INTRODUCTION TO GLOBALIZATION OR INTERNATIONAL BUSINESS

What is Globalization?

Globalization is the word used to describe the growing interdependence of the world's economies,
cultures, and populations, brought about by cross-border trade in goods and services, technology, and
flows of investment, people, and information.

Globalization encompasses the socio economic reforms process of eliminating barriers that controls
trading, investment, information technology, and cultural and political restriction.

● Trading – a wider market opportunity creates doors to introduce product and services among
countries with trade agreements

● Information Technology – transfer of knowledge and industrial advancement that would ensure
adaptation of the weaker player (country) that would benefit industrial development. Example,
the transfer of machinery that is more modern in terms of production capacity.

● Cultural and Political – developing countries embrace diplomatic relationships with countries
with combined power and resources. Their alliances could open doors to modern changes in
views of cultural innovations and political insights. An alliance with countries like China,
America, and Japan will surely contribute to the weaker alliance in terms of security on
investment and capitalization. A multinational investment can offer employment and lifestyle
changes.

Who benefits from globalization?

Globalization has benefited an emerging “global middle class,” mainly people in places such as Asia,
China, India, Indonesia, and Brazil, along with the world's top 1 percent. But people at the very bottom of
the income ladder, as well as the lower-middle class of rich countries, lost out.

Globalization provides businesses with a competitive advantage by allowing them to source raw materials
where they are inexpensive. Globalization also gives organizations the opportunity to take advantage of
lower labor costs in developing countries, while leveraging the technical expertise and experience of more
developed economies.

Globalization affects services, too. Many businesses located in the United States have outsourced their
call centers or information technology services to companies in India. As part of the North American Free
Trade Agreement (NAFTA), U.S. automobile companies relocated their operations to Mexico, where
labor costs are lower. The result is more jobs in countries where jobs are needed, which can have a
positive effect on the national economy and result in a higher standard of living. China is a prime example
of a country that has benefited immensely from globalization. Another example is Vietnam, where
globalization has contributed to an increase in the prices for rice, lifting many poor rice farmers out of
poverty. As the standard of living increased, more children of poor families left work and attended school.

Consumers benefit also. In general, globalization decreases the cost of manufacturing. This means that
companies can offer goods at a lower price to consumers. The average cost of goods is a key aspect that
contributes to increases in the standard of living. Consumers also have access to a wider variety of goods.
In some cases, this may contribute to improved health by enabling a more varied and healthier diet; in
others, it is blamed for increases in unhealthy food consumption and diabetes.

Pros and Cons of Globalization

Pros of Globalization

1. Economic Growth - It’s widely believed that increased globalization leads to greater economic growth
for all parties. There are several reasons why this might be the case, including:

● Access to labor
- Globalization provides all countries with access to a larger labor market. Developing
countries with an inadequate number of skilled workers, for example, may "import" labor
to stimulate industry. Wealthier countries, on the other hand, may outsource low-skill jobs
to developing countries with lower living costs in order to cut the cost of items sold and
pass those savings on to customers.
● Access to jobs
- This point relates directly to labor. Through globalization, poorer countries frequently
acquire access to employment that has been outsourced by richer countries. While there
are some risks (see "Disproportionate Growth" below), this job can have a considerable
impact on the local economy.
● Access to resources
- One of the primary reasons nations trade is to gain access to resources they otherwise
wouldn’t have. Many modern luxuries would be difficult to create or generate without
this flow of resources across borders. Smartphones, for example, rely on rare earth metals
that can only be found in a few places throughout the world.
● The ability for nations to “specialize”
- Global and regional cooperation enables countries to rely primarily on their economic
capabilities, knowing that they can trade products for other resources. A tropical country
that specializes in exporting a certain fruit is an example. Trade benefits both sides when
nations specialize in the production of goods or services in which they have a competitive
advantage.

2. Increased Global Cooperation - Nations must be prepared to set aside their differences and work
together for a globalized economy to exist. As a result, growing globalization has been associated with a
reduction, but not elimination, of conflict.
3. Increased Cross-Border Investment - According to the Global Business course, globalization has
increased cross-border investment. This international investment has been demonstrated to improve
welfare on both sides of the equation at the macroeconomic level.

Cons of Globalization

1. Increased Competition - Global free commerce benefits the entire system when seen as a whole.
However, global competition can be harmful to individual businesses, organizations, and workers. This is
similar to how these parties may be harmed by domestic competition: the pool has merely become larger.

