Activities Of Multinational Enterprises Research Articles

Transfer Pricing Documentation Methods in Nigeria: A Critique of the Prime Plastichem Case Against International Best Practices

The quest to ensure that the tax planning activities of multinational enterprises operating in Nigeria do not erode the country's domestic tax base has led to the enactment and enforcement of the Transfer Pricing (TP) Regulations, 2018 in Nigeria. The TP Regulation provides for a comprehensive framework to ensure that the pricing of related party transactions is consistent with global best practices on TP. The enforcement of the TP Regulation in Nigeria was taken a step further in 2020 when the Tax Appeal Tribunal affirmed the imposition by the Federal Inland Revenue Service (FIRS) of liability of over one billion naira on Prime Plastichem Nigeria Limited for failing to apply consistent TP methods in the financial years 2013 and 2014. While this decision was hailed as Nigeria's first decision of the Tax Appeal Tribunal (TAT) dealing with transfer pricing, the decision has been criticised for failing to apply the global standards for TP documentation. This article seeks to critique the principles of TP documentation espoused in the Prime Plastichem case vis-à-vis international best practices on transfer pricing documentation.

Институциональное регулирование глобальной и региональной климатической повестки в условиях деглобализации

The problem of climate change is a global challenge that requires a joint solution at various levels—global, regional, national, and individual. At the same time, modern global and economic processes are characterized by two significant trends: the growth of regionalization and the intensification of deglobalization, which cannot but affect the architecture of the climate agenda. In this article, we review the current state of the multilevel climate agenda and discern the factors of this agenda that affect the activities of multinational enterprises in the context of deglobalization. We conclude that we should expect further fragmentation in the climate regulation system at the global level, which will affect the configuration of global value chains (GVC) of companies. The regionalization of GVCs increases the importance of regional interaction and building relationships between business and government on climate issues to ensure economic competitiveness along the entire value chain from upstream to downstream.

Migration and the location of MNE activities: Evidence from Italian provinces

AbstractWe investigate the migration‐inward foreign direct investment (FDI) nexus in narrow geographies. A novel two‐stage empirical strategy allows us to investigate the role of migration as a determinant of multinational enterprises (MNEs) location choices and unpick heterogeneity in foreign investors' preferences towards the presence of migrants in the host location. This allows us to shed light on the relative importance of the underlying mechanisms linking migration and inward FDI. Relying on 1113 greenfield investments by 895 MNEs in Italian NUTS3 regions over 2003–2015, we find that immigrants from the country of origin of the investor exert a positive but highly heterogeneous effect on MNE location choices. Investors are more sensitive to the presence of migrants from their country of origin when they lack experience in the destination country (first‐time investors) and when their investments concern market‐access or business‐services (downstream) activities. This is consistent with the view that migrants act as information brokers that bridge the fixed costs of international business activities.

Understanding the link between subsidiary CEOs and corporate social responsibility in emerging markets: Moderating role of social capital

AbstractThis paper analyzes the interlink among managerial experience, capabilities, and social capital in relation to corporate social responsibility (CSR) activities of multinational enterprises' (MNEs) subsidiaries in an emerging market context. Based on the empirical sample of 104 subsidiaries of 28 Italian MNEs operating in India, we found that CEO managerial capabilities are positively associated with CSR activities. However, interestingly, our findings also show that subsidiary CEO (managerial) experience is negatively associated with CSR activities in emerging markets. Therefore, our study is one of the few that highlights the negative repercussions of experience in the context of CSR activities in emerging markets. Moreover, our findings show that while social capital alleviates the negative influences of CEO experience on CSR activities, it does not enhance the role of CEO managerial capabilities in CSR activities. As such, our study contributes to research on business ethics with a focus on sustainable development in business.

