Globalisation andMultinational Business

Some Popular Definitions Of Development

The capacity of a national

economy, whose initial economic

condition has been more or less static for a long time, to generate

and sustain an annual increase in its gross national product at rates

of perhaps 5% to 7 % or more.

Development refers to the ability

of a country to expand its output

at a rate faster than the growth rate of

its population.

Development refers to the

planned alteration of the structure of

production and employment so

that agriculture’s share of both

declines and that of manufacturing

and services increases.

Development must be conceived of a multi-dimensional process involving major changes in social structures, popular attitudes,

and national institutions, as

well as the acceleration of

economic growth, the reduction of

unemployment, the eradication of

poverty, and the reduction of inequality.

Development must represent

the whole gamut of change by

which an entire social system tuned to the diverse basic

needs and desires of individuals and

social groups within that

system, moves away from a

condition widely perceived as

unsatisfactory towards a

situation or condition of life

regarded as materially and

spiritually better.

DTK, After Todaro 2011

Dimensions of

Development

Sustenance: The ability to meet basic needs

Self-Esteem: To be a person

Freedom from servitude: To be able to

choose

To increase the availability and widen the distribution of basic life-

sustaining goods

To raise levels of living; e.g.

Food, shelter, health, protection

To expand the range of economic and social

choices

Three Core Values

Of Development

Three objectives

of Development

DTK, After Todaro 2011

Sustain-ability

Social Environmental

Equitable Viable

Bearable

Economic

Profit

CreateValue

Eliminate Waste

ShareKnowledge

RecognizedInterdependence

EnergyFlows

ModelNature

HumansNature

Co-exist

Quality Of

LifeAccept

Responsibility

PeoplePlanet

Sustainable

Ecology

Nature &

Environmentalism

Ecology/ Equity

Economy/Ecology

Ecology/Economy

Equity/Ecology

Society And

SocialismEquity/

Economy

Business&

CapitalismEconomy/

Equity

EconomyEquity

Sustainable

Development

Development : Definitions & Measurements

1. Development process by which:

political; 2. social and 3. economic structures of a country are improved for purpose of ensuring wellbeing of its populace. (Fisher, 1995)

3. Human development is:- process of enlarging people’s choices - choices that are created by

expanding human capabilities and functions,

- i.e. what people do and can do in their lives.

2. Development is a comprehensive: 1. economic; 2.

social -cultural and 3. political process - aims at constant

improvement of wellbeing of entire population and individuals on basis of active, free and meaningful participation in development

- and fair distribution of benefits resulting there of .

(AUSAID, NGO information package, Canberra)

4. Any adequate definition of development includes 6 dimensions:(1) An economic

component(2) A social

ingredient(3) A political

dimension,(4) A cultural

dimension,(5) Ecological

soundness,(6) The full-life

paradigm.

6 DIMENSIONS OF DEVELOPMENT

6 DIMENSIONS

OF DEVELOPMENT

(1) An economic component dealing with the creation of wealth and improved conditions of material life – equitably distributed

(2) A social ingredient measured in wellbeing in: (a) health, (b) education, (c) Housing & (d) employment

(3) A political dimension: embracing values such as:

(a) Human rights, (b) Political freedom, (c) legal enfranchisement of persons, (d) Some form of democracy

(6) The full-life paradigm:Refers to meanings systems,symbols and beliefs concerning ultimate meaning of life and history

(5) Ecological soundness:

(4) A cultural element:In recognition of fact that cultures confer identity and self-worth to people

The Economic System

Source: Witherick et al., 1995

Summary Of The Impact Of TNCs On Host Economies

Source: Witherick et al., 1995

Globalisation

Global Interactions/Globalization could involve all these things!

Global Interactions/Globalization

Seven Key Issues concerning the role and impact of TNCs

Source: Witherick et al., 1995

The Process of cumulative causation

Source: Witherick et al., 1995

Backwash or Spread

Source: Witherick et al., 1995

Friedmann’s model of Spatial Development

Source: Witherick et al., 1995

Globalisation: Setting the Scene

• Current issues in the global economy• Defining globalisation

– global economic interdependence– implications for business

• What is driving globalisation?– market drivers– cost drivers– government drivers– competitive drivers

The drivers of globalisationMarket driversPer capita income converging among industrialised

nationsConvergence of lifestyles and tastesOrganisations beginning to behave as global customersIncreasing travel creating global consumersGrowth of global and regional channelsEstablishment of world brandsPush to develop global advertising

Cost driversContinuing push for economies of scaleAccelerating technological innovationAdvances in transportationEmergence of newly industrialised countries with

productive capability and low labour costs.Increasing cost of product development relative tomarket life

