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Transnational corporations SUM 3000/4000 March 7. 2006

Transnational corporations SUM 3000/4000 March 7. 2006. Audun Ruud, Centre for Development and the Environment - SUM University of Oslo. A Transnational corporations (TNC):

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Transnational corporations SUM 3000/4000 March 7. 2006

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  1. Transnational corporationsSUM 3000/4000March 7. 2006 Audun Ruud, Centre for Development and the Environment - SUM University of Oslo

  2. A Transnational corporations (TNC): is a corporation (firm) with power resources to control value-added activities in two or more countries – even without formal equity control of the commercial activity in question • Foreign Direct Investment (FDI): • Financial, physical or human transfers of capital with the purpose to control management and revenues. • A FDI contitutes a TNC FDI is normally related to shares of ownership beyond 50% (this is the reporting (tax) requirements in Norway). However, formal control can also be achived with significantly lower equity shares. Influence can even be exercised without any formal ownership of the unit/plant/firm in question

  3. Internationalization (Int.) refers to the extension of economic activities across national borders – for example through trade and investments. Globalization is qualitatively different as it also involves a functional integration across national borders of economic activities Internationalization creates a basis for globalization through increasing transnationalization (trans) driven by foreign investments. Bilateral Regional Global Int. Barents Sea Nordic Council EU WTO Trans. Raufoss’ supplies SAS Shell to Volvo Eurofighter

  4. There are three basic questions to be raised if we want to • study (or discuss) TNCs: • Why do TNCs exist? • How do they operate? • What are the effects of TNC activities? My own focus is particularly on politics impacts and execution of corporate power: What kind of power is used and what is the purpose?

  5. The Power relation between a TNC and political authorities (both at home and abroad ) may be a function of: The relative interest by the authorities The share of control that the TNC concerning the TNC activities X exercises over these activities _________________________________________________________ The relative interest the TNC has The share of control the autho- for what the authorities may offer rities have concerning the TNC activity in question However, is it feasible only to study this power relation as simply a function of Interests and control?

  6. TNC Vertsland Limitations Power resources Powerresources Limitations Degree of Technology Access to Alternative competition and and innovation, home market global concentration in integration Industy Management Control of natural resources Competition Finance between The corporate Solid infra- host countries dependency of Distribution structure the host country Trade balance as customer or Marketing Political climate and foreign debt distributor Employment Incentives Dependence of FDI ....... Political climate Advantage TNC Changes in relative bargaining strength Advantage host country However, structural and idea-based power also influence these dynamics

  7. Different national political-economic systems: ideological capitalist base: orientation: a. The market oriented state strong strong b. The regulation oriented state weak pragmatic strong c. The active developmental state weak pragmatic weaker d. The steering oriented state strong weak What is the actual national politics for sustainable development formulated by: a. The market oriented state ? b. The regulation oriented state ? c. The active developmental state ? d. The steering oriented state ?

  8. The current international political economy creates new dynamics: International politics; Government vs. government International economics; Firm vs. firm Actual decisions implemented ??? International political economy; Governments) vs. one or several firms International political economy is more than just states and markets. Firms are increasingly becoming an independent political agent! (In this context I consciously ignore the civil society as the focus is on TNCs)

  9. AUTHORITIES On which level, and with what kind of policy tools? National border ? TNC Where and to what extent LOCAL INDUSTRY On what conditions, and with what kind of knowledge

  10. Motivations driving TNCs to see promote FDI: 1.Markets for existing resources – down the value chain 2. New - up the value chain (upstream) 3. Efficiency gains – oriented toward current activities Often, all the three drivers influence the firm simultaneously, but often at different locations of the firm (at home (HQ) or abroad (OECD or LDCs) : A continous consideration of: International ko-ordination versus national adaptation

  11. The evolution of TNCs 3. Complex global strategy – (with growing service component High 1. Transnational strategy Focus: Control of raw materials 2. Multinational strategy Export-based strategy Low Low High Focus: Control of markets

  12. The features of national politics are increasingly influenced by corporate firm-specific strategies: positive Political needs in a host country Economic international requirements The strategy and action of the TNC negative

  13. To understand the direct impact of TNCs’ activities on sustainable development, first of all we need to understand: • The feature of the transnational organization • Then we need to study: • 2. Transnational transfers • What is transferred internally within the firm – including intra-firm trade • Then we need to study • 3. Transnational local demand • To what degree do the TNC procure goods and services locally? • 4. Transnational investments • What is de facto plought into local and the hosting economy/society • These are four necessary, but still insufficient question to answer • Sustainable Development is not created automatically? • To a large extent a question of politics

  14. Cross Border Environment Management A Systemic approach : 1. environmental policies 6 Control and communication 2. environmental standards 5 environmental auditing 3. environmental guidelines 4. local procedures A vicious or a virtuous circle? a race to the top or to the bottom?

  15. Factors influencing the environmental practice of TNCs in India: (findings based on fieldworking among 53 TNCs in 1999) Policy and practices of TNC headquarters: 50 per cent Regulations 23 per cent Local Management 13 per cent NGOs 6 per cent Consumers 6 per cent Fear of accidents (only) 2 per cent

  16. Policy implications based on a survey of 53 TNCs: • 1. TNCs are not necessarily using India as a dumping ground for • obsolete technologies • Local networking within the value-chain, however, is limited • Path dependency is strong • Developmental impacts are limited: • TNCs are creating ”islands of excellence in a sea of dirt”!

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