s belief is even though outsourcing is attractive, it is equally chaotic as it is beneficial.

Discuss at least two (2) strategies that multinational corporations (MNCs) can undertake in order to make

Further, the managers of a subsidiary located in a strong uncertainty avoidance society can be expected to create more slack in preparing budgets as a method of dealing with future uncertainty, compared to managers of a subsidiary located in a weak uncertainty avoidance society. In implementing multinational strategy it is important to ensure that the managers and other members of foreign subsidiaries are motivated to behave in accordance with corporate goals. However, people from different cultural backgrounds may respond differently, for example, to financial incentives.

The first topic to be discussed is the idea of globalization. Merriam Webster online defines globalizing as “to make worldwide in scope or application.” Globalization is an important aspect in expanding an organization. Swanson and Holton (2009) state “Multinational companies are taking advantage of economies of scale and scope, proximity to markets and suppliers, and differences in the natural, political, and human resource-related infrastructure in countries around the world in order to achieve and maintain competitive advantage” (p. 421). It is more beneficial for companies to expand globally than to try to continue increasing profits just within their country. Eventually, they will reach a maximum profit that they can make unless they decide to globalize their organization.

The objective of MNC to operate in other countries is to gain competitive advantage through several ways. Firstly, MNC is able to take advantage of difference in country-specific circumstances. For example, MNC may choose to locate its productions in less developed country like Vietnam to gain cheap labor cost. Secondly,

Click and Harrison (2000), for instance, followed the financial performance of over 3000 US firms over a 14-year period to provide empirical evidence that an increase in the extent of multinational operations of US corporations actually brought about erosion in their value. Their arguments, however, are based only on an accounting and economics-based perspective and do not take into account the strategic compulsions due to which MNEs might often be constrained to accept such costs in order to follow their rivals into foreign markets due to oligopolistic rivalry. The financial issue of firm value thus cannot be divorced from the strategic issue of foreign market entry. This paper seeks to examine LOF through the relatively underexplored lens of strategic management, departing from the usual transaction-cost economics perspective, because it enables a more realistic and continuous appraisal of the effect of the IBE on MNE operations. Anecdotal evidence also abounds about such costs, with even established MNEs often incurring huge losses in their foreign operations. Ricks (1993) and Knight (1995), for instance, provide lucid accounts of blunders in international business. However, do those anecdotes really reinforce the LOF argument? Or, alternatively, are they getting confounded with mistakes that even domestic firms could make in their

There are many other reasons why MNE’s moves abroad or relocating their activities to another country, such as rapidly growing competition makes businesses to seek competitive advantage from the competition and secure place in the market. Consequently, multinational enterprises attempt to find a ways, such as exploiting loopholes in tax law to increase

One of the most exceptional and economic wonders of the post-war period is the growth in a new form, known as multinational enterprise or venture (Buckley 1976). Multinational Enterprise otherwise called a MNE, is characterized as the association which involves itself in investing resources in a foreign land. Also known as foreign direct investment (FDI), this venture maintains a value added activities in more than one nation or country other than its home country. Few of the professional experts distinguish MNE’s as two different types, first one being the MNE organization which manages a set of huge self-governing multi-domestic foreign subsidiaries which mainly manufactures goods solely for its local market, secondly the organizations who treat their affiliates with utmost importance as they are considered the most vital part of global network for creating assets for the organization (Dunning 2008). There are numerous conditions which the literature has acknowledged to evaluate the Trans nationality of the organizations:

Egelhoff, W. G., ‘Strategy and Structure in Multinational Corporations: a Revision of the Stopford and Wells Model’, Strategic Management Journal, vol. 9 (1988), pp. 1–14.

Although there are a number of advantages to the increasing trend within business to decentralize and set up multiple headquarters throughout diverse parts of the world, there are several inherent drawbacks to this process that should ideally be avoided. A prudent analysis of both of these factors indicates that it is more advantageous to become a multi national company that not particularly if one does so in a way that is prudent.

The problem of taxation of international businesses was noticed in the 1920s. It was noted that interaction of domestic tax system of two different countries can result in double taxation and in such way negatively affect growth of global economy. International laws were introduced in order to avoid double taxation and support global economy. However nowadays in a much more globalized economy, such international rules create opportunities to minimize or avoid paying taxes in both of the countries the business is established. The states that decided to provide such opportunities are now known as “ tax havens”

Nowadays, Transfer Pricing has been the most issue in International Taxation area. The activity of Multinational Enterprises (MNEs) which represents a growing proportion of international trade may significantly lead to Transfer Pricing practice, in particular within intra-group transaction where income can be shifted from high-tax jurisdiction to low-tax jurisdiction. Therefore, it is no doubt that such behavior may lead to tax base erosion.