A multinational corporation (MNC) or enterprise (MNE),[1] is a corporation or an enterprise that manages production or delivers services in more than one country. It can also be referred to as an international corporation. The International Labour Organization (ILO) has defined[citation needed] an MNC as a corporation that has its management headquarters in one country, known as the home country, and operates in several other countries, known as host countries.

The Dutch East India Company was the first multinational corporation in the world and the first company to issue stock.[2] It was also arguably the world's first megacorporation, possessing quasi-governmental powers, including the ability to wage war, negotiate treaties, coin money, and establish colonies.[3]

The first modern multinational corporation is generally thought to be the East India Company.[4] Many corporations have offices, branches or manufacturing plants in different countries from where their original and main headquarters is located.

Some multinational corporations are very big, with budgets that exceed some nations' GDPs. Multinational corporations can have a powerful influence in local economies, and even the world economy, and play an important role in international relations and globalization.

Market imperfections

It may seem strange that a corporation can decide to do business in a different country, where it does not know the laws, local customs or business practices.[1] Why is it not more efficient to combine assets of value overseas with local factors of production at lower costs by renting or selling them to local investors?[1]

One reason is that the use of the market for coordinating the behaviour of agents located in different countries is less efficient than coordinating them by a multinational enterprise as an institution.[1] The additional costs caused by the entrance in foreign markets are of less interest for the local enterprise.[1] According to Hymer, Kindleberger and Caves, the existence of MNCs is reasoned by structural market imperfections for final products.[5] In Hymer's example, there are considered two firms as monopolists in their own market and isolated from competition by transportation costs and other tariff and non-tariff barriers. If these costs decrease, both are forced to competition; which will reduce their profits.[5] The firms can maximize their joint income by a merger or acquisition, which will lower the competition in the shared market.[5] Due to the transformation of two separated companies into one MNE the pecuniary externalities are going to be internalized.[5] However, this does not mean that there is an improvement for the society.[5]

This could also be the case if there are few substitutes or limited licenses in a foreign market.[6] The consolidation is often established by acquisition, merger or the vertical integration of the potential licensee into overseas manufacturing.[6] This makes it easy for the MNE to enforce price discrimination schemes in various countries.[6] Therefore

Hymer considered the emergence of multinational firms as "an (negative) instrument for restraining competition between firms of different nations".[7]

Market imperfections had been considered by Hymer as structural and caused by the deviations from perfect competition in the final product markets.[8] Further reasons are originated from the control of proprietary technology and distribution systems, scale economies, privileged access to inputs and product differentiation.[8] In the absence of these factors, market are fully efficient.[1] The transaction costs theories of MNEs had been developed simultaneously and independently by McManus (1972), Buckley & Casson (1976) Brown (1976) and Hennart (1977, 1982).[1] All these authors claimed that market imperfections are inherent conditions in markets and MNEs are institutions that try to bypass these imperfections.[1] The imperfections in markets are natural as the neoclassical assumptions like full knowledge and enforcement do not exist in real markets.[9]

International power

[edit] Tax competition

Multinational corporations have played an important role in globalization. Countries and sometimes subnational regions must compete against one another for the establishment of MNC facilities, and the subsequent tax revenue, employment, and economic activity. To compete, countries and regional political districts sometimes offer incentives to MNCs such as tax breaks, pledges of governmental assistance or improved infrastructure, or lax environmental and labor standards enforcement. This process of becoming more attractive to foreign investment can be characterized as a race to the bottom, a push towards greater autonomy for corporate bodies, or both.

