MULTINATIONAL CORPORATION

Introduction
A multinational corporation/ company is an organization doing business in more than one
country. Transnational company produces, markets, invests, and operates across the world. It
is integrated global enterprise which links global with global market at profit. These
companies have sales offices and/ or manufacturing facilities in many countries. A
corporation (!"# engages in various activities like e$porting, importing, manufacturing in
different countries. !"s have worldwide involvement and global perspective in its
management and decision% making
.&.!"s consider opportunities throughout the globe through they do the business in a few
countries.
'.!"s invest considerable portion of their assets internationally.
(.!"s engage in international production and operate plants in the number of countries.
).!"s take managerial decision based on a global perspective. The international operations
are integrated into the corporations overall business.
!"s are huge industrial/ business organizations. They e$tend their industrial/ marketing
operations through a network of branches or their ma*ority owned foreign affiliates. !"s
produce the products in one or few countries and sell them in most of the countries.
Transnational corporations produce the products in each country based on the specific needs
of the customers of that country and market these. A transnational corporation mostly uses the
inputs of the host country where it operates unlike a multinational company. +arge
corporations having investment and business in a number of countries, knows by various
names such as multinational corporations, international corporations and global corporations
have become
a very powerful driving force at the world,s economy.
Strategies
"orporations may make a foreign direct investment. -oreign direct investment is direct
investment into one country by a company in production located in another country either by
buying a company in the country or by e$panding operations of an e$isting business in the
country.
&
A subsidiary or daughter company is a company that is completely or partly owned and
wholly controlled by another company that owns more than half of the subsidiary.s stock.
/01/&21
A corporation may choose to locate in a special economic zone, which is a geographical
region that has economic and other laws that are more free%market%oriented than a country.s
typical or national laws.
Business Strategy3 global profit ma$imization
According to 4oward 5erlmutter (&060#73
ultinational companies may pursue policies that are home country-oriented.
or host country-oriented or word-oriented. 5erlmutter uses such terms as ethnocentric,
polycentric and geocentric.4owever, 8ethnocentric8 is misleading because it focuses on race
or ethnicity, especially when the home country itself is populated by many different races,
whereas 8polycentric8 loses its meaning when the !"s operate only in one or two foreign
countries.
According to -ranklin 9oot (&00)#, an !" is a parent company that
&. engages in foreign production through its affiliates located in several countries,
'. e$ercises direct control over the policies of its affiliates,
(. implements business strategies in production, marketing, finance and staffing that
transcend national boundaries (geocentric#.
In other words, !"s e$hibit no loyalty to the country in which they are incorporated
Three Stages of Evolution
1. Export stage
initial in:uiries ;< firms rely on e$port agents
e$pansion of e$port sales
'
further e$pansion = foreign sales branch or assembly operations (to save transport
cost#
2. Foreign Production Stage
!"I #ersus Licensing
>nce the firm chooses foreign production as a method of delivering goods to foreign markets,
it must decide whether to establish a foreign production subsidiary or license the technology
to a foreign firm.
Licensing
+icensing is usually first e$perience (because it is easy#
e.g.3 ?entucky -ried "hicken in the @.?.
it does not re:uire any capital e$penditure
it is not risky
payment ; a fi$ed A of sales
5roblem3 the mother firm cannot e$ercise any managerial control over the licensee (it
is independent#
The licensee may transfer industrial secrets to another independent firm, thereby
creating a rival.
Direct Investment
It re:uires the decision of top management because it is a critical step.
it is risky (lack of information# (@B %< "anada#
plants are established in several countries
licensing is switched from independent producers to its subsidiaries.
e$port continues
3. Multinational Stage
The company becomes a multinational enterprise when it begins to plan, organize and
coordinate production, marketing, 9CD, financing, and staffing. -or each of these operations,
the firm must find the best location.
(
Rue o$ Thum%
A company whose foreign sales are 'EA or more of total sales. This ratio is high for small
countries, but low for large countries, e.g. !estle (0FA3 Dutch#, 5hillips (0)A3 Bwiss#.
G$amples3 anufacturing !"s
') of top fifty firms are located in the @.B.
0 in Hapan
6 in Iermany.
5etroleum companies3 6/&2 located in the @.B.
-ood/9estaurant "hains. &2/&2 in the @.B.
@B ultinational "orporations G$$on, I, -ord, etc
Conflict of laws
"onflict of laws is a set of procedural rules that determines which legal system and
which *urisdiction.s applies to a given dispute.
The term conflict of laws itself originates from situations where the ultimate outcome of a
legal dispute depended upon which law applied, and the common law courts manner of
resolving the conflict between those laws. In civil law, lawyers and legal scholars refer to
conflict of laws as private international law. 5rivate international law has no real connection
with public international law, and is instead a feature of local law which varies from country
to country.
The three branches of conflict of laws are
Hurisdiction J whether the forum court has the power to resolve the dispute at hand
"hoice of law J the law which is being applied to resolve the dispute
-oreign *udgments J the ability to recognize and enforce a *udgment from an e$ternal
forum within the *urisdiction of the ad*udicating forum.
Ilobalization
ultinational corporations are important factors in the processes of globalization. !ational
and local governments often compete against one another to attract !" facilities, with the
e$pectation of increased ta$ revenue, employment, and economic activity. To compete,
political powers push towards greater autonomy for corporations, or both. !"s play an
)
important role in developing the economies of developing countries like investing in these
countries provide market to the !" but provide employment, choice of multi goods etc.