Government driversReduction of tariff barriersReduction of non-tariff barriersCreation of blocsDecline in role of governments as producers and

customersPrivatisation in previously state-dominated economiesShift to open market economies from closed communist

systems in eastern EuropeIncreasing participation of China and India in the global

economy

Competitive driversContinuing increases in the level of world tradeIncreased ownership of corporations by foreign

acquirorsRise of new competitors intent upon becoming global

competitorsGrowth of global networks making countries

interdependent in particular industriesMore companies becoming globally centred rather than

nationally centredIncreased formation of global strategic alliances

Other driversRevolution in information and communication

Globalisation of financial marketsImprovements in business travel

Market driversPer capita income converging among industrialised

nationsConvergence of lifestyles and tastesOrganisations beginning to behave as global customersIncreasing travel creating global consumersGrowth of global and regional channelsEstablishment of world brandsPush to develop global advertising

Cost driversContinuing push for economies of scaleAccelerating technological innovationAdvances in transportationEmergence of newly industrialised countries with

productive capability and low labour costs.Increasing cost of product development relative tomarket life

Government driversReduction of tariff barriersReduction of non-tariff barriersCreation of blocsDecline in role of governments as producers and

customersPrivatisation in previously state-dominated economiesShift to open market economies from closed communist

systems in eastern EuropeIncreasing participation of China and India in the global

economy

Competitive driversContinuing increases in the level of world tradeIncreased ownership of corporations by foreign

acquirorsRise of new competitors intent upon becoming global

competitorsGrowth of global networks making countries

interdependent in particular industriesMore companies becoming globally centred rather than

nationally centredIncreased formation of global strategic alliances

Other driversRevolution in information and communication

Globalisation of financial marketsImprovements in business travel

The drivers of globalisation

Market driversPer capita income converging among industrialised

nationsConvergence of lifestyles and tastesOrganisations beginning to behave as global customersIncreasing travel creating global consumersGrowth of global and regional channelsEstablishment of world brandsPush to develop global advertising

Cost driversContinuing push for economies of scaleAccelerating technological innovationAdvances in transportationEmergence of newly industrialised countries with

productive capability and low labour costs.Increasing cost of product development relative tomarket life

Government driversReduction of tariff barriersReduction of non-tariff barriersCreation of blocsDecline in role of governments as producers and

customersPrivatisation in previously state-dominated economiesShift to open market economies from closed communist

systems in eastern EuropeIncreasing participation of China and India in the global

economy

Competitive driversContinuing increases in the level of world tradeIncreased ownership of corporations by foreign

acquirorsRise of new competitors intent upon becoming global

competitorsGrowth of global networks making countries

interdependent in particular industriesMore companies becoming globally centred rather than

nationally centredIncreased formation of global strategic alliances

Other driversRevolution in information and communication

Globalisation of financial marketsImprovements in business travel

The drivers of globalisation

Market driversPer capita income converging among industrialised

nationsConvergence of lifestyles and tastesOrganisations beginning to behave as global customersIncreasing travel creating global consumersGrowth of global and regional channelsEstablishment of world brandsPush to develop global advertising

Cost driversContinuing push for economies of scaleAccelerating technological innovationAdvances in transportationEmergence of newly industrialised countries with

productive capability and low labour costs.Increasing cost of product development relative tomarket life

Government driversReduction of tariff barriersReduction of non-tariff barriersCreation of blocsDecline in role of governments as producers and

customersPrivatisation in previously state-dominated economiesShift to open market economies from closed communist

systems in eastern EuropeIncreasing participation of China and India in the global

economy

Competitive driversContinuing increases in the level of world tradeIncreased ownership of corporations by foreign

acquirorsRise of new competitors intent upon becoming global

competitorsGrowth of global networks making countries

interdependent in particular industriesMore companies becoming globally centred rather than

nationally centredIncreased formation of global strategic alliances

Other driversRevolution in information and communication

Globalisation of financial marketsImprovements in business travel

The drivers of globalisation

Market driversPer capita income converging among industrialised

nationsConvergence of lifestyles and tastesOrganisations beginning to behave as global customersIncreasing travel creating global consumersGrowth of global and regional channelsEstablishment of world brandsPush to develop global advertising

Cost driversContinuing push for economies of scaleAccelerating technological innovationAdvances in transportationEmergence of newly industrialised countries with

productive capability and low labour costs.Increasing cost of product development relative tomarket life

Government driversReduction of tariff barriersReduction of non-tariff barriersCreation of blocsDecline in role of governments as producers and

customersPrivatisation in previously state-dominated economiesShift to open market economies from closed communist

systems in eastern EuropeIncreasing participation of China and India in the global

economy

Competitive driversContinuing increases in the level of world tradeIncreased ownership of corporations by foreign

acquirorsRise of new competitors intent upon becoming global

competitorsGrowth of global networks making countries

interdependent in particular industriesMore companies becoming globally centred rather than

nationally centredIncreased formation of global strategic alliances

Other driversRevolution in information and communication

Globalisation of financial marketsImprovements in business travel

The drivers of globalisation

Market driversPer capita income converging among industrialised

nationsConvergence of lifestyles and tastesOrganisations beginning to behave as global customersIncreasing travel creating global consumersGrowth of global and regional channelsEstablishment of world brandsPush to develop global advertising