Amount A vs Article 12B: One Size May Not Fit All

In this article, the authors attempt to compare the tax revenues that may be raised by certain middle-income countries under the Amount A and under an alternative multilateral tax regime based on the principles of article 12B of the UN Model Convention. The authors’ results indicate that while some middle-income countries may be better off under the Amount A regime, others may prefer the alternative regime based on the article 12B principles. The choice between these alternatives depends on factors such as the domestic economic activities of multinational enterprises in scope of Amount A, the level of domestic economic activities of companies engaged in automated digital services, the design of the taxation regime based on article 12B, and the specifics of double tax relief policies by the countries that host either companies in scope of Amount A or in scope of article 12B. The authors also offer some thoughts on how the multinational regime based on article 12B may coexist with Amount A under Pillar One.

Global Cities and Multinational Enterprises: Integrating the Existing Concepts for Future Research Studies

Global Cities (GCs) and Multinational Enterprises (MNEs) belong to a group of entities that shape the modern world economy in the most distinct way. So far, both of them have been given a lot of attention in the literature, but few studies have been written linking these two important threads of deliberation remaining the aspects of relationships between GCs and MNEs relatively unexplored. This is surprising as GCs and MNEs are not sole players but symbionts in the world economy. Hence, the intention of the authors – and the aim of this paper – is to overview these issues and connect GC and MNE threads in order to provide a platform for future research studies. By adopting an evolutionary approach and integrating the perspectives of economic geography, urban studies and international business, the paper identifies several research areas that may be fundamental to the GC/MNE discussion. They have been grouped in the following five thematic categories: global trends, international and country-specific factors; heterogeneity and transformation of global cities; MNE internationalization motivations and different market entry modes; global cities and global value chains; outcomes of MNE activity.

Seventy Years of FDI Literature: Review, Comparison and Critique

Abstract International capital movement in the form of Foreign Direct Investment (FDI) by multinational enterprises (MNEs) signifies a widely researched phenomenon in comprehensive review of the FDI literature. Its vastness makes it impossible to fathom its depth, as such the paper highlights what the author considers to be mainstream theories in the domain of empirical studies on FDI. This study critically reviews (FDI) literature over a period of 70 years from 1950 to 2020 to provide a theoretical lens for future research beyond the established models. The discussion covers the mode of FDI inflows, statistical methods applied, theoretical models, contributions to paradigms and empirical papers investigating FDI. Furthermore, the papers selected cover heterogenous geographical regions, while in certain papers FDI has been studied as a dependent variable in others as an independent one. The focus lies on the FDI and its resultant activities of MNEs in the form of subsidiaries to carry out market seeking, strategic asset-seeking and efficiency seeking activities. Though, most researchers have narrowed down to four determinants of FDI i.e., motives of MNEs for undertaking FDI, size of MNEs, entry modes into host country and investments sector recently, many works have applied formal theories to provide a framework for market failure such as holdup problems, non-fulfillment of contracts and related agency costs. It is concluded that FDI has evolved into a significant area of empirical investigation. Overall, the gaps and opportunities in existing literature are identified thereby directions for further research emerge.

