CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THE STUDY

Based in part on the development of modern communications and transportation technologies, the rise of multinational corporation was totally unanticipated by the classical theory of international trade as first developed by Adam Smith and David Ricardo. According to this theory which rests on the doctrine of comparative advantage each nation should specialize in the production and export of those goods that it can produce with highest relative efficiently while importing those good that other nations can produce relatively more efficiently.

Underlying this theory is the assumption that white good and services can move internationally factors of production such as capital labour and hand are relatively immobile furthermore the theory deals only with trade in commodities; it ignores the role of uncertainty economies of scale  and technology in international trade and is static rather than dynamic.Contrary to the postulates of smith and Ricardo, the very existence of multinational corporation is based on international mobility of certain factors of production. Capital raised in London on the Eurodollar market may be used by on wise based pharmaceutical firm to finance the acquisition of equipment by a subsidiary in Brazil.

It is the globally world innate allocation of resources by a single centralized management that differenciate the multinational enterprise from  other firms engaged in international business. Decision regarding market entry strategy, ownership of foreign operations and production marketing, and financial activities and  made with an eye to what is best for the corporation as a whole. The true multinational corporation can be characterized by its emphasis on group performance rather than of its individual components.At the center of the debate on globalization  one the multinational corporations giant actors who think and act globule. Their existence is often associated with the phenomenon of globalization itself. These actors have gained power visibility and influence at all levels, and one determinant to the setting and implementation of the “ global agenda”. MNCS have created a massive wealth and propelled high technological  development.