2. Disproportionate Growth - Globalization can result in disproportionate growth between and within
countries. These consequences must be properly controlled, both financially and morally.

3. Environmental Concerns - Increased globalization has been connected to a number of major

environmental concerns, including:

● Deforestation and loss of biodiversity caused by economic specialization and infrastructure

development.
● Greenhouse gas emissions and other forms of pollution caused by increased transportation
● Invasion of potentially invasive species into new environments.

International Business
- It is also known as globalization. It is about enterprises engaging in international economic
activity. It refers to any situation in which the production or distribution of commodities or
services transcends national boundaries. Jollibee is a good example. Jollibee is a domestic
business in the Philippines, but as it grows to other countries, it becomes an international
enterprise.
- Another definition of international business is "all commercial transactions, private and
governmental, between two or more countries." And the finest illustration is goods or raw
resources that a country imports or exports to other countries.
- The earliest and simplest form of international business is trade, which can be defined as the sale
(exports) and purchase (imports) of goods and services.

International Trade

International trade refers to the exchange of goods and services between two or more countries of their
nationals. Students who wish to increase their understanding of the business industry need to embrace the
bigger and wider opportunities of a globalized structure. International business concepts provide insights
into the global economic, diversified work environment, and market flexibility that will lead to a
rewarding educational experience and set a stage for pursuing a successful international business career.
International trade benefits consumers in three major ways by providing:

● Greater Choice: The cross-border flow of goods and services opens up a lot of options for
consumers, providing a greater variety to choose from.
● Lower Prices: Competition on the international stage often leads to lower prices for goods and
services, benefiting consumers by making products more affordable.
● Higher Living Standards: The combination of increased choices and lower prices contributes to
an improved standard of living for individuals, fostering economic growth.

International Trade Theories

1. Mercantilism

It is an early trade theory, which emerged during the 16th to 18th centuries. It advocated
for a nation’s economic strength through the accumulation of precious metals, particularly gold
and silver. This theory operated on a zero-sum view of trade, believing that one country’s gain
came at the expense of another.

2. Absolute Advantage

In 1776, Adam Smith questioned the leading mercantile theory of the time in The Wealth
of Nations. Smith offered a new trade theory called absolute advantage, asserting that nations
should specialize in producing goods they can manufacture more efficiently than others. This
concept emphasizes efficient resource utilization, aiming for maximum output and overall wealth
creation through specialization and trade. It guides countries to identify and excel in activities
where they possess a distinct efficiency advantage, shaping the dynamics of global trade.

3. Comparative Advantage

David Ricardo’s Comparative Advantage theory, building upon Adam Smith’s ideas,
proposes that even if one country has an absolute advantage in producing all goods, mutual
benefit can arise through specialization and trade. The theory considers opportunity costs,
asserting that nations should focus on goods where they have the lowest opportunity cost of
production. This leads to a more efficient allocation of resources globally.

4. Heckscher-Ohlin Theory

Developed by economists Eli Heckscher and Bertil Ohlin, the Heckscher-Ohlin Theory,
also known as the Factor Proportions Theory, offers insights into international trade based on a
country’s factor endowments. It asserts that nations will export goods that intensively use factors
of production that are abundant within their borders, while importing goods that require factors in
which they are relatively scarce. This theory considers factors such as land, labor, and capital,
asserting that countries should specialize in industries that align with their abundant resources.
 5. New Trade Theory

Developed by Paul Krugman and began to emerge in the 1970’s. This theory contends
that countries may specialize in producing unique and differentiated products to achieve
economies of scale. The theory also underscores the role of imperfect competition and the
importance of innovation in driving trade patterns. By acknowledging the significance of product
diversity and economies of scale, the New Trade Theory provides a complex perspective on how
countries can gain a competitive edge in a globalized market, moving beyond the traditional
emphasis on comparative advantage.

6. Poster's National Comparative Advantage

Proposed by economist Michael Porter, the National Comparative Advantage Theory

delves into the determinants of a nation’s competitiveness in specific industries. He argues that a
nation’s ability to innovate and upgrade within an industry is crucial for its competitiveness. This
theory goes beyond comparative advantage by emphasizing dynamic factors that influence a
nation’s capacity to compete globally. It has practical implications for policymakers and
businesses seeking to enhance a nation’s competitiveness in specific industries through strategic
investments in education, infrastructure, and innovation.

