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TRANSNATIONAL CORPORATIONS

By Mohammad shafiq Obeidat

Wilmington University

DBA

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AgendasWhy firms transnationalize

How firms transnationalize

TNCs as ‘networks within networks’

Configuring the TNCs’ internal networks

TNCs within networks of externalized relationships

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Transnational Corporations

A TNC is a firm that has the power to coordinate and control operations in more than one country, even if it does not own them

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Why firms transnationalize

Pursuit of profit A firm’s profitability is the key barometer to its business

firms may have a variety of motives other than profit, such as increasing their share of a market, becoming the industry leader, or simply making the firm bigger. But, in the long run, none of these is more important than the pursuit of profit itself.

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Although a firm’s motivation for engaging in transnational operations may be highly individual we can classify them into two broad categories

Market orientation allows firms to locate inside particular markets and tailor make production

- Three attributes of markets are especially important:

-Market size (per capita income)- structure of demand(incomes rise )- Accessibility (transportation)

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Export-import trade

Foreign direct investment

Licensing

Franchising

Management contracts

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Asset orientation allows access to various assets such as Natural resource ( Oil industry )knowledge of labour (costs, productivity, skills)

- Access to knowledge (technologies)- Access to labour ( wages, skill levels,

location, gender, union membership )

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How firms transnationalize Firm must have strong domestic position to expand geographically

- Product cycle

How firms start in new market setting up new facilityMerging with local firm

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TNCs as ‘networks within networks’

TNCs come in ‘all shapes and sizes’, two basic characteristics apply to all of them

- TNCs are networks within networksstructured through a myriad of complex relationships, transactions ,

exchanges and interactions within their own internal corporate network and between that network and those of the other key actors with whom TNCs must interact

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TNCs organize and configure their networks arises from a number of interrelated influences

- The nature and complexity of the industry environment in which the firm operates ,including the nature of competition, technology, regulatory structures etc.

- The firm’s specific history and geography,its culture and administrative heritage in the form of accepted

practices builtup over a period of time, producing a particular ‘strategic

predisposition’17 characteristics derived from its home-country embeddedness.

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The geographical embeddedness of TNCs

Home-country influences

The rate of globalization is accelerating.

Regionalization is taking place, resulting in trading blocs.

The participation of countries in world trade is shifting.

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The Composition of TradeBetween the 1960’s and the 1990’s the importance of manufactured goods increased while the role of primary commodities (i.e. rubber or mining) had decreased.More recently, there has been a shift of manufacturing to countries with emerging economies.There has been an increase in the area of services trade in recent years.

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The Current U.S. International Trade Position

Exports and Imports of Goods and Services per Capita for Selected Countries

Country Exports per Capita Imports per CapitaAustralia

Brazil

China

Japan

Kenya

United Kingdom

United States

$4,296

379

222

4,165

91

4,767

3,472

$4,525

428

199

3,622

125

5,500

4,962

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The Impact of International Business on the United StatesU.S. international business outflows are important on the macroeconomic level in terms of balancing the trade account.

On the microeconomic level, participation in international business can help firms achieve economies of scale that cannot be achieved in domestic markets.

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Average Plant Salary and Wages (per worker, dollars per hour)

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5

10

15

20

25

30

All Plants Small Plants Large Plants

$ p

er h

ou

r

Non-Exporters Exporters

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Globalization

Because of globalization, for the first time in history, the availability of international products and services can be accessed by individuals in many countries, from diverse economic backgrounds.

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The Structure of this BookPart One introduces the importance of international business and its global linkages.Part Two presents the environment of international business, addressing culture, policies, politics, and law. Part Three provides coverage of the theory of international trade and investment and presents balance of payments issues.Part Four discusses markets, financial systems, economic integration, and emerging market concerns.

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The Structure of this Book (cont.)

Part Five presents the strategy considerations surrounding international business.Part Six targets the operational issues surrounding international business, using an implementation-oriented perspective.Part Seven concludes the book with a focus on the future of the field and the reader’s career.