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Multi-national Corporations & Global Production

Multi-national Corporations & Global Production. Multi-national Corporations. Facts about Multi-national Corporations (MNCs) By the end of 1990s, produced a quarter of the global products Top 100 MNCs controlled 16% of world’s productive assets

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Multi-national Corporations & Global Production

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  1. Multi-national Corporations & Global Production

  2. Multi-national Corporations Facts about Multi-national Corporations (MNCs) • By the end of 1990s, produced a quarter of the global products • Top 100 MNCs controlled 16% of world’s productive assets • Increase in number in the last 20 years (tripled bteween ’88 and ‘97 ) • Political prominent and influential • MNCs are not free from domestic/foreign regulations • MNCs decide locations of investment based on: • Local government regulations • Tax incentives • Political stability • Infrastructure • Skilled, young and cost-effective labor force • Local market potential • 75% FDI goes to DCs

  3. Multi-national Corporations Facts about Multi-national Corporations (MNCs) • Job creation in LDCs • 19 million jobs in LDCs • MNCs also called “transnational firms” • Operate in two or more countries • at least one FDI project it has management rights or control • Ethnocentric in decision-making • D&R in home country • Geo-centric or stateless • Several MNCs entering into production alliance • Entry into foreign countries via joint-ventures

  4. Multi-national Corporations Rationale to Become Transnational Corporations • Establish, increase and defend market share • More competitive with local firms • Overcome trade barriers • Lower production costs • Avoid uncertainty • Limit competition • Avoid government scrutiny of business activities Methods of Operation • Horizontal integration • Production of same products in different subsidiaries overseas

  5. Multi-national Corporations Methods of Operation • Horizontal integration • Production of same products in different subsidiaries overseas • Vertical integration • Distribution of different production functions in different subsidiaries • R&D in home country • Technologically challenging assembly in NICs • Labor-intensive in LDCs

  6. Multi-national Corporations Factors Impacting MNCs Growth • Breakthroughs in communications, transportation, and technology • Rapid economic growth • International economic system and states welcoming MNCs activities • Increased global capital flow due to relaxation of capital control resulting in greater amount of FDI • Trade protectionism encourages MNCs expansion

  7. Multi-national Corporations MNCs and Foreign Direct Investment (FDI) • FDI traditionally concentrated in N America, Europe & Japan • DCs absorbed 80% of DFI as of 1995 • China, the only country absorbing large amounts of FDI Leading FDI Host Economies (1995) • USA • UK • France • China • Spain • Belgium • Netherlands • Australia • Canada

  8. Multi-national Corporations MNCs and Foreign Direct Investment (FDI) Leading FDI Host Economies (2004) • China • USA • UK • France

  9. MNCs and Development Perceived Benefits of MNCs • Provision of diversity of high-quality and low-priced products • Win-win gains for both MNCs and host nations • Serving the interest of the world community as a whole and against ultra-nationalism • Thus promoting world peace • Contributing to poverty in LDCs • Child labor in South Asia, a major problem where MNCs are insignificant in number • Child labor in East Asia, no longer a problem, where MNCs have a huge presence

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