International Trade Volume and Growth

The volume of trade in international trade is a measure of the market’s activity and liquidity during a set
period of time. Higher trading volumes are considered more positive than lower trading volumes because
they mean more liquidity and better order execution

How do we calculate trade volume between countries?

Volume index = value index / unit-value index

Wherein the value index is calculated as the percentage change between the trade value of the current
month and the average monthly trade value of the previous year.

Trade and GDP growth in 2021 and first half of 2022

World trade and GDP rebounded in 2021 after falling sharply in 2020 during the COVID-19 pandemic
but weaker growth is expected in 2022 and 2023 as the global economy slows.
 The Relationship between International Trade and Economic Growth

International trade and economic growth are two concepts that go together, because international trade
contributes to the growth of a country’s economy in several ways. Some of these ways include the effects
of import and export, specialization, increased productivity and improved infrastructure.

Footnotes:

Trade is calculated as the average of exports and imports, and excludes significant re-exports or imports
for re-exports.

The World Trade Organization (WTO) deals with the global rules of trade between nations. Its main
function is to ensure that trade flows as smoothly, predictably and freely as possible.

Gross domestic product (GDP) is the total monetary or market value of all the finished goods and.
services produced within a country’s borders in a specific time period.

Free Trade occurs when there are few or no limits on trade barriers between countries. Or a group of
countries that have signed on a free trade agreement when there are few or no limits in the form of tariffs
and quotas between each other. A pact between two or more nations to reudce barriers to imports and
exports among them. It is also freely trade to import and export.

● Import goods are products that were manufactured from a foreign land and are brought into
another country and consumed by its domestic residents.
● Export goods are the opposite of import goods – a manufacturer located in one country sells its
products to buyers in a foreign country.

Opposition to Free Trade against or strongly disagreeing with it. disagreement with something, often by
speaking or fighting against it, or (esp. in politics) the people or group who are not in power:

Disadvantages of Free trade

1. Harmful to the environment

2. Decreases revenues
3. Cause employment losses
4. Intellectual property theft
5. Bad working conditions

Balance of trade the difference in value between a country's imports and exports. A negative balance of
trade means that currency flows outwards to pay for exports, indicating that the country may be overly
reliant on foreign goods. .

RCEP (Regional Comprehensive Economic Partnership Agreement)

RCEP is a free trade agreement that connects 15 countries in the Asia- Pacific region. He promotes trade
and economic cooperation by reducing tariffs and other trade barriers among its member nations.
6 NON ASEAN COUNTRIES

1. Australia
2. Japan
3. South Korea
4. New Zealand
5. India
6. China

Trade Barriers are the methods used by the government to control international trade. These are global
restraints on the trade of goods and services between nations. The main goal of the trade barriers or the
protectionist policy is to protect, promote and strengthen the nation’s locally produced goods. Trade
barriers favor domestically sourced and produced items, reducing the availability of diverse products in
the market, decreasing competition, and establishing high prices.

Types of Trade Barriers

1. Tariff Barriers - refers to the tax placed on an imported product. The money collected under a
tariff is called a duty or a customs duty. In the Philippines, tariffs are collected by the Bureau of
Customs (BOC), which is an agency under the Department of Finance (DOF). The BOC is
responsible for assessing and collecting import duties, taxes, and other charges on goods imported
into the country. These tariffs and duties contribute to government revenue.

2. Non-tariff Barriers - cover all the restrictions other than taxes imposed by the government

o Quota – limit placed on how much of a product can be imported

o Anti-Dumping Duties - When a domestic government applies a protectionist tariff on goods

from outside that deems priced below fair market value.

o Regulatory Barriers - These standards are decided by the governments of different countries
depending on their rules and regulations that restrict unsuitable goods from entering the foreign
market.

o Voluntary Export Restraints - agreements between exporting and importing nations where
the exporting country agrees to restrict the number of particular exports below a predetermined
level to avoid the imposition of mandatory restrictions by the importing country.

o Subsidies - Government subsidies lower the price of goods and services produced locally in
the country compared to the price of goods and services from other nations.
 INTERNATIONAL BUSINESS AND TRADE

GROUP 2 – PRESENTER

FOREIGN DIRECT INVESTMENT

• When a company invests directly in production or other facilities in a foreign country that it effectively controls.
• One of the flow of foreign investments, a cross-border ownership wherein an investor purchases an interest in
a company located abroad. Or a foreign investor establishing a company abroad. 10% is considered as FDI.
• An integral part of international economic integration, it binds and creates a relationship between an investor
and an investee in a long term run.

