Invest in Multinational Corporations

By: William Cate

Invest in Multinational Corporations
By William Cate
July 2004
[http://home.earthlink.net/~beowulfinvestments/]
[http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]

As an investor, it's important for you to realize that global business consolidation is the logical result of reduced world tariffs and regional free trade blocs like NAFTA and the European Union. It's a trend that excites the imagination of smart investors. Simply put, Multinational Corporation investment offers a better Risk/Reward ratio than investment in national or regional companies. Let me explain why this is and why you should seek such companies for your investment dollars.

Lower Taxes Means Greater Profit

Business taxation isn't uniform in the Global Village. There are high tax countries like the United States, Great Britain and the People's Republic of China (PRC). There are low tax countries like Belize, the Cayman Islands and the Bahamas. A multinational corporation can pick its tax jurisdiction and thus limit its tax obligations. Doing so translates instantly into greater profits.

Any company that produces and sells its product in the same country will be subject to taxation on its profits in that country. So a domestic company, focused on building its local market, won't benefit from incorporation in a low tax jurisdiction. However, a company that produces its products in one country and sells those products in another country can select the tax jurisdiction in which it will pay its taxes.

For example, if your company produces and sells a product in the PRC and your gross profit is US$100,000, your after tax profit will be US$47,000. Why? The effective business tax rate in the PRC is 53%.

However, if you are a Belize Corporation and contract to have your products made in the United States and it is then sold in the PRC, giving you a gross profit of US$100,000, your after tax profit will be $99,400. Why such a huge difference? The Belize effective tax, no matter the company's gross profit, is currently US$600/year. Any company not considering such possibilities is cheating itself and it's shareholders - meaning you - of significant returns.

Using our example, a multinational corporation will have over twice the after tax profit to invest in growth over a domestic company. And the more money a company can invest in its expansionm the faster that company will grow. The faster a company grows, the better the risk/reward ratio for investors.

That's why it's critical you look for such companies in which to invest your funds.

Investment Without Repayment Obligations

The mantra for governments from Malaysia to Senegal is "create jobs and ensure political stability." Any company with an established export market outside of the manufacturing country's domestic market can secure 50%-75% of their costs of a new plant from most countries in the world. The reason is that the multinational corporation will create local manufacturing jobs and thus ensure domestic political stability. Politicians will do almost anything to ensure that stability. Their jobs depend on it.

Lowering Taxes

The first offer from most countries seeking to interest a multinational corporation in building their new plant in the bidder's country usually includes a multiyear tax holiday. If the company considering overseas expansion is from the United States or Singapore, the tax holiday offer is meaningless, because US and Singapore companies are taxed on their worldwide income. If the expanding multinational corporation is incorporated in the Cayman Islands or Belize, the offer of a tax holiday is a major benefit to the company. Good companies always shop around for such offers, looking for the best combination of location, labor market and government corporate benefits.

When the European Union (EU) decided to expand eastward into Poland, Hungary and the Czech Republic, Brussels realized that many of the industries in these countries could not compete with their counterparts in Western Europe. The reason? Their factories needed renovation and major modernization in order to compete.

The EU acquired these antiquated factories and offered them for sale for one Euro to any multinational corporation willing to invest the millions of dollars needed for modernization. After the multinational corporation modernized the plant, the EU loaned the corporation 92% of the renovation costs of that modern plant, at a very low interest rate.

So the multinational corporation acquired (with very low interest debt) a modern local plant with an already established local marketing network for 8% of the costs of building a new plant in the country. Their modernized plant also had tariff-free access to the EU! I'm unaware of any of these investments that weren't fully recovered within five years.

Multinational corporations have regular access to funding opportunities unavailable to domestic companies. This "money for jobs" Government investment policy reduces the multinational corporation's overhead, diminishes business risk and increases profits.

Tariffs Can Be Circumvented

Tariffs are taxes that inhibit the growth of world trade. While the trend is toward free global trade, tariffs still exist. However, there is always a way around tariffs for multinational corporations. For instance, if you want instant free trade access to both the EU and the USA, manufacture in Israel. If you have a low-tech product and want free trade access to the EU, make it in Senegal, since they have a free trade agreement with France. The list of bypasses around tariffs is long and grows as NAFTA and the EU expand.

Creating the Hundred Million Dollar Multinational Corporation

Creating a regional multinational corporation requires an understanding of the economic benefits of being a multinational corporation. They aren't hard.

It requires an understanding of the tax and funding potential within your region of the world. This is easy information to acquire.

Simply put, it's critical business information to ensure getting the most for your production dollar.

The point isn't simply to raise some money by going public in the States and using US Dollars and your shares to buy cash-producing assets. The point is being able to leverage your assets with the incentives offered by local governments for the purpose of maximizing your company's profits.

Then, you reinvest your increased profits by acquiring more cash producing assets. Your search for business success always includes new ways to use local government incentives, loans and grants to maximize your profits.

There are major tax and investment advantages to being a multinational corporation. Once you realize this fact, Beowulf Investments can help you develop a plan to take advantage of the Government Mantra to create jobs. After 20 years in this business, we've learned the unique ways to stretch your production dollar and expand your business more rapidly by doing so.

The specific tactics to employ these benefits to your multinational corporation should, of course, be reviewed by local Chartered Accountants and Tax Attorneys. You must be certain that the local Government you choose applies the job incentives in the manner they claim.

To contact the author: Visit the Beowulf Investments website: [http://home.earthlink.net/~beowulfinvestments/] OrPsychology Articles, visit the Global Village Investment Club Website:
[http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]

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