MULTINATIONAL COMPANIES' RISK MANAGEMENT STRATEGIES EVOLVING ON THE BRINK OF THE NEW ECONOMIC ERA

In today's dynamic macroeconomic environment, multinational enterprises (MNEs) must have a well-defined approach to risk management in order to survive and thrive. The risk management strategies employed by MNEs must adapt to the ever-changing global economy and the associated geopolitical and climatic changes. Furthermore, the clear prospects for further developments in risk management research create new determinants for the evolution and development of corporate governance systems in MNE. This is especially true in the New Economic Era, where globalization has opened markets to new opportunities and threats. Risk management is a critical factor that impacts the financial, operational and strategic success of MNE. Therefore, it is imperative that MNE invest in developing robust risk management strategies that can keep pace with the ever-changing world economic system. Failure to do so could encourage potential business risks such as financial liabilities, low customer satisfaction, or reputational damage. It is clear that risk management is an essential part of ensuring success for MNEs in today's dynamic macroeconomic environment. The subject and object of research are defined as corporate strategies of risk management of MNE (including the approach to work with uncertainty, randomness and probabilistic thinking) and the process of their determination through the prism of influence of global economic determinants and the emerging New Economic Era. The reliability of the obtained results and conclusions of the research is substantiated by the choice of a natural methodological strategy, which includes description, explanation and prediction. Research methodology is based on a combination of methods: theoretical analysis, synthesis, comparison, systematization, and generalization of scientific literature. The aim of the research is to identify the main corporate strategies of risk management in MNEs, taking into account global economic changes, and to develop recommendations for their implementation. The studied risk management focusing exclusively on the past financial indicators of MNE activity and the conducted analysis of the emerging global challenges of the New Economic Era show a gap between the existing approaches to the formation of risk management strategies, which are based only on international standards (including reporting standards), and the urgent needs of MNEs dictated by global economic determinants. The research also creates clear prospects for further developments in the area of risk management strategies. It is suggested that more advanced approaches should be developed that take into account the dynamic nature of the international economic environment and its influence on the risk management strategies of MNEs. In conclusion, the research shows that existing corporate risk management approaches are not effective enough to respond to global economic, geopolitical, technological and social changes. Therefore, it is imperative for MNE to develop more advanced risk management strategies that can better address these changes. In addition, it is important for MNE to consider incorporating predictive analytics into their risk management processes to better anticipate potential risks before they occur.

Measuring economic activity in the presence of superstar MNEs

In 2015, changes to Irish tax legislation coincided with a 26% annual increase in real gross domestic product, driven by the presence of multinational enterprises (MNEs). We provide a method of statistically isolating variation in GDP growth attributable solely to domestic activity. Our findings imply a 21% lower level of GDP relative to the official measure recorded for 2020. We recommend our methodology to policymakers in economies where profit-shifting MNE activities introduce challenges to business cycle and fiscal monitoring.

Spanning the boundaries: International business theories in a complex global environment

The field of international business is constantly evolving, and there is much debate about what exactly constitutes international business and how its definition influences theorizing. Traditionally international business has focused on cross-border activities of multinational enterprises, including foreign direct investment, multinational enterprises’ strategies, and organization, along with the understanding of the process of internationalization. Changes in the global environment have necessitated a broader, multidisciplinary approach to international business theorizing. This paper explores how international business emerged as a field of inquiry and how the interrelated fields such as international management, international entrepreneurship, and international strategy can inform international business theorizing. A more complementary approach would be beneficial rather than treating these fields as distinct ones. Moreover, this paper recognizes the complex nature of the global environment and highlights the myriad of challenges and opportunities it presents for businesses operating internationally. It proposes a future research agenda that considers this intricate global context, and challenges international business scholars to adopt a holistic and multidisciplinary approach to develop comprehensive theories that capture the dynamic and interconnected nature of the complex global business environment.

Scale and development of foreign economic interaction between the USA and Japan in 2009–2021

The article analyzes the dynamics of economic cooperation between the US and Japan for the period 2009–2021: bilateral trade, export and import, FDI flows. Particular attention is paid to Japanese FDI and activities of Japanese manufacturing companies in the United States. Bilateral economic relations are a part of the broader context of economic integration in the Asia-Pacific, activities of multinational enterprises and their global production networks. A "triangular" model of trade relations has developed between Japan, China and the United States, with significant part of trade going through global value chains (GVCs). Over the past decade, the US foreign trade policy priorities have changed several times: from the attempt to create a free trade area in the Asia-Pacific under the Obama administration to President Trump’s protectionism and to more liberal economic agenda of the Biden administration. The role of Japan in the Trans-Pacific Partnership creation and reformatting after the US withdrawal is shown. The prerequisites for the progress of bilateral relations to a new stage of scientifi c, technical and economic cooperation in the context of confrontation between the USA and China are analyzed. President Biden’s economic policy priority in the Asia-Pacific is attracting allies to crucial technologies development and increasing global value chains sustainability. Japan is a key partner for the US to secure control over technology transfer, diversify supply sources and strengthen GVCs. Coordination of approaches to promoting economic security is an important priority for the renewed US-Japan alliance, so the two countries can reach a new level of cooperation.

