Multinationals and
Globalisation
More materials from John Birchall
Globalisation: Setting the Scene


Current issues in the global
economy
Defining globalisation



global economic interdependence
implications for business
What is driving globalisation?




market drivers
cost drivers
government drivers
competitive drivers
The drivers of globalisation
Market drivers
Cost drivers
Per capita income converging among industrialised
nations
Continuing push for economies of scale
Convergence of lifestyles and tastes
Organisations beginning to behave as global customers
Increasing travel creating global consumers
Growth of global and regional channels
Establishment of world brands
Accelerating technological innovation
Advances in transportation
Emergence of newly industrialised countries with
productive capability and low labour costs.
Increasing cost of product development relative to
market life
Push to develop global advertising
Government drivers
Competitive drivers
Reduction of tariff barriers
Continuing increases in the level of world trade
Reduction of non-tariff barriers
Increased ownership of corporations by foreign
acquirors
Creation of blocs
Decline in role of governments as producers and
customers
Rise of new competitors intent upon becoming global
competitors
Privatisation in previously state-dominated economies
Growth of global networks making countries
interdependent in particular industries
Shift to open market economies from closed communist
systems in eastern Europe
Increasing participation of China and India in the global
economy
More companies becoming globally centred rather than
nationally centred
Increased formation of global strategic alliances
Other drivers
Globalisation of financial markets
Revolution in information and communication
Improvements in business travel
Comparison of the 10 largest multinational corporations
(by gross revenue) and selected countries (by GDP): 2002
MNC
rank
1
2
3
4
5
6
7
8
9
10
Country or
Company
USA
Wal-Mart Stores
Indonesia
Denmark
Exxon Mobil
General Motors
BP
Greece
China: Hong Kong
Ford Motor
Finland
Ireland
Enron
DaimlerChrysler
Royal Dutch/Shell Group
Thailand
Iran
General Electric
Argentina
Toyota Motor
Malaysia
Chile
Luxembourg
Kenya
Albania
GDP ($bn) or
gross revenue
($bn)
10,869.1
219.8
212.9
205.1
191.6
177.3
174.2
165.2
165.1
162.4
158.2
150.2
138.7
136.9
135.2
132.4
127.8
125.9
121.8
120.8
102.7
65.9
23.8
12.9
5.3
FDI inflows ($ millions)
1,600,000
1,400,000
World
1,200,000
FDI inflows ($ millions)
.
Developed countries
Developing countries
1,000,000
800,000
600,000
400,000
200,000
0
1970
1975
1980
1985
1990
1995
2000
FDI inflows
FDI as % of gross fixed capital formation
30.0
25.0
Developed countries
20.0
15.0
Developing countries
10.0
5.0
0.0
1985
1990
1995
2000
Multinational Corporations

Diversity among MNCs

size

the nature of the business

overseas business relative to total
business

production locations

ownership patterns

organisational structure
Why do Businesses go Multinational?


Categories of multinational organisation

horizontally integrated

vertically integrated

conglomerate
Advantages to firms

reductions in costs

international differences in factor prices

international differences in factor productivity

low-cost access to local markets

spreading overheads
Why do Businesses go Multinational?

Advantages to firms (cont.)

government support in host countries





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increased demand
spreading risks
can exploit advantages over local firms




lower taxes
subsidies
provision of infrastructure
ownership of superior technology
entrepreneurial and managerial skills
R&D capacity
access to local technology
Why do Businesses go Multinational?

The product life cycle and the MNC





the launch phase
the growth phase
maturity
late maturity and decline
Problems facing multinationals




language barriers
selling and marketing
relations with host governments
relationships between subsidiaries
MNC Investment and the Host State


Advantages of MNC investment

employment

balance of payments

technology transfer

tax revenues
Disadvantages

uncertainty

power and control by the MNC over the host

transfer pricing

the environment
MNCs and Developing Countries


The scale of MNC investment in
developing countries
Advantages to host country

the saving gap

the importance of development finance

the contribution of saving to growth

the foreign exchange gap

public finance gap

skills and technology gaps
MNCs and Developing Countries

Disadvantages to host country

MNCs may drive local firms out of business

limited demand for local components

repatriation of profits

transfer pricing and effects on tax
revenues


competition between developing
countries to attract MNCs
distorting the whole pattern of
development

increasing gap between rich and poor
What can developing countries do?





Accept a period of considerable economic
control being in external hands
Aim to negotiate best tax, royalty deals
Insist on training, environmental
awareness and social concern being part
of MNC responsibility
Spend receipts on sustainable
development
Link aid, inward investment and domestic
enterprise, so adding value and keeping a
high proportion of this within the country.
GDP and GDP Growth - Zimbabwe