Simon Caulkin of The Observer recently wrote that IBM's world sales of $71.9 billion "were greater than the GDP of all but 40 nations -- about the same as the Philippines and half as much as Iran or Ireland. And IBM is just 18th among the world's biggest corporations. The real leviathans -- Mitsubishi and Mitsui, with sales of more than $180 billion each -- just miss the world's top 20 nations, not far behind Indonesia and Sweden."
With this rather scary fact in mind, let's examine a hypothetical situation. Let us assume that Mitsubishi was considering investing in a small, relatively poor, developing nation, which we will call "Pretopia." Pretopia, after years of authoritarian rule, is taking its first steps towards a market economy. The nation needs foreign investment, but it is wary of outsiders, both nations and companies, who seek to take advantage of the nation's situation solely for their own gains.
We shall also assume that Pretopia is a budding democracy, where the vote is guaranteed to all adults, and elections are free and fair. Economic ministers, who were appointed by the democratically elected leader of Pretopia, design an economic regulatory environment. One of the items they have decided upon is that no foreign nation shall own a majority stake in a local company. The ministers believe that the disincentive to foreign investment is outweighed by the consideration of preventing mass capital flight and repatriation of profits from cash-starved Pretopia. Another important regulation is Pretopia's high corporate tax rate. The tax rates under the former authoritarian regime were close to 90%, so its 50% tax rate seems like a comparatively positive incentive to local businesses, but not to foreign businesses, which are accustomed to much more friendly environments.
Mitsubishi is not entirely happy with this regulatory environment, for obvious reasons. It sees a great opportunity for investment in this budding market economy. It wants to earn money in Pretopia, and repatriate those profits back to the home office in Japan, but the regulatory and tax framework prevents them from doing so. Furthermore, without being able to own a majority stake in the company, Mitsubishi must leave the final decision-making power of their new company in the hands of Pretopians, who may not share the same goals as the Board of Directors of Mitsubishi.
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