>n the other hand, economist Hagdish Khagwati has argued that in countries with
comparatively low labor costs and weak environmental and social protection, multinationals
actually bring about a .race to the top.. Lhile multinationals will certainly see a low ta$
burden or low labor costs as an element of comparative advantage, Khagwati disputes the
e$istence of evidence suggesting that !"s deliberately avail themselves of la$
environmental regulation or poor labor standards. As Khagwati has pointed out, !" profits
are tied to operational efficiency, which includes a high degree of standardisation. Thus,
!"s are likely to adapt production processes in many of their operations to conform to the
standards of the most rigorous *urisdiction in which they operate (this tends to be either the
@BA, Hapan, or the G@#. As for labor costs, while !"s clearly pay workers in developing
countries far below levels in countries where labor productivity is high (and accordingly, will
adopt more labor%intensive production processes#, they also tend to pay a premium over local
labor rates of &2 to &22 percent. -inally, depending on the nature of the !", investment in
any country reflects a desire for a medium% to long%term return, as establishing plant, training
workers, etc., can be costly. >nce established in a *urisdiction, therefore, !"s are
potentially vulnerable to arbitrary government intervention such as e$propriation, sudden
contract renegotiation, the arbitrary withdrawal or compulsory purchase of licenses, etc.
Thus, both the negotiating power of !"s and the .race to the bottom. criti:ue may be
overstated, while understating the benefits (besides ta$ revenue# of !"s becoming
established in a *urisdiction.
!e$inition
An enterpriseoperating in several countries but managed from one (home# country. Ienerally,
any company or group that derives a :uarter of its revenue from operations outside of its
home country is considered a multinational corporation.
E
There are four categories of multinational corporations3
(&# a multinational, decentralized corporation with strong home country presence,
('# a global, centralized corporation that ac:uires cost advantage through centralized
production wherever cheaper resources are available,
((# an international company that builds on the parent corporation.s technology or 9CD, or
()# a transnational enterprise that combines the previous three approaches. According to @!
data, some (E,222 companies have direct investment in foreign countries, and the largest &22
of them control about )2 percent of world trade.
Mutinationa Cor&orations ' Characteristics And Signi$icance O$ Mncs
6
ultinational "orporations (ncs In Bhort# Are Also ?nown As Transnational "orporations
(Tncs#, Buper !ational Gnterprises, Ilobal "ompanies, "osmocorps And Bo >n.
According To 5rof. Hohn 4. Dunning, 8A ultinational Gnterprise Is >ne Lhich @ndertakes
-oreign Direct Investment, I.G., Lhich >wns >r "ontrols Income Iathering Assets In ore
Than >ne "ountryM And In Bo Doing 5roduces Ioods >r Bervices >utside Its "ountry >f
>rigin, I.G., Gngages In International 5roduction.8
A ultinational "orporation 4as Also Keen Defined As 8An Gnterprise3 Lhich >wns
And/>r "ontrols 5roducing -acilities In ore Than >ne "ountry Buch As -actories, ines,
>il 9efineries, Distribution "hannels, >ffices, Gtc.8.
According To Another Definition, 8Any Kusiness "orporation In Lhich >wnership,
anagement, 5roduction And arketing G$tend >ver Beveral !ational Hurisdictions Is
"alled A ultinational "orporation.8 Today, In International Gconomic Affairs They
"onstitute The ost Important Institutions. There Are -our 5articipants In The Drama >f
ultinationals. -irst, The ncs ThemselvesM Becondly, The 4ost "ountries M Thirdly, The
4ome "ountries M And -ourthly, The International "ommunity.
Characteristics o$ mutinationa cor&orations (MNCs)'
The multinational corporations have certain characteristics which may be discussed below 3
(*) +iant Si,e '
The most important feature of these !"s is their gigantic size. Their assets and sales run
into billions of dollars and they also make supernormal profits. According to one definition
an !" is one with a sales turnover of f &22 million. The !"s are also super powerful
organisations. In &0N& out of the top ninety producers of wealth, as many as '0 were !"s,
and the rest, nations. Kesides the operations, most of these multinationals are spread in a vast
number of countries. -or instance, in &0N( out of a total of (,222 firms identified nearly )E
per cent had affiliates in more than '2 countries.
(-) Internationa O&eration '
N
A -undamental feature of a multinational corporation is that in such a corporation, control
resides in the hands of a single institution. Kut its interests and operations sprawl across
national boundaries. The 5epsi "ola company of the @.B operates in &&) countries. An !"
operates through a parent corporation in the home country. It may assume the form or a
subsidiary in the host country. If it is a branch, it acts for the parent corporation without any
local capital or management assistance. If it is a subsidiary, the ma*ority control is still
e$ercised by the foreign parent company, although it is 8 incorporated in the host country. The
foreign control may range anywhere between the minimum of E& per cent to the full, &22 per
cent. An !" thus combines ownership with control. The branches and subsidiaries of
!"s operate under the unified control of the parent company.
(.) Oigo&oistic Structure '
Through the process of merger and takeover, etc., in course of time an !" comes to assume
awesome power. This coupled with its giant size makes it oligopolistic in character. Bo it
en*oys a huge amount of profit. This oligopolistic structure has been the cause of a number of
evils of the multinational corporations.
(/) S&ontaneous 0#oution '
>ne thing to be observed in the case of the !"s is that they have usually grown in a
spontaneous and unconscious manner. Oery often they developed through 8"reeping
incrementalism.8 any firms become multinationals by accident. Bometimes a firm
established a subsidiary abroad due to wage differentials and better opportunity prevailing in
the host country.
(1) Coecti#e Trans$er o$ Resources '
An !" facilitates multilateral transfer of resources @sually this transfer takes place in the
form of a 8package8 which includes technical know%how, e:uipment.s and machinery,
materials, finished products, managerial services, and soon, 8!"s are composed of a
comple$ of widely varied modern technology ranging from production and marketing to
management and financing. K.!. Ianguly has remarked in the case of an !I 8resources
are transferred, but not traded in, according to the traditional norms and practices of
international trade.8
(2) American dominance '
F
Another important feature of the world of multinationals is the American dominance. In
&0N&, out of the top 'E !"s, as many as &F were of @.B. origin. In that year the @.B. held
E' per cent of the total stock of direct foreign private investment. The @.G. has assumed more
of the role of a foreign investor than the traditional e$porter of home products.
Signi$icance o$ mutinationa cor&orations (MNCs)'
The multinational corporations today have a revolutionary effect on the international
economic system. It is so because the growth of international transactions of the
multinationals has affected the more traditional forms of capital flows and international trade
for many economies. Today they constitute a powerful force in the world economy.
