MNCs in the World Affairs

Basic Feature of MNCs

• Transborder activity: operate somewhere else from

• David E. Liliental: “corporations which have their home in one country but operate and
live under the laws and customs of other countries as well.”
• International Labour Organisation (ILO): "the essential of the MNC lies in the fact that its
managerial headquarters are located in one country (home country), while the
enterprise carries out operations in a number of the other countries (host countries).”
• A multinational company is one which is incorporated in one country (called the home
country); but whose operations extend beyond the home country and which carries on
business in other countries (called the host countries) in addition to the home country. It
must be emphasized that the headquarters of a multinational company are located in the
home country.
Development Stages
by: Meier and Schier (2001)

They clearly state the enterprises generally expand through several stages:
1. International corporation
 mainly exporting its products/services to foreign countries
2. Multinational corporation
 organizing production across borders
3. World/global corporation*
 their functions integrated on a global level
Type of MNCs
by Martina Steinbockova

• Horizontally integrated companies

which acquire additional business activities at the same level of the value chain.
• Vertically integrated corporations
which are composed of a network of operations in upstream and downstream
activities in the production process.
• Conglomerate structure
when the corporate divisions operate as relatively autonomous businesses under a
larger corporate umbrella and as such, constitute self-contained strategic business
units while each of them produces a single product.
Ability of TNCs
by Peter Willetts

With ability of those TNCs, we can consider them as transnational actors:

 Financial control
to change transfer prices means that they can evade taxation or government controls on
their international financial transactions.
 Triangulation of trade
to use triangulation means individual governments cannot control their country's international
trade.
 Regulatory arbitrage
to move production from one country to another means individual governments are
constrained in regulating and taxing companies.
 Conflicting Regulation

with TNCs feature of cross-border operation, new question rise over regulation:
• Extraterritoriality and clash of sovereignty
The structure of authority over TNCs generates the potential for intense conflict
between governments, when the legal authority of one government has
extraterritorial impact on the sovereignty of another government.
• Re-regulation at global level
In some areas of economic policy, governments have lost sovereignty and regulation
now has to be exercised at the global level rather than by governments acting
independently.
Three Phases

Dunning (1992) identifies three fairly distinct phases in the development of

nation-states – MNCs interaction:
1. The Honeymoon phase (early 1950’s – mid 1960’s)
 was characterized by a very positive approach towards multinational
enterprises.
 The relationships between MNCs and states were extremely
mutually beneficial since the expanding companies found new
markets for their products as well as sources of raw materials and
energy
Three Phases

2. The Confrontation phase (mid 1960’s – late 1970’s)

 The MNCs became most heavily criticized for their unacceptable
behaviour resulting in uneven contribution to economic development
and unfair distribution of world wealth.
 This negative approach to the multinational entities was reflected in
political activities of the nation-states, such as frequent expropriations,
restrictions on new investment flows or heavy regulation of MNCs’
performance.
Three Phases

3. The Reconciliation phase (late 1970’s till present)

By the end of 70’s, both implemented more constructive solutions and effective
instruments from both sides.
 Governments realized the necessity to refine, modify and extend the scope of their
policies in order to make use of the inward investments.
 The MNCs, on the other hand, reviewed their attitudes and activities in the acquired
markets and focused on drawing up codes of conduct as well as easing the
communication on both local and global activities, more and more often engaging in
cross-border strategic alliances and transnational ventures.
Globalization & MNCs

 The change of relations

• With the patterns of relationships between the actors have changed fundamentally.
• The world has become more integrated, interconnected and interdependent on all
the levels. This process has had major impacts on the relationships between nation-
states and MNCs.
 Two Approaches to explain
• There’re two approaches present the extreme ends of a view on the nation-states
and MNCs in the era of globalization which can be easily simplified by two important
books titles:
• The Borderless World (by Kenichi Ohmae, 1990) and
• The Myth of the Global Corporation (by Doremus et el., 1998).
 The Borderless World
 Being stateless
• Ohmae (1990) argues that global (stateless) firms are a natural response to the fully
integrated, borderless world economy.
• MNCs have disengaged from any linkage to national origins, thus becoming fully
independent from any state control. Ownership frameworks, decision-making
processes, corporate strategies, cross- national alliances.
 Untouchable
• According to Ohmae, the governments have been deprived of their traditional roles:
both economic and political since the MNCs have means how to circumvent
governmental restriction. Therefore, the multinational companies are becoming true
citizens of the world.
 The Myth of the Global Corporation

Also be called as extremely state-centric approaches.

