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Globalisation and
Multinational Business
Some Popular Definitions Of Development
Development must
be conceived of a
The capacity of a
multi-dimensional
national
Development
process involving
economy, whose
refers to the
major changes in
initial economic
planned alteration social structures,
Development
condition has
of the structure of popular attitudes,
been more or less refers to the ability production and
and national
of a country to
static for a long expand
employment so institutions, as well
its output
that
agriculture’s as the acceleration
time, to generate at a rate faster than
share of both
of economic
and sustain an
the growth rate of
declines and that
growth, the
annual increase in
its population.
of manufacturing
reduction of
its gross national
and services
unemployment, the
product at rates
increases.
eradication of
of perhaps 5% to
poverty, and the
7 % or more.
reduction of
inequality.
DTK, After Todaro 2011
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.
To increase the
availability and widen
the distribution of basic
life-sustaining goods
Sustenance: The ability
to meet basic needs
Self-Esteem: To
be a person
Three
Core Values
Of
Development
Freedom from
servitude: To be able to
choose
DTK, After Todaro 2011
Dimensions
of
Development
Three
objectives
of
Development
To expand the range of
economic and social
choices
To raise levels of
living; e.g.
Food, shelter,
health, protection
Bearable
Social
Environmental
Sustainability
Economic
Create
Value
Profit
Eliminate
Waste
Recognized
Interdependence
Sustainable
Energy
Flows
Share
Knowledge
People
Planet
Model
Nature
Humans
Nature
Co-exist
Accept
Responsibility
Quality
Of
Life
Nature
&
Environmentalism
Ecology
Ecology/
Equity
Equity/
Ecology
Sustainable
Economy/
Ecology
Economy
Equity
Society
And
Socialism
Ecology/
Economy
Equity/
Economy
Economy/
Equity
Business
&
Capitalism
Development
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.
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)
Development :
Definitions &
Measurements
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)
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
DIMENSIONS
OF
DEVELOPMENT
(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
Global
Globalisation Interactions/
Globalization
Global
Interactions/
Globalization
could involve
all these
things!
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 globalisation
Market drivers
Cost drivers
Per capita income converging among industrialised
nations
Continuing push for economies of scale
Convergence of lifestyles and tastes
Organisations beginning to behave as global customers
Increasing travel creating global consumers
Growth of global and regional channels
Establishment of world brands
Accelerating technological innovation
Advances in transportation
Emergence of newly industrialised countries with
productive capability and low labour costs.
Increasing cost of product development relative to
market life
Push to develop global advertising
Government drivers
Competitive drivers
Reduction of tariff barriers
Continuing increases in the level of world trade
Reduction of non-tariff barriers
Creation of blocs
Increased ownership of corporations by foreign
acquirors
Decline in role of governments as producers and
customers
Rise of new competitors intent upon becoming global
competitors
Privatisation in previously state-dominated economies
Growth of global networks making countries
interdependent in particular industries
Shift to open market economies from closed communist
systems in eastern Europe
Increasing participation of China and India in the global
economy
More companies becoming globally centred rather than
nationally centred
Increased formation of global strategic alliances
Other drivers
Globalisation of financial markets
Revolution in information and communication
Improvements in business travel
The drivers of globalisation
Market drivers
Cost drivers
Per capita income converging among industrialised
nations
Continuing push for economies of scale
Convergence of lifestyles and tastes
Organisations beginning to behave as global customers
Increasing travel creating global consumers
Growth of global and regional channels
Establishment of world brands
Accelerating technological innovation
Advances in transportation
Emergence of newly industrialised countries with
productive capability and low labour costs.
Increasing cost of product development relative to
market life
Push to develop global advertising
Government drivers
Competitive drivers
Reduction of tariff barriers
Continuing increases in the level of world trade
Reduction of non-tariff barriers
Creation of blocs
Increased ownership of corporations by foreign
acquirors
Decline in role of governments as producers and
customers
Rise of new competitors intent upon becoming global
competitors
Privatisation in previously state-dominated economies
Growth of global networks making countries
interdependent in particular industries
Shift to open market economies from closed communist
systems in eastern Europe
Increasing participation of China and India in the global
economy
More companies becoming globally centred rather than
nationally centred
Increased formation of global strategic alliances
Other drivers
Globalisation of financial markets
Revolution in information and communication
Improvements in business travel
The drivers of globalisation
Market drivers
Cost drivers
Per capita income converging among industrialised
nations
Continuing push for economies of scale
Convergence of lifestyles and tastes
Organisations beginning to behave as global customers
Increasing travel creating global consumers
Growth of global and regional channels
Establishment of world brands
Accelerating technological innovation
Advances in transportation
Emergence of newly industrialised countries with
productive capability and low labour costs.
Increasing cost of product development relative to
market life
Push to develop global advertising
Government drivers
Competitive drivers
Reduction of tariff barriers
Continuing increases in the level of world trade
Reduction of non-tariff barriers
Creation of blocs
Increased ownership of corporations by foreign
acquirors
Decline in role of governments as producers and
customers
Rise of new competitors intent upon becoming global
competitors
Privatisation in previously state-dominated economies
Growth of global networks making countries
interdependent in particular industries
Shift to open market economies from closed communist
systems in eastern Europe
Increasing participation of China and India in the global
economy
More companies becoming globally centred rather than
nationally centred
Increased formation of global strategic alliances
Other drivers
Globalisation of financial markets
Revolution in information and communication
Improvements in business travel
The drivers of globalisation
Market drivers
Cost drivers
Per capita income converging among industrialised
nations
Continuing push for economies of scale
Convergence of lifestyles and tastes
Organisations beginning to behave as global customers
Increasing travel creating global consumers
Growth of global and regional channels
Establishment of world brands
Accelerating technological innovation
Advances in transportation
Emergence of newly industrialised countries with
productive capability and low labour costs.