FDI vs. FPI: Key Distinctions

Aspect FDI (Foreign Direct Investment) FPI (Foreign Portfolio Investment)
Ownership and Substantial ownership and control in foreign Limited control or ownership rights; more
Control businesses. passive involvement.
Investment Long-term strategic interests (e.g., market Primarily seeks financial returns; short to
Purpose access, technology transfer) medium-term profit focus.
Duration Long-term commitment, spanning many years or Short-term and easily liquidated; transient
even decades. interest.
Asset Types Investments in physical assets or equity Investments in financial instruments like
ownership. stocks and bonds.

TYPES OF FDI (FOREIGN DIRECT INVESTMENT)

• Horizontal FDI- type of foreign direct investment in which a company from one country expands its operations
into a foreign country within the same industry or business sector in which it operates domestically.
• Vertical FDI- When a company acquires or merges with a foreign company to add more value to its supply
chain.
o Backward Vertical Integration- Investing in activities earlier in the production chain, such as raw
material extraction or manufacturing components.
o Forward Vertical Integration- Investing in activities farther along the production chain, such as
distribution and marketing.
• Conglomerate FDI- investors invest in completely different segments—unrelated to their existing operations.

Entry Modes in FDI:

• International Franchising: A company grants the right to operate its business and use its brand name in a
foreign market in exchange for fees and royalties.
• Branches: Setting up subsidiary offices in a foreign market, operating as integral parts of the parent company.
• Licensing: Granting a license to use intellectual property in a specified region for specific period.
• Joint Ventures: Collaborative ventures where multiple companies jointly invest capital to create a new entity.
• Wholly Foreign-Owned Subsidiaries: Independent foreign entities with full ownership and control by the
parent company.

Strategic Logic Behind FDI

• Resource-seeking FDI: involves endeavors to obtain specific resources more affordably than in one's home
country.
These resource seekers can be categorized into three groups: (a)
those looking for physical assets;
(b) those in need of cost-effective or skilled labor; and
(c) those searching for technological, organizational, and managerial expertise.
• Market-seeking FDI: strives to establish a presence in a foreign market with the primary objectives of capturing
a market share and achieving increased sales.
• Efficiency-seeking FDI: involves efforts to optimize the organization of existing resource-focused or
marketexpanding investments, allowing the firm to benefit from the unified management of activities spread
across different geographic regions.
• Strategic Asset-seeking FDI: entails efforts to obtain assets from foreign companies with the aim of advancing
long-term strategic goals, particularly enhancing international competitiveness.
Benefits of FDI for MNEs
• Efficiency from Location Advantages: MNEs benefit by gaining access to specific resources at lower costs
in foreign markets due to the host country's strengths.
• Performance from Structural Discrepancies: FDI enables MNEs to leverage differences in industry attributes
between home and host countries for higher performance, enhancing their competitiveness in diverse markets.
• Return from Ownership Advantages: MNEs can transfer exclusive assets and proprietary knowledge across
borders through FDI, expanding their market reach and leveraging unique core competencies.
• Growth through Organizational Learning: FDI exposes MNEs to diverse environments, fostering varied
capabilities and enhancing organizational learning, a vital source of competitive advantage.

Effects of Foreign Direct Investments on the Host Country

A developing nation undergoing political and economic reforms to boost its global presence has attracted
substantial international support and investor interest. With new Foreign Investment Laws and increased FDI, the
country has secured investments across multiple sectors, including real estate, manufacturing, logistics, and tourism, in
its strategically located, digitally growing region.

Benefits to the Host Country:

• Resource-transfer effects: Resource-transfer effects can be categorized based on their effects on capital,
technology and management resources. Such resource transfer can stimulate the economic growth of the host
country (Hill, 2003).
• Employment effects FDI generates jobs directly through multinational corporations hiring local workers and
indirectly by creating local jobs in supply chains, contributing to reduced unemployment, increased income, and
economic growth in the host country.
• Balance of payment effects: FDI can help the host country save on imports and earn money by exporting
goods and services, thereby positively impacting its balance of payments.

