Multinational Corporations and Globalization

Multinational Corporations

• Multinational corporations (MNCs) operate in multiple countries, with assets and/or factories beyond their home country.
• Management is often centralized.

Learning Outcomes

• Understand the history of foreign direct investment (FDI) and MNCs since the late 19th century.
• Grasp how MNCs function globally.
• Analyze the interplay between emerging global economies and fragmented international politics.

Multinational Corporations: Agents of Globalization

• MNCs are at the intersection of production, international trade, and cross-border investment.
• They sometimes are called transnational corporations (TNCs).
• Caves (1996) defines them as controlling and managing production in at least two countries.
• There are about 63,459 parent firms with 689,520 foreign affiliates.
• These entities control about 25% of global economic production and employ around 86 million people worldwide (UNCTAD 1999).
• Becoming a MNC involves foreign direct investment (FDI).

Foreign Direct Investment (FDI)

• FDI occurs when a company builds a new plant/factory in a different country or acquires an existing one.
• Reasons for FDI include securing access to natural resources and foreign markets.
• MNCs significantly contribute to global trade and production.

History of FDI and MNCs

• Before the 19th century, FDI was short-lived.
• By 1914, MNC operations were present in various industries (chemicals, pharmaceuticals, machinery, etc.).
• Britain was the dominant force in the 19th-century global capital export.
• Post-World War II, US firms significantly drove FDI.
• European and Japanese FDI grew after this period, leading to a more diversified landscape.

How MNCs Function

• They coordinate global operations in multiple countries.
• Often have a centralized headquarters for worldwide management.
• Can have budgets that exceed those of smaller nations.

Examples of Multinational Corporations

• Microsoft: Technology company headquartered in Redmond, Washington.
• Nestle: A Swiss food and beverage company, a global leader in terms of sales.
• Coca-Cola: A global soft drink company.
• PepsiCo: An American food and beverage company.
• Apple Inc.: A major technology company based in Cupertino, California.

Market Imperfections

• Market imperfections drive firms to internalize their transactions within their own company structure rather than through market mechanisms.

MNCs and Labor

• MNCs are sometimes criticized for labor practices.
• Allegations include exploiting workers in developing countries, low wages, and poor working conditions.
• Workers employed by MNCs in developing countries potentially get better treatment than local workers.
• Also accused of job losses in advanced economies, but this effect may be balanced by other job creation from FDI.

Regulating the Activity of MNCs

• Governments regulate MNC activity in order to use FDI to benefit their own economic purposes.
• This regulation can vary between advanced and developing countries.