International business research: The real challenges are data and theory

We agree with Aguinis and Gabriel that, contrary to Eden and Nielsen, international business (IB) is not uniquely complex, but argue that it faces two unique challenges. First, because it deals with cross-country phenomena, IB data are less plentiful and reliable. Second, because IB uses many imported theories, and they tend to be influenced by the national environment of their authors, they often have, taken as is, limited applicability in many of the contexts IB studies. We illustrate our twin points by examining the secondary data used in IB to measure the economic activities of multinational enterprises outside their home country, both at the country level, using foreign direct investment (FDI) data from balance of payments statistics, and at the firm level, using firm-level databases such as Orbis. We document the serious shortcomings of FDI data and the problems encountered in using firm-level data. We then highlight some of the cultural biases inherent in Williamson’s version of transaction cost theory (TCT) but show how they can be overcome to arrive at a richer and more general theory that is applicable to a wider variety of contexts.

Promotion or liberalization: The effect of targeted investment policies on foreign direct investment inflows

AbstractInvestment policies have been implemented by policy‐makers in both developed and developing countries to open up their domestic markets to the foreign affiliates of multinational enterprises (MNEs). This study empirically examines two foreign direct investment (FDI) policies: targeted promotion and selective liberalization. It quantifies which of the two targeted measures is more effective in attracting FDI inflows and stimulating the activities of MNEs. We implement a difference‐in‐differences estimation that measures the effects of FDI policies by comparing affected and non‐affected industries before and after the change of the FDI policies in compliance with China's accession to the World Trade Organization. Using aggregated data on foreign equity and output by MNEs' foreign affiliates in China from 1999 to 2007, the results show that selective liberalization has a positive impact on FDI inflows, especially from incumbents; however, targeted promotion does not. Our results highlight the effectiveness of selective liberalization as a policy option for stimulating industrial growth.

MNEs and knowledge creation in Medellín’s emerging ICT hub

ABSTRACT This paper contributes to understanding the potential for localised knowledge creation that can be generated by multinational enterprise (MNE) entry into cities in the global South from both the MNE and the local economy’s perspectives. It presents a qualitative analysis of the activities of the MNE subsidiaries in the information and communication technology (ICT) sector in an emerging investment hub in Medellín, Colombia. The analysis differentiates between the MNEs’ local strategies to explore distinct configurations of MNE–local economy relations and their potential for unilateral or mutually beneficial knowledge creation. The findings suggest that the synergy between the MNE strategies and the evolving knowledge environment in the local economy increases the potential of the MNEs’ activities for interactive and mutually beneficial knowledge and capability creation with other local stakeholders. In Medellín, these effects predominantly concerned the market-seeking MNEs, not those seeking strategic assets, as expected by evidence in the literature. They also revealed how the specific MNE strategies tended to use and influence the creation of local knowledge resources, which helps shape policies that indiscriminately aim to attract all kinds of knowledge-intensive MNE activities to emerging investment hubs.

Research Note: Analysing MNEs structure and activities using country-by-country reports. Evidence from the Italian dataset

This paper is based on microdata originating in the first collection of country-by-country reporting (CbCR) – a new reporting tool to be filed by multinational enterprises (MNEs). It analyses the differences between CbCR and other widely used data sources of MNEs and presents the case of MNE activities in Italy. The CbCR dataset is used to understand the global distribution of MNE activities. Results show that foreign activities are mostly concentrated in high-income countries for all economic indicators. In low-income countries, MNEs activity appears to be concentrated in labour-intensive industries. Middle-income countries have a relatively higher importance in terms of tangible assets and employment opportunities than they do in terms of revenues and profits. Investment hubs have a relatively higher share in global MNEs profits than they do in global MNEs tangible assets and employment. The CbCR data can be useful for policymakers to obtain an indication on how a country is positioned in the global value chain (GVC) and its attractiveness for foreign companies.

