Transnational corporations
SUM 3000/4000
March 7. 2006
Audun Ruud,
Centre for Development and the Environment - SUM
University of Oslo
A Transnational corporations (TNC):
is a corporation (firm) with power resources to control valueadded 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
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.
Int.
Trans.
Bilateral
Barents Sea
Raufoss’ supplies
to Volvo
Regional
Nordic Council
EU
Global
SAS
Eurofighter
Shell
WTO
There are three basic questions to be raised if we want to
study (or discuss) TNCs:
1. Why do TNCs exist?
2. How do they operate?
3. 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?
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
for what the authorities may offer
The share of control the authorities 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?
TNC
Limitations
Degree of
competition and
concentration in
Industy
Power resources
Vertsland
Powerresources Limitations
Technology
and innovation,
Access to
home market
Management
Control of
natural resources
Finance
The corporate
dependency of
the host country
as customer or
distributor
Distribution
Solid infrastructure
Marketing
Political climate
Employment
Incentives
Alternative
global
integration
Competition
between
host countries
Trade balance
and foreign debt
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
Different national political-economic systems:
ideological
base:
a. The market oriented state
b. The regulation oriented state
c. The active developmental state
d. The steering oriented state
strong
weak pragmatic
weak pragmatic
strong
capitalist
orientation:
strong
strong
weaker
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
?
The current international political economy creates new dynamics:
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)
AUTHORITIES
On which level, and with
what kind of policy tools?
?
TNC
Where and to what extent
LOCAL INDUSTRY
On what conditions, and
with what kind of
knowledge
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
The evolution of TNCs
High
3. Complex global
strategy – (with growing
1. Transnational
strategy
service component
Focus:
Control
of raw
materials
Low
Export-based
strategy
2. Multinational
strategy
Low Focus: Control of markets
High
The features of national politics are increasingly influenced
by corporate firm-specific strategies:
positive
Political needs in a host country
negative
Economic international requirements
To understand the direct impact of TNCs’ activities on
sustainable development, first of all we need to understand:
1. 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
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?
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
Policy implications based on a survey of 53 TNCs:
1.
TNCs are not necessarily using India as a dumping ground for
obsolete technologies
2.
Local networking within the value-chain, however, is limited
3.
Path dependency is strong
4.
Developmental impacts are limited:
TNCs are creating ”islands of excellence in a sea of dirt”!