By Nicole
Laviney
Barton
Agenda
Definition
Development history
The influence on the
1. International trade
2. Developed and developing countries
3. Chinese economy
Examples
Problems
Summary and Conclusion
Definition
A multinational corporation is a corporation
enterprise that manages production or
deliver services in more than one country.
Also known as the international corporation.
It has its headquarters in one country, known as
home country, and operates wholly or partially
owned subsidiaries in one or more other
countries, known as host countries.
• On 1983, United Nation transnational
corporation center: 《三论世界发展中的跨
国公司》，the three basic elements for a
transnational corporation:
• 1. Set up entities in two or more countries
• 2. Having a central decision-making system,
and a common policy to reflect the global
strategic goals
3.Each entities in corporations share
resources, information, and responsibility.
Normally, the transnational corporation is
founded by the monopoly capital from one
home country, and set up subsidiaries in other
countries.
Development history
I . The beginning ( 1860s)
1.The early transnational company in Western
Developed countries
2.Directly related to Colonial expansion and export
of commodity and capital
3.Three most representative manufacturing
companies:
1865：German Friedrich Bayer Chemical
Company
1877：Sweden Alfred Nobel Company
1851：American Singer Sewing Machine
Company
II. Further development :
(The end of 19th century and the beginning of 20th
century)
Many US big companies begin foreign investment and built
factories or Branch companies overseas.
For example: International Harvester
Unilever
Bell Operating company
Switzerland Nestle Company
Features
1.Home company are UK, France, Germany, US,etc,
operational activity focus on countries which have export
markets or raw materials supplies.
2. Investment mainly goes to less developed countries.
Meanwhile, UK and other European countries invest on
their colonies.
3. Mainly on railways, public utilities, mining, Oil industry
and Agriculture.
Reasons for the development
1. Large production from machine industrilization
2. Accumulation of Capital for a few most powerful Capitalistic countries.
3. Monopoly in Industry sector transfer the Raw materials industry to
other countries.
4. Export capital to other countries  increase the foreign investment
becoming the earliest transnational company
5. Protective trade restrictions 
factories in local countries
Stimulate those companies to build
III. Faster developmet: Knowledge-based Economy
(The End of the Twenties Century)
1.The Economic growth of Japan and Western Europe—contribute to
the Transnational company
2. The US’s transnational company decline
3. Development in other developed and developing countries---Multi-polarization development
4. Three Economic Circle-- North-America, EU, Asian-Pacific---Strength
Internal Investment
5.Transfer to the Third Industry like service
Reasons for fast development after World Wars
1. Excess capital is the main reason to promote the outward
expansion of the transnational company
2. The international division of labor, and the internalization of
the production and capital
3. The developed countries’ needs for the international company
4. Developing countries’ needs for national economy development
IV. In New centuries
1. Mergers of the company to strength the power, and improve the
Global competitiveness
2. Strategic Alliance to make up for the gap
3. R & D cooperation tend to be internationalized.
4. E-commerce and network economy make the organization structure
more flexible
1) In 2010, the total value of goods export is more than
$15 trillion in the world, the growth rate is 14.5%
2) The total sales of the multinational company are $31
trillion in 2007, a 21% increase compared with 2006.
3) The output value of all transnational branches
company accounts for 11% of global GDP in 2007.
The proportion
of manufactured
goods trade
The proportion of
the primary
products trade
Manufacturing and oil companies such as GE,
BP, Shell, Toyota and Ford rank in the top 25
among non-financial sectors of the large
transnational companies.
The transnational service corporation in the
past 10 years developed rapidly, there are 20
transnational service corporations in top 100
corporations in 2006,compared with 1997 there
are only seven service corporations
Source: The World Investment Report in 2008
The proportion of foreign direct investment in service
rose from 32.2% in the end of 1970s to 52.7% in the
early 1980s. In 1993, it reached 78.3%. (US)
US Service Industry
Year
Ratio
1970s
32.2
1980s
52.7
1993
78.3
In 1990, the proportion of foreign direct
investment of the international trade in service is
48.87%, in 2003 , the proportion increased to
59.76%.
FDI of International Trade in Service
Year
1990
2003
Ratio
48.87
59.76
The changing trend and
degree of the structure in
transactional companies’
foreign direct investment
is consistent with the
change of international
trade.
Promote the total amount of trade in developed
countries, and stable the leading position of developed
countries in the international trade.
The most of foreign trades in developed countries are
the trade in transnational companies.
In 2000, there is only 13.8% of the companies are
transactional companies, but these transactional
companies held 95.1% of total export and 85.4%
of total import in Japan.
In 1997, the 97% of export and 80.7% of
import are related with transactional
companies in US.
Japan
US
Export
95.1%
97%
Import
85.4%
80.7%
1. The developing areas and countries that
received more foreign direct investment
develops very fast.
Since 1980 these countries’ average
economics growth rate is higher than the
developed countries and the overall level of
developing countries’ economics growth
rate.
2. The structure of the export goods in developing
countries and areas had improved a lot.
The transactional companies’ high technology
product occupies a big part of the total export. It
rose from 59% in 1996 to 81% in 2000.
High-tech export goods
Year
1996
2000
Ratio
59
81
• The transactional companies solve the
problem that financial shortage of domestic
construction.
• Improve the technology and management
level, push forward the industrial structure
adjustment and upgrading.
• Lower the unemployment rate, higher the
employment quality.
• Increase the government taxation.