ESG Concept As The Newest Determinant Of Corporate Risk Management Strategies Of Multinational Enterprises

Within the rapid development of the world economy in recent decades, the growth of stable financing, including the increase in the number of relevant financial products, the attention of investors, politicians and various stakeholders in civil society has been drawn to the potential of multinational enterprises (MNE) to bring financial returns in accordance with social values and to make their contribution to overall macroeconomic stability and the fight against climate change. In particular, investing according to the concept of environmental, social and governance (ESG) has become a leading form of sustainable financing and has moved from early stages of development to mainstream financing in a number of leading countries. ESG ratings applied to MNE, which accounted for about 80% of the global economy's market capitalization in 2020, have evolved in recent years to incorporate long-term financial risks and opportunities into investment decision-making processes. An effective risk and opportunity management system, as well as appropriate risk management strategies, are an important component of the effective implementation of the ESG concept in the activities of MNE. A significant role is played by the risk management system of MNE in the areas of environmental factors (environmental) and the latest system of corporate governance (governance).

GLOBAL PRODUCTION AND SALES CHAINS IN THE AGRICULTURE SPHERE: MODERN POLICY AND PRACTICE

The article is devoted to the study of global production and sales chains in the agro-food sector, the peculiarities of the involvement of countries of the world in them, in particular, Ukraine. The policy and practice in this area, prospects for Ukraine, possible approaches to regulating the process of integration into agrarian and food global chains are analyzed. It was determined that the development of global chains of added value can have a number of positive manifestations in the field of agro-industrial complex, including the simplification of the mechanism of integration of countries into the global food market, the convergence of national food markets, the dissemination of progressive experience, and the promotion of sustainable development. There is a positive and significant relationship between FDI and indicators that characterize the level of the country’s involvement in agri-food global value chains, as well as the creation of domestic added value in global chains. This actualizes the issue of improving investment and trade policy, creating appropriate institutional conditions in the country, thanks to which it will be possible to more actively include Ukrainian representatives of the agro-food business in global production and sales chains. Among the important areas of improvement of institutional conditions are a clear, transparent and predictable investment policy, strong protection of investors (including compensation for expropriation), reliable protection of land use rights and land rights, as well as intellectual property rights, tax benefits. Dynamic agricultural innovation systems, in particular, well-developed research networks and innovation clusters, agri-food research institutions, and state advisory services can have a significant positive impact. The policy of state support for connections in supply chains can play an important role in promoting the development of business activity of multinational enterprises, which are the most powerful donors of direct investment in the world. Priorities may include a well-developed regulatory framework for contract farming and contract enforcement systems.

The trade-off between the economic and environmental footprints of multinationals’ foreign affiliates

The side effects of the production activities of multinational enterprises (MNEs) are a constant source of controversy. It is claimed that MNEs stimulate employment and technological progress in the countries where they operate, but they are simultaneously accused of intensifying inequality and environmental damages, especially in developing countries. Using a multiregional input-output model, in this paper, we trace the CO2 emissions and value added attributable to the foreign affiliates of multinational enterprises (FMNEs) to quantify the trade-offs between the economic benefits and environmental impacts along their global supply chains. The results show that FMNEs in most countries induce greater contributions to CO2 emissions than to value added along their supply chains. This is mostly explained by the concentration of MNEs production in industries with a high CO2 burden (manufacturing sectors) and their relatively low participation in high-value added activities (services). The analysis also shows that FMNEs generally have higher carbon intensities than domestic-owned firms in the same sector, especially in OECD countries, which undermines the efforts made by those countries to reduce global emissions. FMNEs incorporate larger portions of imported emissions into their carbon footprint than domestic companies, so they more often take advantage of carbon leakages and are more vulnerable to a potential carbon border tax. Since developed countries own the affiliates producing 89% of FMNEs’ global output, those countries should design policies to reduce the carbon footprints of their MNEs’ foreign activities in both developed and developing countries.