The value of the products sold by the !"s in &0N& was more than P E22 billion which was
about one%fifth of the I!5 of the entire world, e$cepting that of socialist economies. In the
host countries, the volume of their production was about P ((2 billion. The present growth
rate of their output in the host countries is a spectacular &2 per cent per annum which is
almost double the growth rate of the world I!5.
In the field of international trade and international finance, the multinational firms have come
to e$ercise enormous power. In early seventies the !"s accounted for about one%eighth of
all international trade% -rom the nature of their growth it may be presumed that in the early
eighties their share will rise to one%fourth.
Among the developing countries only India had an annual income twice that of Ieneral
otors, which is the biggest multinational corporation. >therwise the annual income of the
other less developed countries is much less than that of the giant !"s. Ky their sheer size
the !Is can disrupt the economies of the less developed countries, and may even threaten
their political sovereignty.
Le may comprehend the relative economic power of the !"s vis%a%vis the nation%states by
ranking them together according to gross annual sales and gross national product
respectively. As +ester 9. Krown has shown, out of &22 entries in the merged list E6 were
nation%states and as many as )) were !"s.
According to one estimate by early eighties some (22 large !"s will come to control NE
per cent of the world.s manufacturing assets.
0
Ad#antages O$ Mutinationa Com&any'-
The ultinational "orporations have been observed as the instrument of development in the
developing states for e$ample !ational 5etroleum "onstruction "ompany !55" has been
awarded contract of laying transmission line in ?uwait. -ollowing are the important
advantages of !"s.
Globalization
The first advantage of ultinational "orporations !"s is that they work for the
globalization and went to give global village shape to the whole world. -or e$ample, shell
works nearly in &(' states of the world that has integrated the 4olland, with the host
countries because in millions the employees are paid by the shell that simply means that they
are the citizen of 4olland, because 4olland cant not provide here own citizen to all these &('
states of the world.
If shell has been closed million employees will become *obless and due to this billion of
families will be affected. Thus it means that from only one !"s (Bhell# billion of people
are taking advantages and the same is the case of the other !"s also.
Increase world dependency
The most important advantage of !"s is that it increasing the dependency of world
countries over each other due to that they become friends of each other.
No war
!"s also plays very important role in the maintenance of world peace. -or e$ample there
are a lot of Iermany and -rench !"s that are working in Iermany and -rench, they will
always try to focus on friendly and good relationship and boost their economies.
Integration of world mind
>ne of the most significant role of ultinational "orporation is unification of world mind
and have become successful in this regard. Through out the globe, instead of domestic goods,
imported products are used. It means that the !"s have made the world as a global village.
&2
Mixture of whole world culture
Due to its comprehensiveness throughout the world, different states of the world i.e. their
cultures and civilization have become amalgamated with each other. -or e$ample Kritish
ladies and male like uslims clothes and their civilization while on the other hand uslims
wants to wear Kritish clothes and caps etc. Bo we can say that it is all due to the role of
!"s.
Transfer of technology
!"s also have played and are playing a contributing role in the transfer of highly
sophisticated technology from the developed countries of the world to the less developed
countries of the world to the less developed countries, especially to third world countries.
Economic growth
In some countries where neither domestic investment nor foreign economic aid is available in
sufficient :uantities for repaid development, the help of foreign firms, companies and
enterprises is sought for capital to speed up the process. 5rivate foreign capital can be ma*or
stimulus to the economic growth of under developed countries.
Job opportunities
In countries where unemployment is a ma*or problem foreign corporations or firms provide
great opportunities to the local people. Bince, it is too e$pensive to import large number of
skilled labours from abroad or from the home country. The foreign investors find it cheaper to
train unskilled labours needed by the enterprise.
MNCs produce more and better products
!"s produce more and better products at lower costs because they establish their plants in
those countries where they can draw resources easily.
orld modernization
!"s are regarded as agents of world modernization in the developing countries. They
produce new *obs, introduce new technology, and train the local people in the art of science
and technology.
&&
MNCs brings foreign exchange
Another most important advantage of !"s is that it brings foreign e$change to developing
countries because in developing countries, the rate of saving is very low.
MNCs ta!e economic ris!
Another important advantage of !"s is that it takes economic risk in business in
developing countries because they have financial powers and developing or third world
countries are not in such a position to take economic risk.
!isad#antages O$ Mutinationa Com&any
(*) 3igh Pro$it Low Ris4 In#estment'
&'
The multinational company prefer to invest in areas of low risk and high profitability. Issue
like social welfare, national priority etc. have less priority on their agenda. ostly they invest
in consumer goods industry.
(-) Inter$erence in Poitica Matters'
The multinational company from developed countries interfere in the political affairs of
developing nations. There are many cases where multinational company has bribed political
leadership for their own economic gains.
(.) Create Arti$icia !emand'
These companies create artificial and unwarranted demand by making e$tensive use of
advertising and ales and promotion techni:ues.
(/) 05&oitation'
These companies are financially very strong and adopt aggressive marketing strategies to sale
their products, adopt all means to eliminate competition and create monopoly.
(1) Technoogica Pro%em'
Technology they use is capital intensive so sometimes that technology does not fully fit in the
needs of developing countries. Also, multinational company is criticized for transferring
outdated technology to developing countries.
(2) "oreign 05change go outside the Country'
The working of multinational company is a burden on the limited resources of developing
countries. They charge high price in the form of commission and royalty paid by local
business subsidiary to its parent company. This leads to outflow of foreign e$change.
(6) Nationa Threat'
Bometimes outdated technology is used by domestic industries which hamper the :uality and
price of their products so they cannot compete with those multinational company. 4ence,
there is a threat of nationwide opposition to multinational company. Arrival of these
&(
companies creates an atmosphere of uncertainly to the domestic industries.
(7) Im&ose their Cuture'
ultinational company impose their culture on developing countries. Along with the
products they also indirectly impose the culture of developed nations. These companies have
imposed the culture of fast food and soft drinks onto the developing nations. -or e$amples3%
burger and coke.
