GS 1 – Introduction to Global Studies
Professor: Dr. Jean-Paul Rodrigue
Topic 2 – The Global Economy
A – Genesis of the Global Economy
B – Multinational Corporations
C – International Trade and Transportation
Hofstra University, Department of Global Studies & Geography
B – MULTINATIONAL CORPORATIONS
Corporations in the Global Economy
The Structure of Multinationals
Impacts of Multinationals
Large Multinational Corporations
© Dr. Jean-Paul Rodrigue
Corporations in the Global Economy
■ Context
• The global economy is organized by trade and infrastructures
supporting these exchanges.
• Corporations:
•
•
•
•
•
•
•
Separate legal entity, usually used to conduct business.
Main agents generating trade and using the international transport system.
Some are generators of movements (producers).
Some are attractors of movements (retailers).
Some are involved in transportation and distribution.
Some provide services (law, accounting).
The great majority combine elements of the above.
• The territory over which a corporation exercises its influence took
a new dimension facing globalization.
© Dr. Jean-Paul Rodrigue
The Corporation as a Decision, Management and Planning Unit
Management Unit
Decision Unit
Planning Unit
Nature
Maintain operational
conditions.
Decisions about the
allocation of
resources.
Anticipate market
changes and
opportunities. Allocate
its factors of production.
Scope
Production, sales,
marketing, payroll,
distribution.
Financial, labor, raw
materials, etc.
Economic,
technological, social
and political change.
Time
frame
Short term
(production cycles).
Short to long term
(product cycles).
Medium to long term
(business cycles).
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© Dr. Jean-Paul Rodrigue
Conflicting Elements of a Corporation: Reconciling the Needs of
Shareholders, Employees, the Society and Customers
• Highest dividend
possible.
• Share value
growth.
• Highest
compensation.
• Various benefits.
Shareholders
Employees
Explain the conflicting
elements a corporation
is trying to reconcile.
Society
(State)
• Tax collection.
• Regulations (wages,
benefits,
environment, etc.)
Customers
• Lowest price.
• Highest quality.
© Dr. Jean-Paul Rodrigue
The Structure of Multinationals
■ Multinational corporation (MNC)
• Provides goods and/or services.
• A corporation that takes a global approach for:
• Its inputs (raw materials, parts).
• Its outputs (customers).
• Different parts of the industrial system are located in places
where they are the most productive.
© Dr. Jean-Paul Rodrigue
What Multinational Corporations Do?
Foreign production
• Through affiliates located in several countries
• Exploitation of comparative advantages
Direct control
• Policies and activities of affiliate
• Different forms of ownership (often stocks)
Business strategies
• Production, marketing, finance and labor
© Dr. Jean-Paul Rodrigue
Types of Multinational Corporations by Strategy
Raw Materials Seekers
• Lower input costs
• Resource acquisition
• First MNCs to emerge
Market Seekers
• Achieve economies of scale
• Expand market
• Large investors in retail and marketing
Minimal Cost Seekers
• Look for comparative advantages
• Lower production and distribution costs
• Remain competitive
© Dr. Jean-Paul Rodrigue
Globally Integrated and Multidomestic Corporation
Globally Integrated Corporation
Production system located in several
countries.
Complex products or resources.
Interdependency in productivity.
Importance of logistics.
Multidomestic Corporation
Independent operations.
Simple products.
Production can be integrated globally,
while the marketing is multidomestic.
Better answer the needs of every
market.
Independency in productivity.
© Dr. Jean-Paul Rodrigue
How Multinational Corporations are Competing?
Lower production costs
• One of the main goals of a corporation. Exploitation of comparative advantages.
Stability of prices and deliveries
• The rationale of low costs must also take account of price changes of raw materials and parts.
Risky to relocate (long-term investment) to take advantage of conditions that can change on
the short term.
Product quality
• Performance, service and maintenance. A quantitatively competitive product has limited
advantages if not qualitatively competitive.
Production and distribution flexibility
• Facing changes in the demand confers a notable advantage.
© Dr. Jean-Paul Rodrigue
• Less innovative
sectors
• Mostly financial
(holdings)
• Outsourcing
State support
• Resource,
technology,
product
• Technology and
Innovation
Better management
New market opportunity
The Growth of Large Multinationals: Three Main Options
• Regulatory
support or
coercion
• Large
government
contracts (e.g.
defense
corporations)
• Corporate
socialism
© Dr. Jean-Paul Rodrigue
The World’s 20 Largest Corporations by Market Value, 2013 ($US
millions)
Roche
China Construction Bank
Pfizer
Royal Dutch Shell
Procter & Gamble
Google
China Mobile
Samsung
Johnson & Johnson
Industrial & Commerical Bank of China
Chevron
Nestle
IBM
Microsoft
General Electric
Wal-Mart
PetroChina
Berkshire Hathaway
Exxon Mobil
Apple
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How can the size of a
corporation be measured?
0
50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000
© Dr. Jean-Paul Rodrigue
Short Assignment: The Impacts of Multinationals
"(A corporation has) neither body to jail nor soul to damn." - Lord Edward Thurlow (1731-1806)
Positive
Favor economic growth
(employment)
Provision of investment capital
Provision of goods and services
Transfer of technology and skills
Increase export opportunities
Negative
Balance of payments (repatriation of
profits)
High influence over governments
Compete with local businesses
Oligopoly / monopoly on local
market
Leverage (can relocate / threaten to)
© Dr. Jean-Paul Rodrigue
C – INTERNATIONAL TRADE AND
TRANSPORTATION
Trade and the Global Economy
Global Trade Patterns
International Transportation
© Dr. Jean-Paul Rodrigue
International Trade: A Definition
Exchange across national jurisdictions
• Goods or services.