Tax regulation of enterprise R&D expenditures: special aspects and problems of regulation

The subject of the research is a corporate income tax regime of tax accounting of intangible assets and R&D spending. The working hypothesis is that realization of the regulative potential of tax policy in relation to stimulating R&D activity and creation of intangibles assets shall be streamlined and adapted to increase the effectiveness of innovations. Authors suggest that the key tax policy goal of the mechanism is the widening of the volumes of commercialized R&D results and intangibles, lowering the tax risks, and increasing the legal certainty. The aim of this research is formulation of tax policy proposals for subsequent reforming this mechanism of direct taxation of transactions related with R&D.To achieve the aim of the research the following research approach was employed by the authors. As a first step authors present a literature review on the issue. As a second step authors are performing the analysis of current rules related to tax accounting of R&D costs and intangibles in accordance with Tax Code of Russian Federation. As a third step authors delineate the barriers and legal obstacles in the performance of tax incentives for R&D by reviewing the judicial cases and analytical reports on the issue. Finally, authors formulate their tax policy proposals for the subsequent tax reforms in relation to tax accounting of R&D.The results and the scope of the study. Author’s working hypothesis is based on the idea that the effective application of tax policy instruments can contribute to success of the jurisdiction in winning in global tax competition game. This is particularly important in context of digitalization and for attracting investments and parts of activities of multinational enterprises to the territory of the state. Intangible assets and key people which coordinate the processes of the creation of intangibles can be regarded as the crucial value-added factors in the modern economy where technological MNEs are increasingly dominating. Countries compete internationally for these talented people and favorable and certain tax regime can positively impact on MNE decisions to make a profit center in any jurisdiction, while tax uncertainty can negatively impact this decision.Conclusions. One of the key results of this research is that R&D tax incentives in Russia remain rather unpopular instrument in corporate practice. Authors explain this with the existing legal barriers and legal uncertainty. This uncertainty leads to tax risks for taxpayers which impacts their decisions for using the incentives. Review of judicial cases related to tax accounting of R&D costs when calculating corporate income tax base showed that there are many different areas of disputes between taxpayers and tax authorities. It is important to note that some of this uncertainty is already addressed in recent amendments to Article 262 of Tax Code. Authors propose to reduce uncertainty by extending the scope of R&D tax incentives to all types of R&D activity. The goal of the research is therefore can be considered as achieved.

ВИКОРИСТАННЯ МЕТОДУ КЛЮЧОВИХ ПОКАЗНИКІВ РИЗИКУ В СТРАТЕГІЯХ РИЗИК-МЕНЕДЖМЕНТУ

As part of the rapid development of the global economy in recent decades, a clear demand for timely and effective response to changes in the macroeconomic environment of the multinational enterprises (MNE), as well as the influence of endogenous factors on the achievement of operational and strategic goals of the enterprise, is created within the framework of the corporate governance structure of MNE. Such changes and factors can create both risks and opportunities for MNE. As part of the strategic planning processes, modern MNE must identify and assess risks and opportunities in relation to the key objectives of their strategy and assess the potential change in the risk profile of the enterprise, if there are changes in the strategy and any of its sensitivity to internal or external factors. Existing and new risk management strategies should become an integrated part of the operational and strategic planning process of MNE. At the same time, an effective system of key risk indicators (KRI) is an important component of an effective risk management strategy of MNE, based on a holistic approach to the organizational structure of MNE and taking into account the geographical, functional, operational specifics of the enterprise's business. Applying a natural methodological basis, the article describes the concepts and principles of KRI, their typology and the order of determination. As part of the practical analysis, the role and place of KRI in the system of operational and strategic activity of MNE were determined, as well as a study of the use of KRI was carried out on the example of the collapse of the US residential real estate market in 2007. The conducted study showed the high efficiency of the practical use of KRI to achieve the goals of MNE and increase the efficiency of their business activities.