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7Globalisation and
Multinational Corporations
Multinational Corporations
� Diversity among MNCs� size
� the comparative size of MNCs and countries' GDP
Comparison of the 10 largest multinational corporations(by gross revenue) and selected countries (by GDP): 2002
Comparison of the 10 largest multinational corporations(by gross revenue) and selected countries (by GDP): 2002
Multinational Corporations
� Diversity among MNCs� size
� the nature of the business
Multinational Corporations
� Diversity among MNCs� size
� the nature of the business
� overseas business relative to total business
Multinational Corporations
� Diversity among MNCs� size
� the nature of the business
� overseas business relative to total business
� production locations
Multinational Corporations
� Diversity among MNCs� size
� the nature of the business
� overseas business relative to total business
� production locations
� ownership patterns
Multinational Corporations
� Diversity among MNCs� size
� the nature of the business
� overseas business relative to total business
� production locations
� ownership patterns
� organisational structure
Multinational Corporations
� Diversity among MNCs� size
� the nature of the business
� overseas business relative to total business
� production locations
� ownership patterns
� organisational structure
� Trends in multinational investment
Multinational Corporations
� Diversity among MNCs� size
� the nature of the business
� overseas business relative to total business
� production locations
� ownership patterns
� organisational structure
� Trends in multinational investment� the growth and geography of FDI
0
5
10
15
20
25
1985 1990 1995 2000
FDI inflows (% of gross fixed capital formation)F
DI a
s %
of
gros
s fix
ed c
apita
l for
mat
ion
0
5
10
15
20
25
1985 1990 1995 2000
FDI inflows (% of gross fixed capital formation)F
DI a
s %
of
gros
s fix
ed c
apita
l for
mat
ion
Advanced countries
0
5
10
15
20
25
1985 1990 1995 2000
FDI inflows (% of gross fixed capital formation)F
DI a
s %
of
gros
s fix
ed c
apita
l for
mat
ion
Advanced countries
Developing countries
Multinational Corporations
� Diversity among MNCs� size
� the nature of the business
� overseas business relative to total business
� production locations
� ownership patterns
� organisational structure
� Trends in multinational investment� the growth and geography of FDI
� FDI and the UK
0
50
100
150
200
250
1986 1988 1990 1992 1994 1996 1998 2000 2002
$ bi
llion
Direct investment into and out of the UK
0
50
100
150
200
250
1986 1988 1990 1992 1994 1996 1998 2000 2002
$ bi
llion
Inwardinvestment
Direct investment into and out of the UK
0
50
100
150
200
250
1986 1988 1990 1992 1994 1996 1998 2000 2002
$ bi
llion
Outwardinvestment
Inwardinvestment
Direct investment into and out of the UK
� Types of multinational expansion� horizontally integrated multinational� vertically integrated multinational� conglomerate
� Going global to reduce costs� international differences in input prices� international differences in productivity
� labour skills� entrepreneurial and managerial skills� learning by doing
� low-cost access to local markets� economies of scale� taking advantage of government policies
Business Strategy in a Global Economy
� Going global to access new markets� 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
� learning from experience in diverse markets
Business Strategy in a Global Economy
� The product life cycle and the MNC� the launch phase
� multinational spread likely to be limited
� the growth phase� MNC likely to shift production abroad in order
to retain cost competitiveness
� maturity� MNC increasingly seeks markets abroad as
growth in home market slows
� late maturity and decline� MNC increasingly seeks both markets and ever
lower cost production abroad
Business Strategy in a Global Economy
� Problems facing multinationals� language barriers� selling and marketing
� cultural issues� relations with host governments� relationships between subsidiaries
� possible diseconomies of scale� easier if subsidiaries are run independently
� The global strategy trade-off� economies of scale of standardisation or
higher costs of customisation?� determinants of trade-off
Problems Facing Multinationals
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
Is Globalisation a 'Good Thing'?
� The benefits of globalisation� benefits of trade� benefits of increased FDI� competition reduces costs and encourages
innovation� faster spread of technology� political and social ties
� The costs� can exacerbate inequality� erodes national cultures� environmental costs� domination by MNCs
