3.10.1 GLOBALIZATION OF ECONOMIC ACTIVITY

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3.10.1 GLOBALIZATION OF ECONOMIC ACTIVITY

• THE GROWTH OF TRANSNATIONAL CORPORATIONS

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What is a Multinational Business?

• A multinational business PRODUCES SELLS goods
  in more than one country
• A multinational is NOT just a business which just
  SELLS goods in more than one country

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What is transnational (multinational) corporation?

• A corporation that operates in many different
  countries regardless of national boundaries
• According to Peter Dicken
• a firm that has the power to coordinate and
  control operations in more than one country, even
  if it does not own them

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Examples of transnational corporations

• Royal Dutch/Shell explores for oil in 50
  countries, refines in 34, and markets in 100.
• Offices of the US food processing firm H.J. Heinz
  cover six continents
• Cargill, the US's largest grain company, operates
  in 54 countries.
• Britain's leading chemical company ICI has
  manufacturing operations in 40 nations and sales
  affiliates in 150.

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Facts about transnational corporations (TNC)

• A rough estimate suggests that the 300 largest
  TNCs own or control at least one-quarter of the
  entire world's productive assets, worth about
  US5 trillion.

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• TNCs' total annual sales are comparable to or
  greater than the yearly gross domestic product
  (GDP) of most countries (GDP is the total output
  of goods and services for final use by a nation's
  economy).
• e.g. Royal Dutch/Shell sales equal Iran's GDP.
• Mitsui and General Motors sales together are
  greater than the GDPs of Denmark, Portugal, and
  Turkey combined.

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• TNCs account for 5 per cent of world employment
• Although TNCs employ only a small fraction of the
  world's workforce, they are particularly
  important employers in some sectors and nations.

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• e.g. TNCs account for one fifth of all paid
  employment in non-agricultural sectors and are
  particularly important in manufacturing
  industries in which technology is important.
• In the mid-1980s, 50 per cent of employed
  individuals in Ghana and Tunisia were working in
  transnational corporations.
• TNCs engaged in manufacturing account for over
  20 per cent of all employment in developing
  countries such as Argentina, Indonesia, Malaysia
  and Sri Lanka.

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• TNCs are the driving force behind economic
  globalization
• There are few parts of the world not influenced
  by TNCs
• Apart from their direct ownership of productive
  activities, many TNCs have collaborative
  relationships with other companies e.g. Nike
• A large percentage of world trade takes place
  between TNCs

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Advantages of becoming a multinational
For the firm.

• Economies of scale
• Low labour costs
• Reduced transport costs
• Increased sales
• Obtain raw materials

• Spread risks
• Higher profits
• Find new markets
• Avoid trade barriers

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Advantages of Multinationals
For the host country.

• New investment in their country
• Jobs created
• Additional Tax
• More competition
• More favourable Balance of Payment
• Fewer Imports
• More exports

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Disadvantages of multinationals
For the host country.

• Extra competition
• Profits often leave the country
• Use up scarce raw materials
• High influence over the country
• Exploitation of workers
• May move if variables change

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What are the advantages and disadvantages of a
TNC to the host country