• Trade between US states is not international trade.
Directional
• Inbound trade: imports.
• Outbound trade: exports.
Regulatory oversight
• Customs and tariffs.
• Nations control what crosses their borders.
© Dr. Jean-Paul Rodrigue
Trade and the Global Economy
Economic efficiency
• Sell what is produced in surplus and acquire what is lacking.
• Lower productions costs (cheaper inputs).
• Achieve economies of scale (larger markets).
Accessibility to capital, labor and resources
• Large variety of resources being made accessible.
• Raw materials, energy, goods, food and labor.
• Exchanges of capital, merchandises, raw materials and services.
Interdependencies
• Spatial interdependencies between elements of the world-system.
• The more integrated economies are, the more they trade.
• Indirectly promote harmonious relations.
© Dr. Jean-Paul Rodrigue
Explain the economic rationale
of trade
Country 1
Country 3
Country 4
Country 3
Country 2
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Country 4
Without Trade
Small national markets.
Limited economies of scale.
High prices and near
monopoly.
Limited product diversity.
Different standards.
Country 2
Country 1
Economic Rationale of Trade
With Trade
Increased competition.
Economies of scale.
Specialization.
Lower prices.
Interdependencies
© Dr. Jean-Paul Rodrigue
Trends Shaping International Trade
Ongoing Growth
• Value of exports: 48 times in current dollars. GDP 22 times and
population 1.8 times.
Containerization
• Grows at a rate faster than trade and GDP growth.
Export-Oriented Economies
• Imbalances in trade relations.
Multinational Corporations
• Vectors of international trade.
© Dr. Jean-Paul Rodrigue
Share of Product Groups in World Merchandise Trade, 1900-2012
100%
5.0
5.1
4.5
3.4
4.5
3.7
3.1
3.6
66.5
64.1
90%
80%
40.0
40.0
45.0
44.7
70%
52.3
61.0
55.0
70.4
60%
74.8
Other
Manufactures
Fuels
50%
Mining Products
40%
30%
Natural Resources
Agricultural Products
57.0
54.2
43.6
20%
31.7
10%
26.1
18.1
13.1
10.7
7.8
7.9
9.2
1990
2000
2008
2012
0%
1900
1925
1938
1955
1963
1970
1980
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© Dr. Jean-Paul Rodrigue
Modal Shares of World Trade by Volume and Value, 2008
Volume
0.25
Value
9.96
14.32
Seaborne
Airborne
Overland
89.79
Seaborne
Airborne
Overland
12.97
72.71
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World’s 20 Largest Exporters and Importers, 2013
Chinese Taipei
India
Imports
Spain
Exports
Saudi Arabia
United Arab Emirates
Mexico
Singapore
Canada
Belgium
Italy
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Russian Federation
Hong Kong, China
United Kingdom
Korea, Republic of
France
Netherlands
Japan
Germany
United States
China
0
500
1000
Billions of USD
1500
2000
2500
© Dr. Jean-Paul Rodrigue
American Foreign Trade by Maritime Containers, 2010 (in TEUs)
Importers
Whirlpool
Nike
Red Bull
General Electric
Jarden
Ashley Furniture
Costco Wholsale
JC Penney
Ikea Intl.
LG Group
Samsung
Chiquita
Philips
Heineken
Dole Food
Sears Holding
Lowe's
Home Depot
Target
Wal-Mart
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Exporters
64,100
72,300
74,000
76,700
77,100
77,300
83,000
89,900
95,700
101,900
109,100
117,100
127,200
129,000
211,200
212,800
221,600
296,700
455,500
696,000
0
200,000
400,000
600,000
800,000
Eastman Chemical
Scoular
Cargill
Sims Metal Management
SDDC
Cedarwood-Young
Meadwestvaco
BASF
Delong
ExxonMobil
Potential Industries
Allenberg Cotton
Shintech
JC Horizon
Newport CH Intl
Dupont
Dow Chemical
Weyerhaeuser
Koch Industries
America Chung Nam
48,100
50,200
51,200
52,200
60,200
60,400
63,700
70,200
75,300
75,500
78,600
78,700
79,800
82,700
93,100
93,600
109,300
113,900
122,400
300,800
0
200,000 400,000 600,000 800,000
© Dr. Jean-Paul Rodrigue
Cumulative Waves of Transport Development
17-18th Century
19th Century
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20th Century
Air
21st Century
Airports
Land
Punctual
inland access
Inland and
national
accessibility
Canals
Railways
Global
mobility
systems
Highways
National
mobility
systems
Maritime
Sailships
Steamships
Empires and global
trade networks
Explain the main transport developments
since the 17th century
International
trade and
mobility
Containerships
Global
distribution
systems
© Dr. Jean-Paul Rodrigue
Maritime Shipping Routes and Strategic Locations
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World’s Major Container Ports, 2012
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Passenger Traffic at the World’s Largest Airports, 2010
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Freight Traffic at the World’s Largest Airports, 2010
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Global Transport
Using the maps on the previous slides, provide an overview of the
global transport system such as its main hubs and flows.
© Dr. Jean-Paul Rodrigue