The influence on Chinese Economy
Introduction
2007
2008
2009
406442
434937
434248
Investment 2108.8
(US billions)
2324.1
2500.0
Capital
1155.4
(US billions)
1300.6
1403.5
Number
Source: Database of General Administration of China Customs
The influence on Chinese Economy
Brief Ideas
Bring
Capital
Technology
Advanced management methods
Inject new vitality
Continuous annual economic growth rate more
than 8%
The influence on Chinese Economy
Increase the fiscal Income
one of the fastest growing sources of tax
revenue
sustained growth of import and export has
become the main driving force for the rapid
development of China's foreign trade
The influence on Chinese Economy
Export and Import Value and Ratio(US billions)
Value
2009
Ratio
2010
Ratio
2011
Ratio
Export 672.23 55.9%
862.31 54.6%
995.33 52.4%
Import 545.21 54.2%
738.00 52.9%
864.83 49.6%
Source: Database of General
Administration of China Customs
The influence on Chinese Economy
Balance International Payments
Year
Trade Surplus(US billions)
2007
261.83
2008
2009
298.13
195.69
Source: Database of General Administration of
China Customs.
The influence on Chinese Economy
Capital Inflow
Introduction and utilization of foreign
capital make up for lack of funds, and
also form the actual production capacity
The influence on Chinese Economy
Technological Improvements
Make up for technology gap
Overcome the drawbacks of lack of research
funding
Reduced R&D costs
Promote China's technological progress
The influence on Chinese Economy
Upgrade Industrial Structure
Stimulate and promote related industries and
services
Make use of idle resources
Transform the potential productivity into
practical productive forces
The influence on Chinese Economy
Personnel Training
Create employment opportunities
Train thousands of international business
personnel familiar with international business
environment, and professional skills, with a
multicultural perspective
Example: Yangtze River Delta
VS Pearl River Delta
Yangtze
River Delta
Pearl River
Delta
Example: Yangtze River Delta
VS Pearl River Delta
20
18
16
14
12
10
8
Guangdong
Jiangsu
Zhejiang
6
4
2
0
1978-1991
1992-2002
2003-2009
Source: Zhang, T, & Zhang, R.(2009). Human Capital and technology adoption.
Management World. 2: 1-8.
Why? FDI?
Romer-Mankiew-Weil Model
Y = A Ka Hb L1-a-b
(US billions)
200
180
160
140
120
100
80
60
40
20
0
Cumulative absorption of FDI until 2008
Guangdong
Jiangsu
Zhejiang
Source: Zhang, T, & Zhang, R.(2009). Human Capital and technology adoption.
Management World. 2: 1-8.
Why? R&D?
Companies
(%)
Programs
Expenditure
Ratio
Guangdong
4.8
3815
15.9 billion
10.9
Jiangsu
7.0
6318
43.9 billion
11.0
Zhejiang
6.4
5538
37.4 billion
12.9
Yangtze River Delta: high R&D inputs
Pearl River Delta: low R&D inputs
Source: Zhang, T, & Zhang, R.(2009). Human Capital and
technology adoption. Management World. 2: 1-8.
Why? Labor?
Ratio
Engineers
Professional
skilled labor
Guangdong
0.5
3.8
Jiangsu
0.7
4.4
Zhejiang
0.4
5.8
Then why?
• Pearl River Delta: leader area in the 1980s
“open-door” policy
Result: labor-intensive industry
Low-technology requirements
Low-skilled labor (Migrant workers 农民工）
Reason: when the transfer of industry from
Taiwan, Hong Kong, Singapore to China
But Yangtze River Delta
China’s manufacturing industry center
since Song Dynasty
Strong industrial base
Large numbers of high-skilled labor
Tradition of developing innovative
technology
Case Study: Coke Cola and Future Cola
Coca in China
• Coca Total Revenue in 2011: $465.42billion,
yearly sales growth rate is 5%
• In the market of China:2011 yearly sales
growth rate is 13%. The ninth year to achieve
double digit growth in China.
• Do they really make technical transfer to China,
or any other countries?
• No!
No fundamental technology, but
assembling technology
Source:http://money.163.com/12/0207/21/7PMISR2T002526O3.html
非常可乐
• Invented by Wahaha—Chinese own national beverage
company
• A kind of Disruptive technology---Copy Coca Cola
• Slogan： “Chinese own Cola” 中国人自己的可乐，
“Revitalize national industry”
• Market based on rural places，and encircling the cities
• In 2004, the first time, future cola enter the US market
source: http://ishare.iask.sina.com.cn/f/20329772.html?retcode=0
The influence on Chinese Economy
Problems
Capital outflow
Transfer technology
Occupy the Chinese markets, exclude
the local enterprises and businesses
Talent drain
Conclusion
Transnational Corporations
Problems
Benefits
1.Take advantages of foreign capital
2.Faster the pace of own technology innovation
3.Develop domestic consumption
Strengthen the national economy
References
•
•
•
•
China Statistical Yearbook 2010
Database of General Administration of China Customs
World Investment Report in 2008”
Zhang, T, & Zhang, R.(2009). Human Capital and
technology adoption. Management World. 2: 1-8.
• Zhou, W, & Sun, W. (2002). Analysis of the influence of
the transnational corporations on Chinese economy.
Journal of Liaoning Normal University. 25(4): 1-5.
• http://www.bob123.com/lunwen23/24386.html
• http://commerce.dbw.cn/system/2008/09/26/0000817
06.shtml
Question
 1. Does the transnational company
really promotes technical innovation in
China? What’s the regional evidences?
 2. How will it influence Chinese
international trade if Chinese
government want to slow down the
economy? (growth rate change from 8%
to 7.5% )
 3. Considering those problems, what are
the futures of transnational corporations
in China?