INTRODUCTION

1.1       Background of the Study

There has been a source of controversy about Multinational Corporation over the years. Tatum (2010) holds that a typical multinational corporation (MNC) normally functions with a headquarters that is based in one country, while other facilities are based in other countries. In some perspective a multinational corporation is referred to as a multinational enterprise (MNE) or a transnational corporation. In the view of Obumneke (2013), multinational corporations enter host countries in different ways and different strategies. For this reason, some enter by exporting their products to test the market and to find whether their existing products can gain sizeable market share. For such firm they rely on export agents. These foreign assembly operations are established to save transport cost because there is a limit to what foreign exports can achieve for a firm owing mainly to tariff barriers and quotas, and also owing to logistics or cost of transportation. Most of the firms are encouraged by the low wage rates and other environmental factors.

To meet the growing demands in the foreign countries, the firm considers other options such as licensing or foreign direct investment which are critical steps. Every step takes strategic planning and is motivated by profit through sales growth.

Obumneke (2013) goes further to assert that the idea of Multinational Corporation has been around for centuries but the second half of the twentieth century multinational corporations have become very important enterprises in different structural models. The first and common model is for the multinational corporation positioning its executive headquarters in one nation, while production facilities are located in one or more other countries. Ozoigbo and Chukuezi (2011) also accept that this model often allows the country to take advantage of benefits of incorporation in a given locality, while also being able to produce goods and services in areas where the cost of production is lower.

The second structural model is for a MNC to base the parent company in one nation and operate subsidiaries in other countries around the world. With this model, just about all the functions of the parent are based in the country of origin. The subsidiaries more or less function independently outside of a few basic ties to the parent. A third approach to the step of a MNC involves the establishment of a headquarters in one country that oversees a diverse conglomeration that stretches to many different countries and industries (Robinson, 1979). In view of the above, Gilpin (1978) concludes that the multinational corporation include affiliates, subsidiaries and possibly even some facilities that report directly to the headquarters. Such direct investment means the extension of the managerial control across national boundaries.

Rugman (1985) who prefer to use the name multinational enterprises, say that the concept of the MNE is that “the difference between Domestic Corporation and the MNE is that the latter operates across national boundaries”. While institutions are important for economic development, particularly in resource rich countries, the interaction between multinational corporations and host country institutions is not well understood (Wiig and Kolstad, 2010). There is a risk that multinational corporation facilities patronage problems in resource rich countries, exacerbating the resource curse.