Cost driversContinuing push for economies of scaleAccelerating technological innovationAdvances in transportationEmergence of newly industrialised countries with

productive capability and low labour costs.Increasing cost of product development relative tomarket life

Government driversReduction of tariff barriersReduction of non-tariff barriersCreation of blocsDecline in role of governments as producers and

customersPrivatisation in previously state-dominated economiesShift to open market economies from closed communist

systems in eastern EuropeIncreasing participation of China and India in the global

economy

Competitive driversContinuing increases in the level of world tradeIncreased ownership of corporations by foreign

acquirorsRise of new competitors intent upon becoming global

competitorsGrowth of global networks making countries

interdependent in particular industriesMore companies becoming globally centred rather than

nationally centredIncreased formation of global strategic alliances

Other driversRevolution in information and communication

Globalisation of financial marketsImprovements in business travel

The drivers of globalisation

Globalisation: Setting the Scene

• Current issues in the global economy• Defining globalisation

– global economic interdependence– implications for business

• What is driving globalisation?– market drivers– cost drivers– government drivers– competitive drivers

• Globalisation: the good and the bad

Multinational Corporations• Statistics on growth and size of

MNCs– the comparative size of MNCs and

countries' GDP

Comparison of the 10 largest multinational corporations(by gross revenue) and selected countries (by GDP): 2002

MNCrank

Country orCompany

GDP ($bn) orgross revenue

($bn)USA 10,869.1

1 Wal-Mart Stores 219.8Indonesia 212.9Denmark 205.1

2 Exxon Mobil 191.63 General Motors 177.34 BP 174.2

Greece 165.2China: Hong Kong 165.1

5 Ford Motor 162.4Finland 158.2Ireland 150.2

6 Enron 138.77 DaimlerChrysler 136.98 Royal Dutch/Shell Group 135.2

Thailand 132.4Iran 127.8

9 General Electric 125.9Argentina 121.8

10 Toyota Motor 120.8Malaysia 102.7Chile 65.9Luxembourg 23.8Kenya 12.9Albania 5.3

Multinational Corporations• Statistics on growth and size of

MNCs– the comparative size of MNCs and

countries' GDP– foreign direct investment (FDI) inflows

FDI inflows ($ millions)

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1970 1975 1980 1985 1990 1995 2000

FDI i

nflo

ws

($ m

illion

s)

.

World Developed countries Developing countries

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1970 1975 1980 1985 1990 1995 2000

FDI i

nflo

ws

($ m

illion

s)

.

World Developed countries Developing countries

FDI inflows ($ millions)

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1970 1975 1980 1985 1990 1995 2000

FDI i

nflo

ws

($ m

illion

s)

.

World Developed countries Developing countries

FDI inflows ($ millions)

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1970 1975 1980 1985 1990 1995 2000

FDI i

nflo

ws

($ m

illion

s)

.

World Developed countries Developing countries

FDI inflows ($ millions)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

1985 1990 1995 2000

FDI inflowsFD

I as

% o

f gro

ss fi

xed

capi

tal f

orm

atio

n

0.0

5.0

10.0

15.0

20.0

25.0

30.0

1985 1990 1995 2000

Developing countries

FDI a

s %

of g

ross

fixe

d ca

pita

l for

mat

ion

FDI inflows

0.0

5.0

10.0

15.0

20.0

25.0

30.0

1985 1990 1995 2000

Developed countries

Developing countries

FDI a

s %

of g

ross

fixe

d ca

pita

l for

mat

ion

FDI inflows

Multinational Corporations• Diversity among MNCs

– size– the nature of the business– overseas business relative to total

business– production locations– ownership patterns– organisational structure

Why do Businesses go Multinational?

• Categories of multinational organisation– horizontally integrated– vertically integrated– conglomerate

• Advantages to firms– reductions in costs

• international differences in factor prices• international differences in factor

productivity• low-cost access to local markets• spreading overheads

Why do Businesses go Multinational?

• Advantages to firms (cont.)– government support in host countries

• lower taxes• subsidies• provision of infrastructure

– 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

Why do Businesses go Multinational?

• The product life cycle and the MNC– the launch phase– the growth phase– maturity– late maturity and decline

• Problems facing multinationals– language barriers– selling and marketing– relations with host governments– relationships between subsidiaries

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

MNCs and Developing Countries

• The scale of MNC investment in developing countries

• Advantages to host country– the saving gap

• the importance of development finance• the contribution of saving to growth

– the foreign exchange gap– public finance gap– skills and technology gaps

MNCs and Developing Countries• Disadvantages to host country

– MNCs may drive local firms out of business– limited demand for local components– repatriation of profits– transfer pricing and effects on tax revenues

• competition between developing countries to attract MNCs

– distorting the whole pattern of development• increasing gap between rich and poor• introducing consumerist values

• What can developing countries do?