Transnational Company

By Nicole Laviney Barton

Agenda

DefinitionDevelopment historyThe influence on the1. International trade2. Developed and developing countries3. Chinese economyExamples ProblemsSummary and Conclusion

DefinitionA multinational corporation is a corporation enterprise that manages production or deliver services in more than one country.

Also known as the international corporation.

It has its headquarters in one country, known as home country, and operates wholly or partially owned subsidiaries in one or more other countries, known as host countries.

• On 1983, United Nation transnational corporation center: 《三论世界发展中的跨国公司》， the three basic elements for a transnational corporation:

• 1. Set up entities in two or more countries• 2. Having a central decision-making system,

and a common policy to reflect the global strategic goals

3.Each entities in corporations share resources, information, and responsibility. Normally, the transnational corporation is founded by the monopoly capital from one home country, and set up subsidiaries in other countries.

Development historyI . The beginning ( 1860s)

1.The early transnational company in Western Developed countries2.Directly related to Colonial expansion and export of commodity and capital3.Three most representative manufacturing companies:

1865 ： German Friedrich Bayer Chemical Company 1877 ： Sweden Alfred Nobel Company

1851 ： American Singer Sewing Machine Company

II. Further development : (The end of 19th century and the beginning of 20th century)

Many US big companies begin foreign investment and built factories or Branch companies overseas.For example: International Harvester Unilever Bell Operating company Switzerland Nestle Company

Features

1.Home company are UK, France, Germany, US,etc, operational activity focus on countries which have export markets or raw materials supplies.

2. Investment mainly goes to less developed countries. Meanwhile, UK and other European countries invest on their colonies.

3. Mainly on railways, public utilities, mining, Oil industry and Agriculture.

Reasons for the development

1. Large production from machine industrilization

2. Accumulation of Capital for a few most powerful Capitalistic countries. 3. Monopoly in Industry sector transfer the Raw materials industry to other countries.

4. Export capital to other countries increase the foreign investment becoming the earliest transnational company

5. Protective trade restrictions Stimulate those companies to build factories in local countries

III. Faster developmet: Knowledge-based Economy (The End of the Twenties Century)

1.The Economic growth of Japan and Western Europe—contribute to the Transnational company

2. The US’s transnational company decline

3. Development in other developed and developing countries----Multi-polarization development

4. Three Economic Circle-- North-America, EU, Asian-Pacific---Strength Internal Investment

5.Transfer to the Third Industry like service

Reasons for fast development after World Wars

1. Excess capital is the main reason to promote the outward expansion of the transnational company

2. The international division of labor, and the internalization of the production and capital

3. The developed countries’ needs for the international company

4. Developing countries’ needs for national economy development

IV. In New centuries

1. Mergers of the company to strength the power, and improve the Global competitiveness

2. Strategic Alliance to make up for the gap

3. R & D cooperation tend to be internationalized.

4. E-commerce and network economy make the organization structure more flexible

THE TRANSNATIONAL CORPORATIONS AFFECT INTERNATIONAL TRADE

• PROMOTING INTERNATIONAL TRADE VOLUME GROWTH

• TRANSNATIONAL COMPANIES AFFECTS GOODS STRUCTURE OF INTERNATIONAL TRADE

• TRANSNATIONAL COMPANY EXPAND BUSINESS FIELD

Promoting international trade volume growth

1) In 2010, the total value of goods export is more than $15 trillion in the world, the growth rate is 14.5%

2) The total sales of the multinational company are $31 trillion in 2007, a 21% increase compared with 2006.

3) The output value of all transnational branches company accounts for 11% of global GDP in 2007.

Transnational companies affects goods structure of international trade

The proportion of manufactured goods trade

The proportion of the primary products trade

Transnational company expand business field

Manufacturing and oil companies such as GE, BP, Shell, Toyota and Ford rank in the top 25 among non-financial sectors of the large transnational companies. The transnational service corporation in the past 10 years developed rapidly, there are 20 transnational service corporations in top 100 corporations in 2006,compared with 1997 there are only seven service corporations

Source: The World Investment Report in 2008

US Service IndustryYear Ratio

1970s 32.21980s 52.71993 78.3

The proportion of foreign direct investment in service rose from 32.2% in the end of 1970s to 52.7% in the early 1980s. In 1993, it reached 78.3%. (US)

FDI of International Trade in Service

Year Ratio1990 48.872003 59.76

In 1990, the proportion of foreign direct investment of the international trade in service is 48.87%, in 2003 , the proportion increased to 59.76%.

The changing trend and degree of the structure in transactional companies’ foreign direct investment is consistent with the change of international trade.

Transnational Companies influence developed countries

Promote the total amount of trade in developed countries, and stable the leading position of developed countries in the international trade.

The most of foreign trades in developed countries are the trade in transnational companies.

Japan US

Export 95.1% 97%

Import 85.4% 80.7%

In 2000, there is only 13.8% of the companies are transactional companies, but these transactional companies held 95.1% of total export and 85.4% of total import in Japan.In 1997, the 97% of export and 80.7% of import are related with transactional companies in US.

Transnational Companies influence developing countries

1. The developing areas and countries that received more foreign direct investment develops very fast. Since 1980 these countries’ average economics growth rate is higher than the developed countries and the overall level of developing countries’ economics growth rate.

2. The structure of the export goods in developing countries and areas had improved a lot. The transactional companies’ high technology product occupies a big part of the total export. It rose from 59% in 1996 to 81% in 2000.

High-tech export goods

Year Ratio1996 592000 81

How transnational companies influence Chinese economy

• The transactional companies solve the problem that financial shortage of domestic construction.