(8) 9or4 $or Se$ Interest'
ultinational company work toward their own self interest rather than working for the
economic development of host country. They are more interested in marketing of profits at
any cost.
Mutinationa Com&anies(MNC:s) Im&act on Indian 0conomy;
!" may be defined as a company, which operates in number of countries and has
production and service facilities outside the country of its origin. They are also called Trans
!ational "ompany (T!"# Their activities have both good and bad impacts on the economy.
They take decisions on a global conte$t or basis. Their ma$imum profit ob*ectives take no
account of the reactions produced in the countries felling in their orbit. They operate in
&)
different institutionalforms Bome are3 Bubsidiaries companies wholly owned by !" in
other countriesBubsidiary company enter into *oint venture with a company another company
Agreement among companies of different countries regarding production and discussion of
market. Development and Activities3 Boon after independence foreign capital entered India in
the form of direct investments through !".s "ompanies had been formed in advanced
countries with the specific purpose of operating in India. Buch companies started their
subsidiaries, branches and affiliates in India . At times government gave some ta$ concession
to them with in the -G9A (-oreign G$change 9egulation Act# and streamlined the licensing
procedures. The purpose was to secure advanced, technical and industrial know how. During
the *anata rule the policy was outright purchase of technical know how skills and machinery.
They took two ma*or decisions. "oco cola was asked to wind up their operation . Asked IK
to reduce their foreign e:uity to )2A. They did not agree, so asked to wind up !".s operate
in several sectors like tobacco, toiletries beverages etc.
Industrial 5olicy of &00& accepted foreign investment essential for modernization
technology up gradation and industrial development. Beveral concessions were given -G9A
regulations were liberalized and permitted to use their trademarks in the domestic market.
!ow has become a wide spread phenomena with @BA the biggest among them. 9ecently a
large number of Indian brands were taken over by them some important takeovers are
Asian 5aints I"I (@?#
5remier Automobiles transferred two plants to 5eugeot (-rance#
+akeme brand by +ever.
4ero 4onda by TOB Buzuki etc.
Mncs Are Creations O$ 9eathy Countries
!ot anymore. 4istorically this has been the case, with the @nited ?ingdom and @nited Btates
in leading positions. Kut many of the newcomers are based in developing countries. -or
e$ample, Taiwan is now home to many !"s, such as computer companies Acer and itac,
that have secured high world market shares in many niche products % most notably, handy
&E
scanners (06 percent# and the 5" mouse (6( percent#. any developing%country firms that
deal in natural resources, such as 5etrobras in Krazil and ?uwait >il, have e$panded abroad
to control more of the chain of supply and get closer to consumers. -or instance, 5etroleos de
Oenezuela owns "itgo, a leading chain of gas stations in the @nited Btates. any new forms
of multinationals are emerging % such as the family empires of the overseas "hinese % that add
further variety to the stew of organizational forms now represented by the multinationals.
Iovernments in some of the smaller countries now find that they must contend with both
host%and home%country influences in their negotiations with !"B.
Mncs Are Beyond +o#ernment Contro
Absolutely not. The relationship between governments and multinationals is characterized by
a comple$ distribution of benefits. ultinational corporations increasingly demand the
8freedom8 they need to optimize their operations across borders, with the goal of lowering
their total costs and continuously upgrading :uality. Their key bargaining chip in dealing with
host governments is that they have the option not to invest. Kut once multinationals enter a
country, they are, to some degree, locked in by the commitments that they have made to
develop local operations and provide *ob training. ultinationals need access to local skills
and other resources such as hotspot clusters. 4ost governments need !"B to act as agents
in building competitiveness and trade.
Instead of engaging in adversarial bargaining about the distribution of wealth, both sides have
a strong incentive to work on building partnerships that create wealth in the first place. The
growth of 8welcome%mat8 investment incentives % ta$ breaks, investments grants, sometimes
even preferential access to capital and guarantees of e$clusive market rights % is one indicator
of the sea change in government thinking. Iovernments would do well to employ officials
who not only understand the economics of traditional market structures but also the
managerial forces that change those structures. In addition, more vigorous intergovernmental
collaboration is needed to strengthen institutions such as the Lorld Trade >rganization.
5olicymakers urgently need a new mindset if they are to maintain a reasonable e:uity in the
balance of power among states, firms, and consumers. Hust as domestic banks re:uire
regulatory institutions that restrain their speculative instincts, !"B re:uire regulatory
mechanisms that check their instincts to put profit above all else. The challenge is to maintain
fairness without sabotaging the innovation engine that drives both new and old !"B and
creates new wealth. "onsumers and governments can no longer rely e$clusively on market
&6
mechanisms to rein in multinationals, nor can they blindly trust e$ecutives in the boardroom
to do the 8right thing
MNCs Are< "irst and "oremost< Creatures o$ Their 3ome Countries;
!ot always. ost people assume that the home country always gets first priority whenever
!"B have to make hard choices3 If faced with a downturn in the market, multinationals
will close facilities abroad to protect those at home. Qet Hapanese !"B have strived to
remain competitive by developing lower%cost capacity in facilities abroad. In doing so,
corporate e$ecutives have played a role in 8hollowing out8 Hapan.s economy and have broken
with generations of tradition that put national interest above all else.
oreover, corporations now place higher priority on the innovation process % regardless of
where that process is centered % than on outdated notions of home country. Bome !"B have
developed world product mandates that farm out management authority and research%
anddevelopment leadership to foreign units. Tokyo is 8home8 to IK.s personal computers,
while Taiwan is 8home8 to 5hi Indeed, there is now widespread unease that !"s are
becoming truly 8stateless,8 acting in the interests of shareholders who are themselves
becoming globally dispersed. These concerns are amplified by the growing trend among
ma*or corporations to promote foreign nationals to top management positions. Bome -rench
and Ierman companies even use Gnglish as the lingua franca for their management
communications globally. lips. computer monitors.
