A relatively small number of multinational companies and organisations account for a significant proportion of all trade. The organisation of multinational enterprises varies, although there are certain common structures and issues.
A national, multinational enterprise consists of a firm established in one country with wholly owned subsidiaries or with branches in other countries. An international multinational enterprise comprises several different firms in different countries that co-own businesses in a number of countries.
Many parent companies of the former national multinational type firm are located in the United States, Europe or Japan. They include large motor companies, Ford, Daimler Chrysler, and Mitsubishi Group.
The principal Ford company is incorporated in the United States. It has subsidiaries and branches in various other countries throughout the world.
Daimler Chrysler resulted from the merger of Daimler Benz, and Chrysler, which are, respectively, major German and US groups. The head company is a German company. The North American business is run as a division of the parent. Its own subsidiaries and undertake various related activities.
No Dominant Parent
The Mitsubishi Group consists of about 40 entities without a parent. Each controls a portion of the shares in others.
There is no holding company. The group operates under the direction of three principal sister companies, the Mitsubishi Corp, Mitsubishi Heavy Industries and Mitsubishi Bank. The senior executives of the three entities act as a coordinating Board.
International multinational enterprises may have several parents in different states. Examples include the Royal Dutch Shell Group, Reed Elsevier and Unilever.
Unilever combines the Dutch and British parents, which have subsidiaries in many states. There is an equalisation agreement incorporated into the memorandum and articles of both.
It provides that the Boards of each parent are made up of the same parties and guarantees equal treatment. There are structures to ensure this continued identity of management and equality.
Royal Dutch and Shell Group is an oil and gas company with British and Dutch parents. The parents jointly own two holding companies that in turn, own the subsidiaries. The two holding companies have some common directors, and they are managing directors of the entire group.
Reed International and Kelsey are incorporated in the UK and Elsevier NV is incorporated in the Netherlands. Each owns 50% of the shareholding of Reed Elsevier plc, which is the holding company which owns the principal entities within the group.
Mode of Presence
A branch is part of a company established in another country. Typically, there is an operation which is in a position to conduct business on its own account. The authority of the local branch management is delegated by the principal part of the company.
An agent is a representative of a firm in a local territory. The parent firm is the principal for the purpose of agency law. Branches and agents are subject to local laws in the conduct of their operations in the host state.
A subsidiary is an independent corporation established in the host state. The establishment of the subsidiary insulates the parent from liability.
A joint venture is an association of persons or companies in business for a temporary purpose. It may be in any business form allowed in the local jurisdiction. It may centre on a corporate in which various parties have shares with an underlying shareholding agreement. Alternatively, it may be comprised in an agreement without a separate corporation.
Conventions Affecting MNCs
The OECD and International Labour Organisation have promoted rules for the ethical behaviour of international multinational enterprises.
The OECD Convention on Combating Bribery of foreign public officials in international business transactions has legal force. States are required to outlaw acts of bribery of officials in third countries. It must be a crime for individuals or others to bribe or attempt to bribe foreign officials.
The payment of bribes in itself that are solicited is not prohibited under the Convention. It may be and usually is an offence in itself.
The International Organisation for Standardisation (ISO) has promoted guidelines for social responsibility. The guidance is voluntary.
MNCs & Local Laws
For the most part, regulation of multinationals is a matter of local law. The home state regulates the parent companies and the host state regulates the subsidiaries and branches. In some cases, the home states may purport to regulate certain aspects of the foreign subsidiaries and branches by way of extraterritorial law.
Generally, host states regulate multinational enterprises in much the same way as their own domestic business. The host state may attempt to different extents to make the foreign parent company responsible for the subsidiary or branch.
A company which incorporates a subsidiary or a foreign company obtaining a certificate to do business in the host state generally submits that company to the host state’s jurisdiction in relation to general regulatory matters. A subsidiary is fully subject to local law.
Doing business within the state will generally be a sufficient basis to consent to local law applying. If a foreign entity conducts business in the state through an agency by soliciting business or engaging in regular activity to make a profit, this is likely to bring it within the scope of the host state’s jurisdiction.
US Competition Laws
The EU legislation on competition law is dealt with extensively elsewhere in this work. The European Court of Justice and European Commission apply EU competition law to businesses in foreign states to the extent that they have an effect on trade or commerce within the EU. This is broadly similar to the US position.
The US laws are broadly analogous to the EU and Irish competition legislation. They are enforced by civil and criminal sanctions as well as by private legal actions for damages or exemplary (multiples of loss) damages.
The US fair competition laws purport to extend to international commerce affecting the US states. Section 1 of the Sherman Antitrust Act 1890 prohibits contracts, agreements and conspiracies that restrain interstate trade or international trade. The courts will consider on a case-by-case basis whether an apparent restraint is justifiable.
Certain types of agreements are automatically invalid, including most price-fixing, vertical price-fixing, horizontal market divisions and refusals to deal. In other cases, it is considered on a case-by-case basis or under a so-called rule of reason whether the restriction is an unreasonable restraint of trade having regard to the alleged justifications for it, in the circumstances.
Section 2 of the Act prohibits monopolies and attempts to monopolise commerce or trade between states or in international commerce affecting the United States. It effectively comprises abuse by a dominant firm of its position. This may include discriminatory pricing, dumping and unreasonable clauses in a contract.
There is a treble damage provision by which private persons may recover damages for injuries suffered. Treble damages can be up to three times the actual compensation.
Scope of US Rules
National regulations deal with key matters such as competition, trading standards, defective products, regulation of securities, labour and employment, accounting and taxation. Most states do not purport to apply their law outside their territory. The United States has gone further than most other states in purporting to extend laws outside its jurisdiction.
As with US federal law generally, jurisdiction may extend to persons with sufficient contact with the state. Jurisdiction may be allowed over entities which transact business in the relevant US jurisdiction.
Accordingly, a person conducting business with the United States, even without a presence in it, may be subject to the court\’s jurisdiction. The courts will assume jurisdiction if the business activity affects US commerce and is not minimal.
Some states have objected to the purported extension of competition law to foreign entities not established in the US or EU on international law grounds that it is inconsistent with the sovereignty of foreign states. Diplomatic protests have arisen in respect of the US Antitrust Law.
Some states have passed legislation designed to prevent the discovery and taking of evidence of documents outside the US for investigations within the US. They have sought to make it difficult for a successful plaintiff to assert judgment outside the US or may allow defendants to recover damages they have had to pay within the US, in their home state.
States have been prepared to grant injunctions to prevent their nationals from instituting Antitrust Law private suits within the US, which purports to have effect outside of the US.
US Product Liability
The US common law imposes strict liability in relation to the sale of defective products which are unreasonably dangerous to the user or consumer or his property subject to certain conditions. The US courts have been willing to apply their laws outside of their state.
Courts may assume jurisdiction if the defendant has deliberately availed of doing business in the particular jurisdiction and could reasonably have anticipated that it would have to defend itself there. If he has these minimum contacts, he may be subject to US jurisdiction. The court considers both the interests of the parties and public interest factors in considering whether it will extend jurisdiction against non-established nationals.
The US has enacted the Foreign Corrupt Practices Act. This seeks to strike at corruption by American companies abroad. It is an offence knowingly to bribe a foreign official or canvas political office.