Cost of FDI to the Nation State:

Dependency on Foreign Investors Environmental Impact
Income Inequality Loss of Cultural Identity

Current Theories:
• Product Life-Cycle Theory: It was authored by Raymond Vernon in the 1960s to explain the cycle that products
go through when exposed to an international market. The cycle describes how a product matures and declines
as a result of internationalization. There are three stages contained within the theory.
New product introduction
The maturity stage
Product Standardization and Streamlining of Manufacturing
• Monopolistic Advantage Theory: Argues that MNEs thrive internationally because of distinct advantages like
technology and economies of scale.
• Internalization Theory: MNEs expand globally to manage operations efficiently when external markets are
inadequate for their technology or production needs.

New Perspectives on FDI:

• Dynamic Capability Perspective: International success hinges on MNEs' agile resource deployment, fostering
knowledge exchange across markets.
• Evolutionary Perspective: International expansion is an evolving process driven by MNEs' experience,
capabilities, and market knowledge gained over time.
• Integration-Responsiveness Perspective: MNEs should strike a balance between global integration and local
adaptability to thrive in the dynamic international business landscape.
 GROUP 3 PRESENTATION
MULTINATIONAL CORPORATIONS

International Business and Trade

Presenter’s Research

Conducted by Group 3
BSA 4B

Villafranca, Sean Frankie D.

Santiago, Aerielle Justine D.
Rodrigo, Diana Grace G.
Manalili, Mariane E.
Paule, Mikhaela T.
Oconer, Jamaica I.
 I. DEFINITION OF THE MNE AND OTHER INTERNATIONAL FIRMS

MULTINATIONAL ENTERPRISE

A multinational enterprise, which is abbreviated as MNE is sometimes called multinational

corporation or transnational corporation. It is a corporate organization that owns and controls the
production of goods or services in at least one country other than its home country. MNE has its
management headquarters in one country which is called the home country, while also operating
in other countries, which are called the host countries. An enterprise is considered as MNE if it
generates at least 25% of its revenue outside of its home country.

Comparison with Other Types of International Firms:

1. Small and Medium-Sized Enterprises (SMEs)

Compared to MNEs, SMEs are smaller in size. They might conduct modest foreign
business or participate in international trade. SMEs are distinguished by their smaller
size, less complex organizational structures, and a concentration on niche markets. MNEs
have a global reach, whereas SMEs frequently concentrate on local or specialized
markets.

2. Export-Only Firms

Some companies focus their efforts on exporting goods to overseas markets in order to
conduct business internationally. These companies might not operate widely
internationally or have many foreign branches. Selling goods or services abroad is often
the focus of their foreign activity.

3. Joint Ventures and Strategic Alliances

To gain access to foreign markets, businesses may form joint ventures or strategic
alliances with foreign partners. These projects entail working together with regional
businesses to split resources and risks. Joint ventures cannot be held entirely by one
organization.

II. THE DEGREE OF INTERNATIONALIZATION

The degree of internationalization describes how much a company, organization, or even a

whole nation engages in worldwide operations and activities. It measures how
well-integrated an organization is into the world economy and how frequently it engages in
transactions or other cross-border operations. Businesses and organizations who want to
grow internationally and take advantage of the opportunities and difficulties presented by the
global market must measure and comprehend the level of internationalization. It can support
decision-making about global operations, including strategic planning and risk assessment.

Transnationality Index (TNI)

The Transnationality Index, often known as the TNI or TNI% (Transnationality Index
percentage), is a financial indicator used to measure how extensively a multinational
corporation (MNC) engages in international business. It offers perceptions of a company's
internationalization and reach on a global scale. The Transnationality Index offers a thorough
assessment of a company's internationalization. It is calculated as the average of three ratios,
namely employing the components of foreign assets, foreign sales, and foreign employment.

Foreign Assets to Total Assets (TNI-Assets): This ratio measures the proportion of a company's
total assets that are located outside its home country.

TNI – Asset = (Foreign Assets / Total Assets )

Foreign Sales to Total Sales (TNI-Sales): This ratio assesses the portion of a company's total
revenue generated from international operations.

TNI – Sales = (Foreign Sales / Total Sales )

Foreign Employment to Total Employment (TNI-Employment): This ratio evaluates the

proportion of a company's total workforce that is employed in foreign countries.

