Transcript 3.10.1 GLOBALIZATION OF ECONOMIC ACTIVITY

3.10.1 GLOBALIZATION OF
ECONOMIC ACTIVITY
THE GROWTH OF TRANSNATIONAL
CORPORATIONS
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
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”
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.
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 US$5 trillion.
• 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.
• TNC’s 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.
e.g. TNC’s 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.
• 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
Advantages of becoming a
multinational
For the firm….
• Economies of scale
•Spread risks
– Low labour costs
– Reduced transport costs •Higher profits
– Increased sales
• Obtain raw materials
•Find new markets
•Avoid trade barriers
Advantages of
Multinationals
For the host country….
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New investment in their country
Jobs created
Additional Tax
More competition
More favourable Balance of Payment
– Fewer Imports
– More exports
Disadvantages of
multinationals
For the host country….
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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
What are the advantages and
disadvantages of a TNC to the
host country