International business begins with the exchange of goods among nations (international trade). Its second stage is reached with the partial exchange of the physical corporate assets of one company for the capital assets of another (portfolio investment). The third stage evolves with the acquisition of an entire company or the establishment of productive facilities owned and managed by a firm with economic interests in more than one country (foreign direct investment). International business finally reaches its apex with the multinational corporation, which is involved in all three modes of international business: international trade, portfolio investment, and foreign direct investment (see Figure 2.2).
The literature on the subject of multinational corporations is reaching gigantic proportions. In general, the literature focuses on four main areas of investigation:
- The various aspects of the decision to invest abroad
- The definition of a multinational corporation
- The growth of the multinational corporation
- The impact of the multinational corporation's activities on the firm itself, on the home and host countries, and on world economic and political welfare
As a general rule multinational corporations can best be conceived of as business enterprises that are engaged in all activities of international business. As such, they share certain common characteristics:
- They are large, usually having several billions of dollars in sales.
- They have numerous affiliates in many countries.
- They do most of their business inside the developed countries.
- They are perceived as both a potential and a real threat to purely national companies, the labor force of home countries, the labor force of host countries, and the international economic order.
- They are greatly distrusted by the public in both the investing and the recipient countries.
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