TNI Employment – (Foreign Employment / Total Employment )

Analysts, investors, and multinational firms themselves use the Transnationality Index to assess
how geographically diverse a company's operations are. A greater degree of internationalization
is implied by a higher Transnationality Index percentage, demonstrating a considerable presence
for the company in foreign markets

III. HISTORY OF MNE

o Early Origins (16th-18th Century):

● The concept of multinational enterprises can be traced back to the 16th century
when European trading companies, such as the Dutch East India Company
and the British East India Company, were established to facilitate trade and
colonization in Asia and other parts of the world.

● These early companies were granted significant powers and monopolies by

their home countries to control trade routes and resources in distant lands.
o Industrial Revolution (Late 18th-19th Century):

● The Industrial Revolution in the late 18th and 19th centuries brought significant
advancements in technology and transportation. This enabled companies to
expand internationally and establish operations in multiple countries.

● Companies like Siemens, Nestlé, and Unilever began to develop operations in

multiple countries during this period.

o Post-World War II (20th Century):

● The end of World War II marked a significant turning point for MNEs. The
creation of international organizations like the United Nations and the Bretton
Woods institutions (IMF, World Bank) fostered global cooperation and
reduced trade barriers.

● Many MNEs expanded their global operations, particularly in the

manufacturing and automotive sectors. For example, companies like Ford,
General Motors, and IBM established a global presence.

o Globalization (Late 20th Century-Present):

● The latter half of the 20th century and into the 21st century saw an acceleration
of globalization. Advances in communication, transportation, and trade
liberalization made it easier for companies to operate across borders.

● MNEs diversified into various industries, including technology, finance, and

telecommunications. Companies like Apple, Google, and Toyota became
global giants.

● The emergence of regional trade agreements, such as the European Union,

NAFTA (now USMCA), and ASEAN, provided MNEs with access to larger
markets.

o Challenges and Controversies:

● As MNEs expanded, they encountered various challenges and controversies

related to labor practices, environmental impact, taxation, and intellectual
property rights. These issues have led to increased scrutiny and calls for
responsible business practices.
 ● Some MNEs have been involved in high-profile legal disputes, regulatory
actions, and controversies related to the exploitation of resources and labor in
developing countries.

o Contemporary Developments:

● The 21st century has brought new challenges and opportunities for MNEs,
including the rise of e-commerce and the digital economy. Companies like
Amazon, Alibaba, and Facebook have become influential players on the
global stage.

● The ongoing debate over globalization, trade protectionism, and economic

nationalism has created uncertainty for MNEs, with potential impacts on
global supply chains and investment strategies.

IV. THE IMAGE OF THE MNE

Multinational Enterprises (MNEs) have a complex image in the public eye. They can be both
praised and criticized for their impact on both their home country and the countries where they
operate. Here are some points to consider:

Positive Contributions of MNEs:

● Knowledge Transfer: MNEs are often at the forefront of their respective industries and
possess advanced knowledge and expertise. They can bring this knowledge to the host
countries where they operate, thereby contributing to the development of local talent
and industries.
● Capital Investment: MNEs typically bring significant capital investments to host
countries. These investments can lead to the development of infrastructure, factories,
and technology.
● Innovation and Technological Enhancement: MNEs introduce new technologies,
resulting in increased productivity and competitiveness in local industries, bridging
technological gaps in countries. MNEs are also hubs of innovation. They invest in
research and development, leading to new products, services, and technologies that can
benefit both local and global markets.
● Global Affiliations: MNEs have a network of global affiliations and partnerships. These
connections can facilitate international trade and collaborations, benefiting both host and
home countries.
 ● Economic Productivity: MNEs lead to increased exports and economic growth. This
includes creating jobs, thus reducing unemployment and improving their standard of
living.

MNEs are lauded for the reasons mentioned. However, they are also vilified for several reasons,
including concerns about exploitative labor practices, environmental impact, and the potential
for monopolistic or unfair business practices. MNEs may also face criticism for their influence
on local cultures and traditions, which some see as a threat to cultural diversity.

The public perception of MNEs can vary depending on the specific company, industry, and
country. Public opinion often hinges on the MNE's corporate social responsibility practices,
ethical behavior, and its interactions with local communities and governments. Companies that
prioritize ethical conduct, sustainability, and community engagement are often viewed more
favorably in the public eye.

