Agenda
Plug WCAG Meeting
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Field Trip
Tests
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60-83: Mean of 70.4
Prospectus
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Topics roll-call
TNC
The Transnational Corporation
TNC=MNC=MNE
Significance
Macro-Level Theory: Circuits of Capital
Micro-Level Theory: Thursday
Models of TNC development
In what sense “global corporations”?
Webs of enterprise – internal organization
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Organization structures
Restructuring and rationalization
Geographical organization of production
Webs of enterprise – external relationships
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Japanese keiretsu structures
Supplier links and subcontracting
Explaining the TNC
Is explaining FDI tantamount to
explaining the TNC?
No!
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FDI is one measure, asset ownership
TNC operations are significant for other
reasons:
 Strategic alliances
 Coordinate and control transactions with other
firms and governments
Characteristics of the TNC
Coordinate and control transactions within
production networks
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Domestically
Globally
Capacity to exploit geographical differences
in factor costs and in state regulatory policies
Geographical flexibility – ability to switch
operations between locations at a global scale
Circuits of Capital
Macro-scale model
Interconnection of trade in:
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Finance
Production
Commodity
M–C…P…C’-M’
Let’s unpack this
Circuits of Capital
M–C…P…C’-M’
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’ increase in value
– transaction
… interruption in circulation during transformatio
M is money capital
C is commodity capital
P is
 Process of production
 Productive capital
Around and around we go accumulating capital
Developmental Models
MNC Growth
Graphic description
Sequential
process
Flow chart from
domestic firm to
TNC
Except that there
are no true
prerequisite steps!
Source: Dicken
1998: 191
Schematic Model
Iconic model
Emphasizing spatial/ regional expansion
Stages of growth
Trade barriers
Hakanson (1979)
Grid model
A way of
conceptualizing two
fundamental
dimensions
Static typology or
classification OR
Dynamic model
showing development
pathway?
Eclectic Paradigm of TNC Growth &
Development
Microlevel model
Stephen Hymer and John Dunning
Firms will internationalize when three
conditions are met:
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Ownership-specific advantages
Internalization
Location specific advantages
Eclectic Paradigm: Ownership-specific advantages
O-S A are ‘assets’ internal to the firm
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Information or knowledge-based
 Legally protected, proprietary
 Brand and reputation
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Organization
Human skills
Size and market power
Eclectic Paradigm: Internalization
Why internalize (DiY)?
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After all:
 Could export goods
 Could license technology
Market imperfections
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Uncertainty about export access and foreign
exchange
Uncertainty about control over proprietary
technology and quality
Internalization also driven to gain control over
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Quality/cost/availability of critical inputs
Eclectic Paradigm: Location-specific advantages
Locational advantages available on the
same terms to all firms whatever their
size or nationality (??)
Access to:
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Markets
Resources
Production costs
Political stability/cultural affinity
A Critique of the Global Firm
Concept…
A Typology of Enterprise: From Domestic to Global I
Domestic Company:
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Most revenues in home market
Products and processes are primarily for serving
domestic customers
International Company:
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Significant percentage of revenues in international
activities but domestic market is dominant
Overseas operations seen as appendage to
domestic ops.
May have separate international division
Significant distinctions in products and processes
made between domestic and foreign customers
A Typology of Enterprise: From Domestic to Global II
Multinational or Multidomestic Company:
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Extensive international revenues and activities
Strong country organizations and many value chain
activities duplicated around world
Decisions focused on local customer and local markets
Limited coordination across borders
Global Company:
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Makes key strategic decisions on globally integrated
basis
Value chain is geographically specialized and
networked
Products and processes are designed to be global with
capability for local adaptation at minimal cost
A Typology of Enterprise: From Domestic to Global III
What kind of model is this?
Source: "The Challenge of Global
Customer Management" Marketing
Management; Chicago; Winter 2000;
David B. Montgomery, George S. Yip.
Are TNCs Truly Global and Stateless”?
Criteria for Identifying Global Firms
Where are the bulk of assets?
Where are most employees?
Where is the parent company owned and controlled?
What is the nationality of the senior executives?
What is the nationality of subsidiary managers?
Where would firm turn for diplomatic protection?
Where are worldwide earnings taxable?
Source: Hu 1992 California Management Review
Measuring Global Scope
Rank by Ri
Ri Index of transnationality: average of
three ratios (proportions)
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Foreign assets/total assets
Foreign sales/total sales
Foreign employment/total employment
Let’s look at how they rank! (Table 7.2)
Ranked by TNI
What do we learn from this data?
Largest TNC (GE) in foreign assets,
ranks 75 in TNI
4th largest TNC (GM) in foreign assets
ranks 83
6th largest TNC (Toyota) in foreign
assets ranks 82
Can they be really global?
What do we learn from this data?
Largest TNCs are national corporations
with international operations
They remain distinctively tied to home
base
They retain a local ‘embeddedness’
Local origins influence how firms
develop and behave
Webs of enterprise – internal
organization
Organization structures
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Functional
Product
Regional
Restructuring and rationalization
Geographical organization of production
Organization
structures of
TNCs
Internal
networks
Locational
adjustment &
rationalization
in a multiproduct
TNC
Organizing
production
in space
Organizing
production
in space +
trade links
Exported
finished
product
External Networks
Transactions between firms
Supplier linkages
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Parts, components, subassemblies
Subcontractors
Local to global scale linkages
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Web of trade, transactions, relationships
Deep integration
Keiretsu – Japanese Style of
Interfirm Alliances
Vertical Keiretsu
Horizontal Keiretsu
Keiretsu
Stable, long term, exclusive affiliations
which form identifiable groups
Families of related companies based on
mutual obligations
Ties are based on familial relationships,
friendship, interlocking directorships,
financial links
Reminiscent of Japanese feudalism
Keiretsu Schematic Diagram
Horizontal keiretsu
Diversified Groups centred on banks
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manufacturing
trading companies - sogo shosha
life insurance
other financial
Horizontal keiretsu,
some with origins to
the pre 1945 zaibatsu
Vertical keiretsu
Centred on large parent firm in one industry
e.g.
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Toyota (automotive)
Sony (electronics)
Kirin (brewing)
Suppliers have suppliers which have suppliers
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a nested hierarchy of progressively smaller firms
Satellite firm can supply only one larger firm
Sub-contractors: shitauke
Vertical keiretsu,
focused on industries
and vertically linked to
satellite firms (not
shown)
Combining horizontal and
vertical keiretsu, we get…
Webs of Enterprise!
Links between
horizontally and
vertically structured
keiretsu
Focus on major automobile
producers as vertical
keiretsu:
Note mainly exclusive links
to banks,
hence to other
manufacturing industries
and suppliers