As an investor, it's important for you to realize that global business consolidation is logical result of reduced world tariffs and regional free trade blocs like NAFTA and European Union. It's a trend that excites 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 Global Village. There are high tax countries like United States, Great Britain and People's Republic of China (PRC). There are low tax countries like Belize, Cayman Islands and 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 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 tax jurisdiction in which it will pay its taxes.

For example, if your company produces and sells a product in 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 PRC is 53%.

However, if you are a Belize Corporation and contract to have your products made in United States and it is then sold in 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 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 after tax profit to invest in growth over a domestic company. And more money a company can invest in its expansionm faster that company will grow. The faster a company grows, better 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 manufacturing country's domestic market can secure 50%-75% of their costs of a new plant from most countries in world. The reason is that 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

It's OPM. Banks don't have any money. They lend OPM. Brokerage Firms rarely risk their money; they rely on OPM to trade Market. Venture Capitalists, Hedge Fund Managers, Pension Funds and Insurance Companies are constantly searching for more OPM. Governments rely upon OPM to run country. So what's OPM? It's Other People's Money.

Understanding OPM is Key to Raising Risk Capital

The suppliers of OPM expect to be rewarded for their money. That reward is a combination of acceptable risk and profit. Often these investors don't fully understand Risk/Reward Ratio of their investment. To have any chance of succeeding over time, they should reduce investment proposals to a simple Risk/Reward ratio to determine their willingness to risk their money.

American Banks borrow money from their depositors and leverage it with tax dollars. The Depositors believe there is very little risk in loaning money to an American Bank and since 1934, no American bank depositor has lost their money in a bank failure, thanks to American taxpayer.

Losing At Bank

However, what bank depositors fail to realize is their 3% interest rate reward is inadequate to allow them to breakeven over time. They are taxed on their interest income at about 40%, thus their after tax income is about 1.8%. The current inflation rate is about 6%. Bank savings depositors are steadily losing money every year. To break even against inflation on a taxable investment requires a 10% interest rate. Thus, their Risk/Reward ratio is certain loss over time against a 0.03 annual reward. That's a Risk/Reward ratio of 100/0.03 over time. You would probably do far better in Las Vegas or Atlantic City!

Losing in Stock Markets

Brokerage Firm clients supply money (OPM) to play Stock Market. The public company failure rate on volatile end (Over-the-Counter and Over-the-Counter Bulletin Board) of U.S. Public Market is over 98%. To breakeven, client needs to sell their stock at a share price 98 times their investment. And that figure doesn't factor in taxes and inflation. It's rare that shareholders sell when share price doubles. Thus, their Risk/Reward ratio is 98% odds of loss over time against a twofold potential reward. The Risk/Reward ration is about 98/2.

At conservative end of U.S. stock market (the New York Stock Exchange), most share prices have traded within a narrow range of about 20%, for past couple of years. Thus, OPM investor's Risk/Reward ratio is even over past few years against a 0.02 reward. The shareholders reward isn't justified by fact that inflation rate is 6% and capital gains taxes of 23%. The Risk/Reward ratio is about 1/0.005

Why Most Venture Capitalists Fail