In conclusion, the perception of MNEs can evolve over time, and governments and civil society
organizations often play a significant role in shaping and influencing this perception through
regulations, advocacy, and public awareness campaigns.

V. MNE FROM THE DEVELOPED ECONOMIES (DMNE) AND EMERGING

ECONOMIES (EMNE)

Multinational Enterprises are classified as "DMNE" or "EMNE" based from their home
countries, whether they come from Developed Countries, or Emerging Economies.
1. MNEs from Developed Economies or “DMNE”.
2. Multinational Enterprises from Emerging Economies. In some research, they are also
referred to as MNE from Developing Economies.

DMNEs EMNEs

Examples Apple Inc. (United States) Alibaba Group (China)

Toyota (Japan) Huawei (China)
Nestle (Switzerland) Airtel (India)
Samsung (South Korea) Vale (Brazil)

Home Countries US, Japan, Germany, Spain, China, India, Brazil and South
Sweden and United Kingdom Africa

Internationalization High Low (Early Stage)

- Operates in multiple - Focus on operating
 regions globally regionally or on
neighboring markets
before going global

Market Maturity Mature markets with fierce Less mature markets with
competition promising growth potential

Market Entry Strategies Merger and Acquisitions Joint Ventures and Strategic
Partnerships

Innovation and Technology Leading in terms of Focus on cost-efficiency,

innovation and process optimization and
technology.Focus on adaptation of products to local
Research & Development markets

VI. Advantages and Disadvantages of DMNEs

Advantages:
● Multinational enterprises provide an inflow of capital
Most multinational corporations have their headquarters in the developed world.
They rely on the resources of mature markets to maintain their supportive revenue
streams. These companies must move into the developing world to earn profits
through investments made there. Multinationals are a leading source of capital
inflows to the developing world, building factories, investing in training centers,
and supporting educational facilities with the intention of improving their
productive capacities overseas.

● Multinational enterprises reduce government aid dependencies in developing

countries
Since the 2000s, the reliance on foreign aid throughout the African continent is
thought to be responsible for the overall weakness of the local economies. Some
nations rely on foreign aid for more than 40% of their annual budget. Creating
new assets in the developing world allows multinationals to begin improving the
amount of trade which occurs in the developing world.

The current level of trade for Europe is at 60%. North America experiences a 40%
level of trade, while the Southeast Asian Nations achieve 30%. The current level
of trade for African countries, however, is just 12%. Multinational corporations
could boost this rate in the developing world by up to 50%.

● Multinational enterprises allow countries to purchase imports

Multinational corporations allow developing countries to purchase imports which
will then help in the economy. It allows them to access better goods, create more
 opportunities, and eventually raise the standard of living for everyone. Also, it can
also diversify local economies. Many communities, developing countries, and
economies all rely on primary products for subsistence. Most of the products tend
to be related to agriculture-based industries. Multinationals provide these
economies with more variety, creating diversity in local production levels. That
reduces reliance on commodities which often have volatile prices because their
supply and demand levels waiver so often.

Disadvantages:
● Multinational corporations import skilled labor.
The amount of time necessary to create local skills that encourage high
productivity levels is measured in years, not weeks or months. Multinationals
invest in local workers to develop their skills, but they also need to get their
venture off the ground quickly. Most companies in this position will import the
skilled labor they require from other economies to meet their needs. That means
the best jobs, especially in the developing world, are given to people who don’t
even live in the local economy. Those wages do not offer the same economic
benefits because spending occurs internationally instead of at the local level.

● Multinational corporations create higher environmental costs.

One primary advantage which multinationals see in doing business in the
developing world is a lack of robust environmental legislation. Weaker
governments tend to exchange environmental harm for additional profits. When
these companies can outsource their production to countries with these lower
standards, it does lower prices, but it also creates more damage. Countries like
India even trade in waste and rubbish because of the revenues they earn from
recycling and disposal, creating the potential for harm to local soil and water
supplies.

● Multinational corporations put other companies out of business.

Walmart offers a relentless push for profits. One doesn’t earn $500+ billion in
revenues each year without it. That means the retailer puts constant pressure on
suppliers to offer the lowest prices possible. On essential products which don’t
change, the price Walmart pays must drop year after year. That places a squeeze
on the suppliers because the sheer size of the retailer allows it to receive
concessions that kill local profits. Instead of “Buying American,” as the brand
used to trumpet, the company is now responsible for 10% of all Chinese exports
to the United States.