ROLES PLAYED BY TNCS AND MNCS Essay Example

Roles Played by TNCs (Trans-National Corporations) and MNCs (Multi-National Corporations) in the Development of Globalisation

Question Number 2

19th August, 2013

Roles played by Trans-National Corporations and Multi-National Corporations in the Development of Globalization

Introduction

Economic globalization is the process by which markets and production in various countries are increasingly becoming co-dependent owing to the dynamics of trade in goods and services and capital cum technological flows. Many attempts to give a definition to globalisation have agree that it is a process involving both geographical and spatial outreach and of an increased degree of interdependence and interconnection between personalities, groups, and organizations based in different countries worldwide. By virtue of being a process that is influenced by the interdependence and interconnection between institutions or organisations based in different countries, it is only logical to deduce that Trans-national and Multi-national Corporations will and have had great impacts towards the development of globalisation.

Trans-National Corporations (TNCs), Multi-national Corporations (MNCs) and Globalisation

Trans-national corporations (TNCs) are “unincorporated or incorporated enterprises comprising parent enterprises and their foreign affiliates. A parent enterprise is defined as an enterprise that controls assets of other entities in countries other than its home country usually by owing a certain equity capital stake while a foreign affiliate is an incorporated or unincorporated enterprise in which an investor, who is resident in another economy, owns a stake that permits a lasting interest in the management of that enterprise (UNCTAD, n.d).” as such, Peter Dicken (2003) defines a transnational corporation that has the power to control and coordinate operations in more than one country in the world even if it does not own that country (Ramamurti, 2011).

The current process of globalisation is characterised by both perspectives of quality and quantity and greatly varies from the previous advocacy in regard to these aspects. This process is cumulative in nature and therefore, these views act in support of one another (Iqbal, 1997). Among the qualitative perspectives of globalisation, factors such as breadth of change, financial domination of the economy, political basis, social and organisational dynamics, technological basis of globalisation and transnational corporations play important roles while issues such as number of mechanisms of interconnection, the degree of spatial outreach, and intensity of cross-border flows are major to the qualitative aspects of globalisation.

Cross-border transactions and the TNCs

The level of interconnection across various countries is manifested in several transactions and flows and more specifically activities such as international trade in goods and services, portfolio investment, movements of people across borders for leisure or business activities or in hunt of employment, foreign direct investment, and inter-organisational collaborative partnerships (Jenkins, 2013; Ramamurti, 2011). TNCs are some of the institutions that act as key players in these activities, meaning they have direct business activities in more than one country which involve ownership of assets that undertake production abroad in great percentages that give them a provision to control operations of the business (Mortimore, 2003). TNCs are therefore defined by foreign direct investments (FDIs). Since 1970, there has been an increase in FDI and according to UNCTAD (2009), 84% of the world stock of FDI came from developed countries and was directed to the same group of countries, which received 68.5% of it.

Geography/ Economics

http://www.imf.org/external/pubs/ft/fandd/2005/12/picture.htm

However, similar to being responsible for all or rather most FDI, the TNCs take part in all the other activities mentioned above. Above ¾ of trade in the world starts with TNCs and without a doubt over a third of it is approximated to take place on an intra-firm basis (UNCTAD, 1996). Trans-national corporations such as banks and financial institutions are liable for huge amounts of portfolio investment and loans issued cross-border. The incomes generated from direct, portfolio or loan foreign investments will therefore accrue to the TNCs (Ietto-Gillies, 2000).

Geography/ Economics 1

FDI flows to and from developing countries

http://unctad.org/en/pages/PressReleaseArchive.aspx?ReferenceDocId=10503

A good number of collaborative agreements that take place in the world today have the direct involvement of trans-national corporations, despite the fact that there are many scenarios where private and public institutions do the same (Hagedoorn, 2002). Also, the movement of employees across borders may, to a limited extent, be a direct influence of TNCs. This is particularly because they TNCs take part in migration of expatriate managers across their affiliates based in different countries, thus globalisation in the aspect of labour integration (Salt, 1997; Andersson & Holm, 2010).