&N
Ony Some Industries Are +oing +o%a
!ot anymore. A few years ago, the conventional wisdom held that many industries were
impervious to globalization, particularly those in the service sector. Qet today we find !"s
in office cleaning (International Bervice Bystems in Denmark#, dialysis treatment clinics
(-resenius in Iermany#, and fresh%food retailing (Bainsbury in the @nited ?ingdom#. There
are international operators in real estate, law, and even simple services such as ta$is and
hairdressing. In the absence of protective regulations, no sector in any country can be
confident that it will never be confronted by foreign competitors. !one of these developments
suggest that all firms must go global. Kut to survive even local businesses can (and must#
adopt global standards. A firm can be world%class in behavior without being global in its asset
disposition, provided it has a global perspective, a global information base, and the necessary
imagination to strive for continuous improvement and adapt to shifting circumstances. -or
e$ample, there are many fast%growing businesses in India % such as the luggage company OI5
% that have achieved world%class status in operational efficiency and technical proficiency and
that are run by entrepreneurs who relentlessly travel the world in search of fresh inspiration.
These firms may well be some of tomorrow.s !"s, leveraging the advantages that they
have already created at home. In many industries, the greatest challenge to purely local
businesses comes from their immediate neighbors, firms that have been faster to seize the
opportunities afforded by the information revolution and liberalization.
&F
Microso$t Cor&oration
Microso$t Cor&oration is an American multinational corporation head:uartered
in 9edmond, Lashington, that develops, manufactures, licenses, supports and sells computer
software, consumer electronics and personal computers and services. Its best known software
products are the icrosoft Lindows line of operating systems, icrosoft >ffice office suite,
and Internet G$plorer web browser. Its flagship hardware products are Rbo$ game console
and the icrosoft Burface series of tablets. It is the world.s largest software makermeasured
by revenues. It is also one of the world.s most valuable companies.
icrosoft was founded by Kill Iates and 5aul Allen on April ), &0NE to develop and
sell KABI" interpreters for Altair FF22. It rose to dominate the personal computer operating
system market with B%D>B in the mid%&0F2s, followed by the icrosoft Lindows. The
company.s &0F6 initial public offering, and subse:uent rise in its share price, created an
estimated three billionaires and &',222 millionaires from icrosoft employees. It is
considered the third most successful startup company of all time by market capitalization,
revenue, growth and cultural impact. Bince the &002s, it has increasingly diversified from the
operating system market and has made a number of corporate ac:uisitions. In ay '2&&,
icrosoft ac:uired Bkype Technologies for PF.E billion in its largest ac:uisition to date.
As of '2&(, icrosoft is market dominant in both the IK 5"%compatible operating system
and office software suite markets (the latter with icrosoft >ffice#. The company also
produces a wide range of other software for desktops and servers, and is active in areas
including internet search (with King#, the video game industry (with the Rbo$, Rbo$
(62 and Rbo$ >ne consoles#, the digital services market (through B!#, and mobile phones
(via the Lindows 5hone >B#. In Hune '2&', icrosoft entered the personal computer
production market for the first time, with the launch of the icrosoft Burface, a line of tablet
computers.
&0
9indows !i#ision< Ser#er and Toos< Onine Ser#ices !i#ision
The company.s "lient division produces the flagship Lindows >B line such as Lindows FM it
also produces the Lindows +ive family of products and services. Berver and Tools produces
the server versions of Lindows, such as Lindows Berver '22F 9' as well as a set of
development tools called icrosoft Oisual Btudio, icrosoft Bilver light, a web application
framework, and Bystem, a collection of tools providing remote%control abilities, patch
management, software distribution and a hardware/software inventory. >ther server products
include3 icrosoft BS+ Berver, a relational database management system, icrosoft
G$change Berver, for certain business%oriented e%mail and scheduling features, Bmall
Kusiness Berver, for messaging and other small business%oriented featuresM and icrosoft
KizTalk Berver, for business process management.
icrosoft provides IT consulting (8icrosoft "onsulting Bervices8# and produces a set of
certification programs handled by the Berver and Tools division designed to recognize
individuals who have a minimal set of proficiencies in a specific roleM this includes
developers (8icrosoft "ertified Bolution Developer8#, system/network analysts (8icrosoft
"ertified Bystems Gngineer8#, trainers (8icrosoft "ertified Trainers8# and administrators
(8icrosoft "ertified Bystems Administrator8 and 8icrosoft "ertified Database
Administrator8#. icrosoft 5ress, which publishes books, is also managed by the division.
The >nline Bervices Kusiness division handles the online service B! and the search
engine King. As of December '220, the company also possesses an &FA ownership of
the cable news channel B!K" without any editorial controlM however, the division develops
the channel.s website, msnbc.com, in a *oint venture with the channel.s co%owner, !K"
@niversal.
Business !i#ision
The icrosoft Kusiness Division produces icrosoft >ffice including icrosoft >ffice '2&2,
the company.s line of office software. The software product includes Lord (a word
processor#, Access (a relational database program#,
G$cel (a spreadsheet program#, >utlook (Iroupware, fre:uently used with G$change
Berver#, 5ower5oint (presentation software#, 5ublisher (desktop publishing software#
and Bharepoint. A number of other products were added later with the release of >ffice '22(
including Oisio, 5ro*ect, ap5oint, Info5ath and >ne!ote. The division also
develops enterprise resource planning(G95# software for companies under the icrosoft
Dynamics brand. These include3 icrosoft Dynamics AR, icrosoft Dynamics
!AO, icrosoft Dynamics I5, and icrosoft Dynamics B+. They are targeted at varying
'2
company types and countries, and limited to organizations with under N,E22 employees. Also
included under the Dynamics brand is the management software icrosoft Dynamics "9,
part of the Azure Bervices 5latform.