• More integrated, more power for state
• Doremus, et.al. (1998) state that the position of the nation-state has been reinforced because
all the transnational forces, technical advancements and economic integration have caused
the convergence of state policies. Thus, domestic factors such as national structures and
economic ideology do have powerful impact on the strategies and operations of MNCs.
• National interest, national firm
• Put in other words; the MNCs are seen as products of their home economy, the national
market is always considered the primary one and the MNC’s activities are heavily influenced
by policies of home governments. The multinationals tend to reflect economic and political
interest of their home country while the governments promote the interest of their own
national firms.
Sovereignty at Bay?
by Raymond Vernon’s
(1971)
Nation-state as anachronism
 The basic idea is that increasing economic interdependence, technological advances in
communication and transportation have made the nation-state an anachronism.
More effective at hand of private
 The state is no longer in control over its economic affairs because MNCs have proven
that they are able to provide domestic economic welfare and organize effective
production of goods on a much more efficient scale than the governments.
 Dependencia

Uneven development
 Costs and benefits associated with the MNCs tend to be distributed unevenly within and
across the states. This concern became the core of the “dependencia” theories elaborated
mostly by developing countries in 1970’s and 1980’s.

More connect, more dependency

 Basically, it challenges Vernon’s conclusions of MNCs and nation-states being “partners in
development”. According to Dependencia, accepting foreign private investments from
developed states increases economical, technical and cultural dependency of less
developed states, and therefore, contributes to a hierarchical and exploitative world
order.
Dependencia

Transfer of economic function

 The concept was further elaborated by the Marxist economist Stephen Hymer (1970)
into the concept of two rules through which will cause the final transfer of economic
functions of the state to MNCs.

MNCs as the Trojan horse

 Poynter (1985b: 25) even compares the acceptance of FDI and the presence of MNCs in
developing countries to a Trojan horse through which the outside states can exert their
influence on the host nation.
 Conclusion
by Martina Steinbockova
(2007)
Mutually influence & co-existence
 Both two actors (state and MNCs) still possess to control or at least influence the other and also,
that the key attributes of the nation- state have not been fully destroyed by the global activities
of MNCs.
Mutual benefit & more cooperation
 Also, the relationships between these two actors are not only antagonistic as it might seem at
the first moment from their mutually different features, interests and strategies but, apart from
the interdependence and autonomy, a great deal of their relationships are in a cooperative
manner.
 Not only does this bring hope that the world of nation-states and global business might survive
within one system but also that through further cooperation, these two actors together with
other entities will continue working on a global set of rules and thus, will improve the quality of
the world system itself.
Reference

• Meier, O. – Schier, G. (2001): Enterprises multinationales. Stratégie, restructuration, gouvernance. Paris, Dunod.
• Willetts, Peter. "Chapter 20: Transnational Actors and International Organizations in Global Politics." The Globalization of World
Politics: An Introduction to International Relations. By John Baylis, Steve Smith, and Patricia Owens. 5th ed. New York: Oxford
UP, 2011. N. pag. Print.
• Dunning, J.H. (1992): Multinational Enterprises and the Global Economy. Reading, Addison-Wesley.
• Ohmae, Kenichi. The Borderless World: Power and Strategy in the Global Marketplace. London: HarperCollins,
1994. Print.
• Doremus, Paul N. The Myth of the Global Corporation. Princeton, NJ: Princeton UP, 1998. Print.
• Vernon, Raymond. Sovereignty at Bay: The Multinational Spread of U.S. Enterprises. New York: Basic, 1971. Print.
• Hymer, Stephen. "The Efficiency (Contradictions) of Multinational Corporations." The American Economic Review 60.2, Papers
and Proceedings of the Eighty-second Annual Meeting of the American Economic Association (1970): 441-48. JSTOR. Web. 10
Mar. 2014. <http://www.jstor.org/stable/10.2307/1815843? ref=search-gateway:3155314d62325eca10c1402fec26d26d>.
• Poynter, T.A. (1985a): Strategic Responses to Government Intervention in Developing Countries. In: Brewer,
• T.L. (1985): Political risks in international business: new directions for research, management, and public policy. New York,
Praeger.
• Steinbockova, Martina. "MULTINATIONAL CORPORATIONS AND NATION-STATES: PARTNERS, ADVERSARIES OR AUTONOMOUS
ACTORS?" Thesis. MASARYK UNIVERSITY IN BRNO, 2007. (n.d.): n. pag. Web. 10 Mar. 2014.
 Thank You

Thank You