12

Globalisation and
Multinational
Corporations
 Multinational Corporations
■ Diversity among MNCs
✜ size
✦ the
comparative size of MNCs and countries'
GDP
 Comparison of the 10 largest multinational corporations
(by gross revenue) and selected countries (by GDP): 2002
 Comparison of the 10 largest multinational corporations
(by gross revenue) and selected countries (by GDP): 2002
 Multinational Corporations
■ Diversity among MNCs
✜ size
✜ the nature of the business
 Multinational Corporations
■ Diversity among MNCs
✜ size
✜ the nature of the business
✜ overseas business relative to total business
 Multinational Corporations
■ Diversity among MNCs
✜ size
✜ the nature of the business
✜ overseas business relative to total business
✜ production locations
 Multinational Corporations
■ Diversity among MNCs
✜ size
✜ the nature of the business
✜ overseas business relative to total business
✜ production locations
✜ ownership patterns
 Multinational Corporations
■ Diversity among MNCs
✜ size
✜ the nature of the business
✜ overseas business relative to total business
✜ production locations
✜ ownership patterns
✜ organisational structure
 Multinational Corporations
■ Diversity among MNCs
✜ size
✜ the nature of the business
✜ overseas business relative to total business
✜ production locations
✜ ownership patterns
✜ organisational structure
■ Trends in multinational investment
 Multinational Corporations
■ Diversity among MNCs
✜ size
✜ the nature of the business
✜ overseas business relative to total business
✜ production locations
✜ ownership patterns
✜ organisational structure
■ Trends in multinational investment
✜ the growth and geography of FDI
 FDI inflows (% of gross fixed capital formation)
25
FDI as % of gross fixed capital formation

20

15

10

0
1985 1990 1995 2000
 FDI inflows (% of gross fixed capital formation)
25
FDI as % of gross fixed capital formation

20
Advanced countries

15

10

0
1985 1990 1995 2000
 FDI inflows (% of gross fixed capital formation)
25
FDI as % of gross fixed capital formation

20
Advanced countries

15

Developing countries
10

0
1985 1990 1995 2000
 Multinational Corporations
■ Diversity among MNCs
✜ size
✜ the nature of the business
✜ overseas business relative to total business
✜ production locations
✜ ownership patterns
✜ organisational structure
■ Trends in multinational investment
✜ the growth and geography of FDI
✜ FDI and the UK
 Direct investment into and out of the UK
250

200

150
$ billion

100

50

0
1986 1988 1990 1992 1994 1996 1998 2000 2002
 Direct investment into and out of the UK
250

200

150
$ billion

100

50
Inward
investment

0
1986 1988 1990 1992 1994 1996 1998 2000 2002
 Direct investment into and out of the UK
250

Outward
200 investment

150
$ billion

100

50
Inward
investment

0
1986 1988 1990 1992 1994 1996 1998 2000 2002
Business Strategy in a Global
Economy
■ Types of multinational expansion
✜ horizontally integrated multinational
✜ vertically integrated multinational
✜ conglomerate
■ Going global to reduce costs
✜ international differences in input prices
✜ international differences in productivity
✦ labour skills
✦ entrepreneurial and managerial skills
✦ learning by doing
✜ low-cost access to local markets
✜ economies of scale
✜ taking advantage of government policies
Business Strategy in a Global
Economy
■ Going global to access new markets
✜ increased demand
✜ spreading risks
✜ can exploit advantages over local firms
✦ ownership of superior technology
✦ entrepreneurial and managerial skills
✦ R&D capacity
✜ access to local technology
✜ learning from experience in diverse markets
Business Strategy in a Global
Economy
■ The product life cycle and the MNC
✜ the launch phase
✦ multinational spread likely to be limited
✜ the growth phase
✦ MNC likely to shift production abroad in order
to retain cost competitiveness
✜ maturity
✦ MNC increasingly seeks markets abroad as
growth in home market slows
✜ late maturity and decline
✦ MNC increasingly seeks both markets and ever
lower cost production abroad
 Problems Facing Multinationals
■ Problems facing multinationals
✜ language barriers
✜ selling and marketing
✦ cultural issues
✜ relations with host governments
✜ relationships between subsidiaries
✦ possible diseconomies of scale
✦ easier if subsidiaries are run independently

■ The global strategy trade-off

✜ economies of scale of standardisation or
higher costs of customisation?
✦ determinants of trade-off
MNC Investment and the Host State
■ Advantages of MNC investment
✜ employment
✜ balance of payments

✜ technology transfer
✜ tax revenues

■ Disadvantages
✜ uncertainty
✜ power and control by the MNC over the host

✜ transfer pricing
✜ the environment
 Is Globalisation a 'Good Thing'?
■ The benefits of globalisation
✜ benefits of trade
✜ benefits of increased FDI
✜ competition reduces costs and encourages
innovation
✜ faster spread of technology
✜ political and social ties
■ The costs
✜ can exacerbate inequality
✜ erodes national cultures
✜ environmental costs
✜ domination by MNCs