0ntertainment and !e#ices !i#ision
The Gntertainment and Devices Division produces the Lindows "G >B for embedded
systems and Lindows 5hone for smart phones. icrosoft initially entered the mobile market
through Lindows "G for handheld devices, eventually developing into the Lindows
obile >B and now, Lindows 5hone. Lindows "G is designed for devices where the >B
may not directly be visible to the end user, in particular, appliances and cars. The division
also produces computer games, via its in%house game publisher icrosoft Btudios, that run on
Lindows 5"s and other systems including titles such as Age of Gmpires, 4alo and
the icrosoft -light Bimulator series, and houses the acintosh Kusiness @nit which
produces ac >B software including icrosoft >ffice '2&& for ac. icrosoft.s
Gntertainment and Devices Division designs, markets, and manufactures consumer
electronics including the Rbo$ (62 game console, the handheld Tone media player, and the
television%based Internet appliance B! TO. icrosoft also markets personal computer
hardware including mice, keyboards, and various game controllers such
as *oysticks and gamepads.
cuture
Technical reference for developers and articles for various icrosoft magazines such
as icrosoft Bystems Hournal (BH# are available through the icrosoft Developer
!etwork (BD!#. BD! also offers subscriptions for companies and individuals, and the
more e$pensive subscriptions usually offer access to pre%release beta versions of icrosoft
software. In April '22) icrosoft launched a community site for developers and users,
titled "hannel0, that provides a wiki and an Internet forum. Another community site that
provides daily videocasts and other services, >n&2.net, launched on arch (, '226. -ree
technical support is traditionally provided through online @senet newsgroups,
and "ompuBerve in the past, monitored by icrosoft employeesM there can be several
newsgroups for a single product. 4elpful people can be elected by peers or icrosoft
'&
employees for icrosoft ost Oaluable 5rofessional (O5# status, which entitles them to a
sort of special social status and possibilities for awards and other benefits.
!oted for its internal le$icon, the e$pression 8eating our own dog food8 is used to describe
the policy of using pre%release and beta versions of products inside icrosoft in an effort to
test them in 8real%world8 situations. This is usually shortened to *ust 8dog food8 and is used as
noun, verb, and ad*ective. Another bit of *argon, -QI-O or -QIO (8-uck Qou, I.m /-ully1
Oested8#, is used by an employee to indicate they are financially independent and can avoid
work anytime they wish. The company is also known for its hiring process, mimicked in
other organizations and dubbed the 8icrosoft interview8, which is notorious for off%the%wall
:uestions such as 8Lhy is a manhole cover roundU8.
icrosoft is an outspoken opponent of the cap on 4&K visas, which allow companies in the
@.B. to employ certain foreign workers. Kill Iates claims the cap on 4&K visas makes it
difficult to hire employees for the company, stating 8I.d certainly get rid of the 4&K cap8 in
'22E. "ritics of 4&K visas argue that rela$ing the limits would result in increased
unemployment for @.B. citizens due to 4&K workers working for lower salaries. The 4uman
9ights "ampaign "orporate G:uality Inde$, a report of how progressive the organization
deems company policies towards+IKT (lesbian, gay, bise$ual and transse$ual# employees,
rated icrosoft as FNA from '22' to '22) and as &22A from '22E to '2&2 after they
allowed gender e$pression.
Criticism
"riticism >f icrosoft 4as -ollowed The "ompany.s G$istence Kecause >f Oarious Aspects
>f Its 5roducts And Kusiness 5ractices. Gase >f @se, Btability, And Becurity >f The
"ompany.s Boftware Are "ommon Targets -or "ritics. ore 9ecently, Tro*an 4orses And
>ther G$ploits 4ave 5lagued !umerous @sers Due To -aults In The Becurity >f icrosoft
Lindows And >ther 5rograms. icrosoft Is Also Accused >f +ocking Oendors Into Their
5roducts, And !ot -ollowing And "omplying Lith G$isting Btandards In Its Boftware. Total
"ost >f >wnership "omparisons >f +inu$ As Lell As >B R To Lindows Are A "ontinuous
5oint >f Debate.
The "ompany 4as Keen In !umerous +awsuits Ky Beveral Iovernments And >ther
"ompanies -or @nlawful onopolistic 5ractices. In '22), The Guropean @nion -ound
icrosoft Iuilty In A 4ighly 5ublicized Anti%Trust "ase. Additionally,
''
icrosoft.s G@+A -or Bome >f Its 5rograms Is >ften "riticized As Keing Too 9estrictive As
Lell As Keing Against >pen Bource Boftware.
icrosoft 4as Keen "riticized (Along Lith Qahoo, A>+, Ioogle And >thers# -or Its
Involvement In "ensorship In The 5eople.s 9epublic >f "hina. icrosoft 4as Also "ome
@nder "riticism -or >utsourcing Hobs To "hina And India. There Lere 9eports >f 5oor
Lorking "onditions At A -actory In Bouthern "hina That akes Bome >f icrosoft.s
5roducts.
"inancia
Btandard and 5oor.s and oody.s have both given a AAA rating to icrosoft, whose assets
were valued at P)& billion as compared to only PF.E billion in unsecured debt. "onse:uently,
in -ebruary '2&& icrosoft released a corporate bond amounting to P'.'E billion with
relatively low borrowing rates compared to government bonds.
-or the first time in '2 years Apple Inc. surpassed icrosoft in S& '2&& :uarterly profits and
revenues due to a slowdown in 5" sales and continuing huge losses in icrosoft.s >nline
Bervices Division (which contains its search engine King#. icrosoft profits were PE.'
billion, while Apple Inc. profits were P6 billion, on revenues of P&).E billion and P').N
billion respectively.
icrosoft.s >nline Bervices Division has been continuously loss%making since '226 and in
S& '2&& it lost PN'6 million. This follows a loss of P'.E billion for the year '2&2.
>n Huly '2, '2&', icrosoft posted its first :uarterly loss ever, despite earning record
revenues for the :uarter and fiscal year, with a net loss of P)0' million due to
a writedown related to the advertising company aSuantive, which had been ac:uired for P6.'
billion back in '22N.
As of Hanuary '2&), icrosoft.s market capitalization stands at P(&)K, making it the Fth
largest company in the world by market capitalization.