However, some scholars for instance the Columbia economist Jagdish Bhagwati, have argued that multinationals are engaged in a 'race to the top.' While multinationals certainly regard a low tax burden or low labor costs as an element of comparative advantage, there is no evidence to suggest that MNCs deliberately avail themselves of lax environmental regulation or poor labour standards. As Bhagwati has pointed out, MNC profits are tied to operational efficiency, which includes a high degree of standardisation. Thus, MNCs are likely to tailor production processes in all of their operations in conformity to those jurisdictions where they operate (which will almost always include one or more of the US, Japan or EU) that has the most rigorous standards. As for labor costs, while MNCs clearly pay workers in, e.g. Vietnam, much less than they would in the US (though it is worth noting that higher American productivity—linked to technology—means that any comparison is tricky, since in America the same company would probably hire far fewer people and automate whatever process they performed in Vietnam with manual labour), it is also the case that they tend to pay a premium of between 10% and 100% on local labor rates.[10] Finally, depending on the nature of the MNC, investment in any country reflects a desire for a long-term return. Costs associated with establishing plant, training workers, etc., can be very high; once established in a jurisdiction, therefore, many MNCs are quite vulnerable to predatory practices such as,

e.g., expropriation, sudden contract renegotiation, the arbitrary withdrawal or compulsory purchase of unnecessary 'licenses,' etc. Thus, both the negotiating power of MNCs and the supposed 'race to the bottom' may be overstated, while the substantial benefits that MNCs bring (tax revenues aside) are often understated

Market withdrawal

Because of their size, multinationals can have a significant impact on government policy, primarily through the threat of market withdrawal.[11] For example, in an effort to reduce health care costs, some countries have tried to force pharmaceutical companies to license their patented drugs to local competitors for a very low fee, thereby artificially lowering the price. When faced with that threat, multinational pharmaceutical firms have simply withdrawn from the market, which often leads to limited availability of advanced drugs. In these cases, governments have been forced to back down from their efforts. Similar corporate and government confrontations have occurred when governments tried to force MNCs to make their intellectual property public in an effort to gain technology for local entrepreneurs. When companies are faced with the option of losing a core competitive technological advantage or withdrawing from a national market, they may choose the latter. This withdrawal often causes governments to change policy. Countries that have been the most successful in this type of confrontation with multinational corporations are large countries such as United States and Brazil[citation needed], which have viable indigenous market competitors.

[edit] Lobbying

Multinational corporate lobbying is directed at a range of business concerns, from tariff structures to environmental regulations. There is no unified multinational perspective on any of these issues. Companies that have invested heavily in pollution control mechanisms may lobby for very tough environmental standards in an effort to force non-compliant competitors into a weaker position. Corporations lobby tariffs to restrict competition of foreign industries. For every tariff category that one multinational wants to have reduced, there is another multinational that wants the tariff raised. Even within the U.S. auto industry, the fraction of a company's imported components will vary, so some firms favor tighter import restrictions, while others favor looser ones. Says Ely Oliveira, Manager Director of the MCT/IR: This is very serious and is very hard and takes a lot of work for the owner.pk

Multinational corporations such as Wal-mart and McDonald's benefit from government zoning laws, to create barriers to entry.

Many industries such as General Electric and Boeing lobby the government to receive subsidies to preserve their monopoly.[12]

[edit] Patents

Many multinational corporations hold patents to prevent competitors from arising. For example, Adidas holds patents on shoe designs, Siemens A.G. holds many patents on equipment and infrastructure and Microsoft benefits from software patents.[13] The pharmaceutical companies lobby international agreements to enforce patent laws on others.

[edit] Transnational Corporations

A Transnational Corporation (TNC) differs from a tranditional MNC in that it does not identify itself with one national home. Whilst traditional MNCs are national companies with foreign subsidiaries,[14] TNCs spread out their operations in many countries sustaining high levels of local responsiveness.[15] An example of a TNC is Nestlé who employ senior executives from many countries and try to make decisions from a global perspective rather than from one centralised headquarters.[16] However, the terms TNC and MNC are often used interchangeably.

[edit] Micro-multinationals

Enabled by Internet based communication tools, a new breed of multinational companies is growing in numbers.[17] These multinationals start operating in different countries from the very early stages. These companies are being called micro-multinationals. [18] What differentiates micro-multinationals from the large MNCs is the fact that they are small businesses. Some of these micro-multinationals, particularly software development companies, have been hiring employees in multiple countries from the beginning of the Internet era. But more and more micro-multinationals are actively starting to market their products and services in various countries. Internet tools like Google, Yahoo, MSN, Ebay and Amazon make it easier for the micro-multinationals to reach potential customers in other countries.