Drawing from UNCTAD reports (2009), there were 82,053 TNCs worldwide in 2008 that operated with a network of 807,362 foreign affiliates. Similarly, Dunning reports (1981: ch.1, p.3) indicated about 11,000 TNCs and 82,600 foreign affiliates in the year 1976. This big growth that took place between mid-1970s and 2008 resulted from the operation of a large number of companies from developed markets abroad, smaller and large companies taking part in foreign operations, trans-nationalisation of various state owned corporations and companies from developing countries, and more so China, thus globalisation developed.

Deducing from the above discussions, it can be plausibly understood that TNCs play a very significant role in the globalisation process because they are important to the processes of organisational and technological advancements and innovations and consequently to the development of productive forces, they are in a position to take complete advantage of the ICTs and certainly contribute to their dissemination and development, have a say to the majority of flows of international transactions, take part in globalisation process as active rather than passive members, as opposed to many other actors and finally that they are the only actors that can sincerely make plans, organise and control business activities across borders of various states (Calliess & Mertens, 2011; Iqbal, 1997).

However, it is imperative to note is that the main activity of TNCs that directly affects Globalisation is Foreign Direct Investment (Mortimore, 2003). They take part in overseas investments in physical capital because they can get cheaper labour, particularly in Less Economically Developed Countries (LEDCs), circumvent trade barriers, take advantage of exchange rates, exploit new resource locations, tap market potential in new regions, and avoid strict domestic environmental regulations
thus act as the driving force behind economic globalisation (Cheng, Ngok & Huang, 2012; Narula & Guimón, 2012). To illustrate this, ten largest corporations amongst TNCs now have control of 86% telecommunications, 85% pesticides, and 70% computers and as such, some of them are even greater than some countries (Ramamurti, 2011).

Multi-National Corporations (MNCs) and Globalisation

MNCs are enterprises that operate in several countries but are managed from one country, thus a company with headquarters in one country and major investments in one or more other countries (Moncada-Paternò-Castello, Vivarelli, & Voigt, 2011). In regard to the nature of its definition, it is evident that it is more or less similar in operation as the TNCs. Since MNCs have become very large and powerful if looked at in terms of their worth in comparison to total GDPs, they have had enormous influences in various countries in which they operate (Ietto-Gillies, 2012; Gillies & Ietto-Gillies, 2001; Awuah et al., 2010; Mortimore & Vergara, 2004).

Amongst the sectors that MNCs have influenced for the past half decade include the balance of payments, employment, technology transfer, and social responsibility (Moncada-Paternò-Castello, Vivarelli, & Voigt, 2011; McCann & Acs, 2011). These can be categorised into three main groups of capital in a society that include politics, economics and social parameters (Calliess & Mertens, 2011). Since what affects each one of these fields cannot be stopped from affecting the other, the effects of MNCs to the economy can similarly be relegated to the rest of the society (McCann & Acs, 2011; Dörrenbächer & Geppert, 2011).

MNCs have key roles that they play in economies of developing countries that include providing revenues to the government, employing citizens in their countries of operation, strengthening the government economic programs under which they are involved in, and bringing stiff competition to the local markets (Baylis, Smith, & Owens, 2010; Meyer, Mudambi & Narula, 2011). However, their main contribution to the globalisation of economies is their position as primary players in the world’s most dynamic industries and the driving force beyond the global economy (Narula & Guimón, 2012). Since MNCs take part in activities such as offshore production, selling in the their products globally, provision of financial services globally, they have invested globally in terms of capital, technology and labour thus increased globalisation as TNCs have done (Ramamurti, 2011; Narula & Dunning, 2010).

Conclusion

This essay begins with an introduction of what globalisation is and goes into establishing how it can be related with TNCs and MNCs. Further into the document, different activities that TNCs take part in are identified and an analysis given in regard to how they are related with the development of globalisation. The operation of TNCs is closely related with the operation of MNCs, it is generally deduced that TNCs and MNCs are key primary forces to consider when it comes to determining the causes and factors that mainly influence the integration of economies.

References

Andersson, U., & Holm, U. (Eds.). (2010). Managing the contemporary multinational: the role of headquarters. Edward Elgar Publishing.