'(
Cor&orate a$$airs
he company is run by a board of directors made up of mostly company outsiders, as is
customary for publicly traded companies. embers of the board of directors as of -ebruary
'2&) are3 Hohn L. Thompson, Bteve Kallmer, Dina Dublon, Kill Iates, aria
?lawe, Btephen +uczo, David ar:uardt,Batya !adella, "harles !oski, and 4elmut 5anke.
/0(1
Koard members are elected every year at the annual shareholders. meeting using a
ma*ority vote system. There are five committees within the board which oversee more
specific matters. These committees include the Audit "ommittee, which handles accounting
issues with the company including auditing and reportingM the "ompensation "ommittee,
which approves compensation for the "G> and other employees of the companyM the -inance
"ommittee, which handles financial matters such as proposing mergers and ac:uisitionsM the
Iovernance and !ominating "ommittee, which handles various corporate matters including
nomination of the boardM and the Antitrust "ompliance "ommittee, which attempts to prevent
company practices from violating antitrust laws.
-ive year history graph of !ABDAS3 B-T stock on Huly &N, '2&(
Lhen icrosoft went public and launched its initial public offering (I5># in &0F6, the
opening stock price was P'&M after thetrading day, the price closed at P'N.NE. As of Huly '2&2,
with the company.s nine stock splits, any I5> shares would be multiplied by 'FFM if one was
to buy the I5> today given the splits and other factors, it would cost about 0 cents.
/F13'(EJ'(6/061
/0N1
The stock price peaked in &000 at around P&&0 (P62.0'F ad*usting for splits#.
/0F1
The
company began to offer a dividend on Hanuary &6, '22(, starting at eight cents per share for
the fiscal year followed by a dividend of si$teen cents per share the subse:uent year,
switching from yearly to :uarterly dividends in '22E with eight cents a share per :uarter and
')
a special one%time payout of three dollars per share for the second :uarter of the fiscal
year. Though the company had subse:uent increases in dividend payouts, the price of
icrosoft.s stock remained steady for years.
>ne of icrosoft.s business tactics, described by an e$ecutive as 8embrace, e$tend and
e$tinguish,8 initially embraces a competing standard or product, then e$tends it to produce
their own version which is then incompatible with the standard, which in time e$tinguishes
competition that does not or cannot use icrosoft.s new version. Oarious companies and
governments sue icrosoft over this set of tactics, resulting in billions of dollars in rulings
against the company. icrosoft claims that the original strategy is not anti%competitive, but
rather an e$ercise of its discretion to implement features it believes customers want.
0n#ironment
In '2&&, Ireenpeace released a report rating the top ten big brands in cloud computing on
their sources of electricity for their data centers. At the time, data centers consumed up to 'A
of all global electricity and this amount was pro*ected to increase. 5hil 9adford of
Ireenpeace said 8we are concerned that this new e$plosion in electricity use could lock us
into old, polluting energy sources instead of the clean energy available today,8 and called on
8Amazon, icrosoft and other leaders of the information%technology industry must embrace
clean energy to power their cloud%based data centers.8 In '2&(, icrosoft agreed to buy
power generated by a Te$as wind pro*ect to power one of its data centers.
icrosoft is ranked on the &Nth place in Ireenpeace.s Iuide to Ireener Glectronics (&6th
Gdition# that ranks &F electronics manufacturers according to their policies on to$ic
chemicals, recycling and climate change. icrosoft.s timeline for phasing out K-9s and
phthalates in all products is '2&' but its commitment to phasing out 5O" is not clear. As yet
(Hanuary '2&&# it has no products that are completely free from 5O" and K-9s.
icrosoft.s main @.B. campus received a silver certification from the +eadership in Gnergy
and Gnvironmental Design (+GGD# program in '22F, and it installed over ',222 solar panels
on top of its buildings in its Bilicon Oalley campus, generating appro$imately &E percent of
the total energy needed by the facilities in April '22E.
icrosoft makes use of alternative forms of transit. It created one of the worlds largest
private bus systems, the 8"onnector8, to transport people from outside the companyM for on%
campus transportation, the 8Bhuttle "onnect8 uses a large fleet of hybrid cars to save fuel.
'E
The company also subsidises regional public transport as an incentive. In -ebruary '2&2
however, icrosoft took a stance against adding additional public transport and high%
occupancy vehicle (4>O# lanes to a bridge connecting 9edmond to BeattleM the company did
not want to delay the construction any further.
icrosoft was ranked number & in the list of the Lorld.s Kest ultinational Lorkplaces by
the Ireat 5lace to Lork Institute in '2&&.
Mar4eting
In '22), icrosoft commissioned research firms to do independent studies comparing
the total cost of ownership (T"># of Lindows Berver '22( to +inu$M the firms concluded
that companies found Lindows easier to administrate than +inu$, thus those using Lindows
would administrate faster resulting in lower costs for their company (i.e. lower T">#. This
spurred a wave of related studiesM a study by the Qankee Iroup concluded that upgrading
from one version of Lindows Berver to another costs a fraction of the switching costs from
Lindows Berver to +inu$, although companies surveyed noted the increased security and
reliability of +inu$ servers and concern about being locked into using icrosoft
products. Another study, released by the >pen Bource Development +abs, claimed that the
icrosoft studies were 8simply outdated and one%sided8 and their survey concluded that the
T"> of +inu$ was lower due to +inu$ administrators managing more servers on average and
other reasons.
As part of the 8Iet the -acts8 campaign, icrosoft highlighted the .!GT trading platform
that it had developed in partnership with Accenture for the +ondon Btock G$change, claiming
that it provided 8five nines8 reliability. After suffering e$tended downtime and
unreliability
.
the +BG announced in '220 that it was planning to drop its icrosoft solution
and switch to a +inu$ based one in '2&2.