Increasing cost of product development relative to
market life
Push to develop global advertising
Government drivers
Competitive drivers
Reduction of tariff barriers
Continuing increases in the level of world trade
Reduction of non-tariff barriers
Creation of blocs
Increased ownership of corporations by foreign
acquirors
Decline in role of governments as producers and
customers
Rise of new competitors intent upon becoming global
competitors
Privatisation in previously state-dominated economies
Growth of global networks making countries
interdependent in particular industries
Shift to open market economies from closed communist
systems in eastern Europe
Increasing participation of China and India in the global
economy
More companies becoming globally centred rather than
nationally centred
Increased formation of global strategic alliances
Other drivers
Globalisation of financial markets
Revolution in information and communication
Improvements in business travel
The drivers of globalisation
Market drivers
Cost drivers
Per capita income converging among industrialised
nations
Continuing push for economies of scale
Convergence of lifestyles and tastes
Organisations beginning to behave as global customers
Increasing travel creating global consumers
Growth of global and regional channels
Establishment of world brands
Accelerating technological innovation
Advances in transportation
Emergence of newly industrialised countries with
productive capability and low labour costs.
Increasing cost of product development relative to
market life
Push to develop global advertising
Government drivers
Competitive drivers
Reduction of tariff barriers
Continuing increases in the level of world trade
Reduction of non-tariff barriers
Creation of blocs
Increased ownership of corporations by foreign
acquirors
Decline in role of governments as producers and
customers
Rise of new competitors intent upon becoming global
competitors
Privatisation in previously state-dominated economies
Growth of global networks making countries
interdependent in particular industries
Shift to open market economies from closed communist
systems in eastern Europe
Increasing participation of China and India in the global
economy
More companies becoming globally centred rather than
nationally centred
Increased formation of global strategic alliances
Other drivers
Globalisation of financial markets
Revolution in information and communication
Improvements in business travel
The drivers of globalisation
Market drivers
Cost drivers
Per capita income converging among industrialised
nations
Continuing push for economies of scale
Convergence of lifestyles and tastes
Organisations beginning to behave as global customers
Increasing travel creating global consumers
Growth of global and regional channels
Establishment of world brands
Accelerating technological innovation
Advances in transportation
Emergence of newly industrialised countries with
productive capability and low labour costs.
Increasing cost of product development relative to
market life
Push to develop global advertising
Government drivers
Competitive drivers
Reduction of tariff barriers
Continuing increases in the level of world trade
Reduction of non-tariff barriers
Creation of blocs
Increased ownership of corporations by foreign
acquirors
Decline in role of governments as producers and
customers
Rise of new competitors intent upon becoming global
competitors
Privatisation in previously state-dominated economies
Growth of global networks making countries
interdependent in particular industries
Shift to open market economies from closed communist
systems in eastern Europe
Increasing participation of China and India in the global
economy
More companies becoming globally centred rather than
nationally centred
Increased formation of global strategic alliances
Other drivers
Globalisation of financial markets
Revolution in information and communication
Improvements in business travel
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
MNC
rank
1
2
3
4
5
6
7
8
9
10
Country or
Company
USA
Wal-Mart Stores
Indonesia
Denmark
Exxon Mobil
General Motors
BP
Greece
China: Hong Kong
Ford Motor
Finland
Ireland
Enron
DaimlerChrysler
Royal Dutch/Shell Group
Thailand
Iran
General Electric
Argentina
Toyota Motor
Malaysia
Chile
Luxembourg
Kenya
Albania
GDP ($bn) or
gross revenue
($bn)
10,869.1
219.8
212.9
205.1
191.6
177.3
174.2
165.2
165.1
162.4
158.2
150.2
138.7
136.9
135.2
132.4
127.8
125.9
121.8
120.8
102.7
65.9
23.8
12.9
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)
1,600,000
1,400,000
World
1,200,000
FDI inflows ($ millions)
.
Developed countries
Developing countries
1,000,000
800,000
600,000
400,000
200,000
0
1970
1975
1980
1985
1990
1995
2000
FDI inflows ($ millions)
1,600,000
1,400,000
World
1,200,000
FDI inflows ($ millions)
.
Developed countries
Developing countries
1,000,000
800,000
600,000
400,000
200,000
0
1970
1975
1980
1985
1990
1995
2000
FDI inflows ($ millions)
1,600,000
1,400,000
World
1,200,000
FDI inflows ($ millions)
.
Developed countries
Developing countries
1,000,000
800,000
600,000
400,000
200,000
0
1970
1975
1980
1985
1990
1995
2000
FDI inflows ($ millions)
1,600,000
1,400,000
World
1,200,000
FDI inflows ($ millions)
.
Developed countries
Developing countries
1,000,000
800,000
600,000
400,000
200,000
0
1970
1975
1980
1985
1990
1995
2000
FDI inflows
FDI as % of gross fixed capital formation
30.0
25.0
20.0
15.0
10.0
5.0
0.0
1985
1990
1995
2000
FDI inflows
FDI as % of gross fixed capital formation
30.0
25.0
20.0
15.0
Developing countries
10.0
5.0
0.0
1985
1990
1995
2000
FDI inflows
FDI as % of gross fixed capital formation
30.0
25.0
Developed countries
20.0
15.0
Developing countries
10.0
5.0
0.0
1985
1990
1995
2000
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?