Awuah, G., Andersson, S., Amal, M., & Raboch, H. (2010). The Internationalization of Multinational Companies (MNCs): An intra-sector comparison among firms from developing and developed countries.

Baylis, J., Smith, S., & Owens, P. (Eds.). (2010). The globalization of world politics: An introduction to international relations. Oxford University Press.

Calliess, G. P., & Mertens, J. (2011). Transnational Corporations, Global Competition Policy, and the Shortcomings of Private International Law. Indiana Journal of Global Legal Studies, 18(2), 843-872.

Cheng, J. Y. S., Ngok, K. L., & Huang, Y. (2012). Multinational corporations, global civil society and Chinese labour: Workers’ solidarity in China in the era of globalization. Economic and Industrial Democracy, 33(3), 379-401.

Dicken, P. (2003). Global shift: Reshaping the global economic map in the 21st century. Sage.

Dörrenbächer, C., & Geppert, M. (Eds.). (2011). Politics and power in the multinational corporation: The role of institutions, interests and identities. Cambridge University Press.

Gillies, D. A., & Ietto-Gillies, G. (2001). Keynes’s notion of Causa Causans and its application to the globalisation process’. Methodology, Microeconomics and Keynes: Essays in Honour of Victoria Chick, 2.

Ietto-Gillies, G. (2000). ‘Profits from foreign direct investment’, in F. Chesnais, G. Ietto-Gillies and R. Simonetti(eds), European Integration and Global Corporate Strategies, London: Routledge, ch. 4: 71-91.

Ietto-Gillies, G. (2003). The role of transnational corporations in the globalisation process. the Handbook of Globalisation (ed. J. Michie), Cheltenham: Edward Elgar, 139-149.

Ietto-Gillies, G. (2012). Transnational corporations and international production: concepts, theories and effects. Edward Elgar Publishing.

Iqbal, B. A. (1997). Japanese Foreign Direct Investment in South Asia: A Case of India. Mittal Publications.

Jenkins, R. (2013). Transnational Corporations and Uneven Development (RLE International Business): The Internationalization of Capital and the Third World. Routledge.

McCann, P., & Acs, Z. J. (2011). Globalization: countries, cities and multinationals. Regional Studies, 45(1), 17-32.

Meyer, K. E., Mudambi, R., & Narula, R. (2011). Multinational enterprises and local contexts: the opportunities and challenges of multiple embeddedness. Journal of Management Studies, 48(2), 235-252.

Michie, J. (Ed.). (2003). The handbook of globalisation. Edward Elgar Publishing.

Moncada-Paternò-Castello, P., Vivarelli, M., & Voigt, P. (2011). Drivers and impacts in the globalization of corporate R&D: an introduction based on the European experience. Industrial and Corporate Change, 20(2), 585-603.

Mortimore, M. (2003). Globalisation & Transnational Corporations. Training Course on International Investment Agreements, Trinidad & Tobago. Retrieved 19 August 2013 from http://www.eclac.cl/ddpe/agenda/4/15304/Globa-trans-corp.pdf

Mortimore, M., & Vergara, S. (2004). Targeting winners: can foreign direct investment policy help developing countries industrialise?. The European Journal of Development Research, 16(3), 499-530.

Narula, R., & Dunning, J. H. (2010). Multinational enterprises, development and globalization: some clarifications and a research agenda. Oxford Development Studies, 38(3), 263-287.

Narula, R., & Guimón, J. (2012). 13. The role of multinational corporations in the national innovation systems of the EU new member states. Innovation and institutional embeddedness of multinational companies, 311.

Ramamurti, R. (2011). Impact of the crisis on new FDI players: past, present and future of sovereign wealth funds, private equity and emerging market transnational corporations. United Nations, 20(1), 39.

Salt, J., & Stein, J. (1997). Migration as a business: the case of trafficking. International migration, 35(4), 467-494.

United Nations Conference on Trade and Development (UNCTAD). (2009). World Investment Report. Transnational Corporations, Agricultural Production and Development, Geneva: United Nations.