• Improve the technology and management level, push forward the industrial structure adjustment and upgrading.

• Lower the unemployment rate, higher the employment quality.

• Increase the government taxation.

2007 2008 2009

Number 406442 434937 434248

Investment(US billions)

2108.8 2324.1 2500.0

Capital(US billions)

1155.4 1300.6 1403.5

The influence on Chinese EconomyIntroduction

Source: Database of General Administration of China Customs

CapitalBring Technology Advanced management methods

Inject new vitality

Continuous annual economic growth rate more than 8%

The influence on Chinese EconomyBrief Ideas

one of the fastest growing sources of tax revenue

sustained growth of import and export has become the main driving force for the rapid development of China's foreign trade

The influence on Chinese EconomyIncrease the fiscal Income

Export and Import Value and Ratio(US billions)

The influence on Chinese Economy

Value 2009 Ratio 2010 Ratio 2011 Ratio

Export 672.23 55.9% 862.31 54.6% 995.33 52.4%

Import 545.21 54.2% 738.00 52.9% 864.83 49.6%

Source: Database of General Administration of China Customs

The influence on Chinese EconomyBalance International PaymentsYear Trade Surplus(US billions)

2007 261.832008 298.132009 195.69

Source: Database of General Administration of China Customs.

Introduction and utilization of foreign capital make up for lack of funds, and also form the actual production capacity

The influence on Chinese EconomyCapital Inflow

Make up for technology gapOvercome the drawbacks of lack of research

fundingReduced R&D costsPromote China's technological progress

The influence on Chinese Economy

Technological Improvements

Stimulate and promote related industries and services

Make use of idle resourcesTransform the potential productivity into

practical productive forces

The influence on Chinese EconomyUpgrade Industrial Structure

Create employment opportunities Train thousands of international business

personnel familiar with international business environment, and professional skills, with a multicultural perspective

The influence on Chinese Economy

Personnel Training

Example: Yangtze River DeltaVS Pearl River Delta

Yangtze River Delta

Pearl River Delta

Example: Yangtze River DeltaVS Pearl River Delta

1978-1991 1992-2002 2003-20090

2

4

6

8

10

12

14

16

18

20

GuangdongJiangsuZhejiang

Source: Zhang, T, & Zhang, R.(2009). Human Capital and technology adoption. Management World. 2: 1-8.

Why? FDI?

Guangdong Jiangsu Zhejiang0

20406080

100120140160180200 Cumulative absorption of FDI until 2008

Source: Zhang, T, & Zhang, R.(2009). Human Capital and technology adoption. Management World. 2: 1-8.

(US billions)

Romer-Mankiew-Weil ModelY = A Ka Hb L1-a-b

Why? R&D?Companies (%)

Programs Expenditure Ratio

Guangdong 4.8 3815 15.9 billion 10.9

Jiangsu 7.0 6318 43.9 billion 11.0

Zhejiang 6.4 5538 37.4 billion 12.9

Yangtze River Delta: high R&D inputsPearl River Delta: low R&D inputs

Source: Zhang, T, & Zhang, R.(2009). Human Capital and technology adoption. Management World. 2: 1-8.

Why? Labor?

Ratio Engineers Professional skilled labor

Guangdong 0.5 3.8

Jiangsu 0.7 4.4

Zhejiang 0.4 5.8

Then why?

• Pearl River Delta: leader area in the 1980s “open-door” policy

Result: labor-intensive industryLow-technology requirementsLow-skilled labor (Migrant workers 农民工）Reason: when the transfer of industry from Taiwan, Hong Kong, Singapore to China

But Yangtze River Delta

China’s manufacturing industry center since Song Dynasty

Strong industrial base Large numbers of high-skilled laborTradition of developing innovative

technology

Case Study: Coke Cola and Future Cola

Coca in China

• Coca Total Revenue in 2011: $465.42billion, yearly sales growth rate is 5%

• In the market of China:2011 yearly sales growth rate is 13%. The ninth year to achieve double digit growth in China.

• Do they really make technical transfer to China, or any other countries?

• No! No fundamental technology, but assembling technology Source:http://money.163.com/12/0207/21/7PMISR2T002526O3.html

非常可乐• Invented by Wahaha—Chinese own national beverage

company• A kind of Disruptive technology---Copy Coca Cola• Slogan ： “ Chinese own Cola” 中国人自己的可乐，“ Revitalize national industry”• Market based on rural places ， and encircling the cities• In 2004, the first time, future cola enter the US market

source: http://ishare.iask.sina.com.cn/f/20329772.html?retcode=0

Capital outflowTransfer technologyOccupy the Chinese markets,

exclude the local enterprises and businesses

Talent drain

The influence on Chinese Economy

Problems

Conclusion

Benefits

Problems

1.Take advantages of foreign capital2.Faster the pace of own technology innovation3.Develop domestic consumption Strengthen the national economy

Transnational Corporations

• China Statistical Yearbook 2010• Database of General Administration of China Customs• World Investment Report in 2008”• Zhang, T, & Zhang, R.(2009). Human Capital and technology

adoption. Management World. 2: 1-8.• Zhou, W, & Sun, W. (2002). Analysis of the influence of the

transnational corporations on Chinese economy. Journal of Liaoning Normal University. 25(4): 1-5.

• http://www.bob123.com/lunwen23/24386.html• http://commerce.dbw.cn/system/

2008/09/26/000081706.shtml

References

Question1. Does the transnational company

really promotes technical innovation in China? What’s the regional evidences?

2. How will it influence Chinese international trade if Chinese government want to slow down the economy? (growth rate change from 8% to 7.5% )

3. Considering those problems, what are the futures of transnational corporations in China?

Thank you !