In '2&', icrosoft hired a political pollster named ark 5enn, whom the !ew Qork Times
called 8famous for bulldozing8 his political opponents as G$ecutive Oice%5resident,
Advertising and Btrategy. 5enn created a series of negative ads targeting one of icrosoft.s
chief competitors, Ioogle. The ads, called 8Bcroogled8, attempt to make the case the Ioogle
is 8screwing8 consumers with search results rigged to favor Ioogle.s paid advertisers,
that Iail violates the privacy of its users to place ad results related to the content of their
emails and shopping results which favor Ioogle products. Tech publications like Tech
'6
"runch have been highly critical of the ad campaign, while Ioogle employees have
embraced it.
Coo&eration with the United States +o#ernment
icrosoft provides information about reported bugs in their software to intelligence agencies
of the @nited Btates government, prior to the public release of the fi$. A icrosoft
spokesperson has stated that the corporation runs several programs that facilitate the sharing
of such information with the @.B. government.
-ollowing media reports about 59IB, !BA.s massive electronic surveillance program, in
ay '2&(, several technology companies were identified as participants, including
icrosoft. icrosoft *oined the 59IB program in -ebruary '2&&. 4owever, in Hune '2&(,
an official statement from icrosoft read3
Le provide customer data only when we receive a legally binding order or subpoena to do so,
and never on a voluntary basis. In addition we only ever comply with orders for re:uests
about specific accounts or identifiers. If the government has a broader voluntary national
security program to gather customer data, we don.t participate in it.
During the first si$ months in '2&(, icrosoft had received re:uests that affected between
&E,222 and &E,000 accounts.
"ompanies with multi%national operations know how time%consuming and labor%intensive it
can be to consolidate their financial information. Data aggregation and reconciliation for
month%end can take days, or even weeks. Gven worse, manual systems and spreadsheets tend
to be error%prone. Lhile these issues affect any company with multi%organization
re:uirements, the Barbanes%>$ley Act places additional pressure on public companies to
comply with airtight and auditable procedures.
Tensoft ulti%!ational "onsolidation (!"# consolidates financial data across companies
that operate in different functional currencies. This allows companies with multi%national
entities to perform local accounting functions in their local currencies. It also keeps the
information consolidated and maintained in a central location, while reducing monthly
closing from days to hours.
'N
Microso$t 9indows
Microso$t 9indows is a series of graphical interface operating systems developed, marketed,
and sold by icrosoft.
icrosoft introduced an operating environment named Windows on !ovember '2, &0FE as a
graphical operating system shell for B%D>B in response to the growing interest in graphical
user interfaces (I@I#. icrosoft Lindows came to dominate the world.s personal computer
market with over 02A market share, overtaking ac >B, which had been introduced in &0F).
As of >ctober '2&(, the most recent versions of Lindows for personal computers,
smartphones, server computers and embedded devices are respectively Lindows F.&,
Lindows 5hone F, Lindows Berver '2&' 9' and Lindows Gmbedded F.
Logo
icrosoft adopted the so%called 85ac%an +ogo=< designed by Bcott Kaker, in &0FN. Kaker
stated 8The new logo, in 4elvetica italic typeface, has a slash between the o and s to
emphasize the 8soft8 part of the name and convey motion and speed.Dave !orris ran an
internal *oke campaign to save the old logo, which was green, in all uppercase, and featured a
fanciful letter >, nicknamed the blibbet, but it was discarded
.
icrosoftVs logo with the 8Qour
potential. >ur passion.8 tagline below the main corporate name, is based on a slogan
icrosoft used in '22F. In '22', the company started using the logo in the @nited Btates and
eventually started a TO campaign with the slogan, changed from the previous tagline of
"Where do you want to go today?"
.
During the private IR (icrosoft Ilobal G$change#
conference in '2&2, icrosoft unveiled the company.s ne$t tagline, 8Ke Lhat.s !e$t.8.
>n August '(, '2&', icrosoft unveiled a new corporate logo at the opening of its '(rd
icrosoft store in Koston indicating the company.s shift of focus from the classic style to the
tile%centric modern interface which it uses/will use on the Lindows 5hone platform, Rbo$
(62, Lindows F and the upcoming >ffice Buites.The new logo also includes four s:uares
with the colors of the then%current Lindows logo. 4owever this logo is not completely new %
it was featured in Lindows 0E commercials from the mid%&002s.
/

'F
&0FN
&002
'226%'2&& '2&&%'2&'
'0
concusion
5ublic opinion and government policy with respect to !"s, in other words, con*ure up the
image of a fault line along the earth.s crust, :uiet for the moment but with pressures building
below that couldWwillWdivide the earth above. Despite the best%educated guesses, however,
nobody really knows *ust when and under what circumstances this will happen or how severe
the damage will be. Already odd alliances have been formed among the parties most affected
by the growth of !"s. >ne of these took place beginning in &00& when free%trade
advocates in the @nited Btates found themselves *oined by the multinationals but strongly
opposed by rank%and%file workers over the approval of the !orth American -ree Trade
Agreement (!A-TA#, which was ratified in &00' despite labor.s ob*ections. In &00) the
!"s and free traders won a limited victory with the establishment of the Lorld Trade
>rganization (LT>#, which since its founding has focused much of its attention on breaking
down remaining restrictions on the e$pansion of !"s worldwide. It has had only moderate
success, however, because it lacks *udicial authority, something the @.B. negotiators refused
to give it because of congressional reservations about granting e$tensive powers to the new
body.
In the late &0F2s, free traders in Gurope *oined with Guropean workers in successfully
opposing the proposed merger of 4oneywell International and Ieneral Glectric on antitrust
grounds. The @nited Btates and the Guropean @nion also entered in a trade war. They clashed
over Guropean restrictions on imports of American beef and bananas, and the @.B. steel
industry accused Guropean firms of dumping steel on American markets. Guropean business
and political leaders retaliated with charges that Lashington unfairly subsidized @.B. e$ports
and re*ected its efforts to resolve trade disputes.
These claims and counterclaims suggest that, in a world becoming smaller each day, with
corporate mergers across national boundaries becoming more common and a technological
and information revolution unlike any in the past, calls will continue to grow about bringing
the aspirations of private enterprise more in line with national needs. 4ow that will happen or
whether it is even possible remain unanswered :uestions.

(2
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