Service sector micro-multinationals, like Facebook, Alibaba etc. started as dispersed virtual businesses with employees, clients and resources located in various countries. Their rapid growth is a direct result of being able to use the internet, cheaper telephony and lower traveling costs to create unique business opportunities.

Low cost SaaS (Software As A Service) suites make it easier for these companies to operate without a physical office.

Hal Varian, Chief Economist at Google and a professor of information economics at U.C. Berkeley, said in April 2010, "Immigration today, thanks to the Web, means something very different than it used to mean. There's no longer a brain drain but brain circulation. People now doing startups understand what opportunities are available to them around the world and work to harness it from a distance rather than move people from one place to another. REFERENCE- Pitelis, Christos; Roger Sugden (2000). The nature of the

transnational firm. Routledge. p. 72. ISBN 0415167876. http://books.google.com/books?id=mXjeiQYR088C&printsec=frontcover#PPA72,M1.

By Chakravarthi RaghavanThird World Network Features 29 January, 1996.

The world's transnational corporations account for two-thirds of the world trade in goods and services, and foreign direct investment, even though concentrated in a few South countries, has now superseded trade as the most important mechanism for international economic integration, says an UNCTAD report.

Geneva: Foreign direct investment (FDI) by transnational corporations (TNCs), and the transnational system of production and international economic transactions is now the most dominant element of the world economy, with TNCs increasingly influencing the size and nature of cross-border transactions, says an UNCTAD (United Nations Conference on Trade and Development) report.

The world's TNCs - 40,000 parent firms and 250,000 foreign affiliates - account for two-thirds of the world trade in goods and services, one-third in intra-firm transactions and the other one-third in inter-firm transactions. This is according to UNCTAD's World Investment Report 1995 (WIR 1995).

This means that only one-third of world trade in goods and services is according to free-market-free-trade theories of arms-length transactions.

In releasing the report at a press conference in mid-December 1995, UNCTAD Secretary-General Rubens Ricupero said that FDI had now superseded trade as the most important mechanism for international economic integration.

The report uses this fact to argue for making 'investments' part of the trade negotiation and rule-making process, through a Multilateral Investment Agreement (MIA).

At his press conference, Ricupero slightly distanced himself from the MIA of the WIR, preferring the term 'multilateral framework', but did not elaborate on the distinction.

The leader of UNCTAD's investment centre team responsible for the WIR, Karl Sauvant, at a Washington press conference, used the same terminology of a 'multilateral framework' to argue for an agreement 'creating new parameters for international business transactions'. The WIR refers in this regard to the increasing number of bilateral investment agreements, several between developing countries themselves or within regional integration accords, as well as the discussions for plurilateral and multilateral agreements in the Organisation for Economic Cooperation and Development (OECD) and so on,to make the argument in favour of a multilateral agreement.

The report also advocates developing countries liberalising not only inward FDI, but also outward FDI flows, and says it would be in the interests of all countries to have a multilateral agreement to provide stable, predictable and transparent international investment relations.

Given the growing importance of FDI and international production for linking national economies and improving economic performance, and given the transnational nature of this investment, 'it is unavoidable that a framework will be sought that provides for stability, predictability and transparency at the multilateral level.'

It refers in this connection to the built-in World Trade Organisation (WTO) agenda (of the Marrakesh agreements and the negotiations provided there for Trade-Related Investment Measures (TRIMs), Services and so on), the regional efforts (within the framework of the European Union, the North American Free Trade Agreement, Mercosur, the Asia Pacific Economic Cooperation) and the OECD negotiations for a binding Multilateral Agreement on Investment which, once it is concluded, would be open to non-OECD members to join.

UNCTAD, the report says, is also helping discussions for an international framework to advance understanding on this issue, especially on the development dimensions, and to promote consensus building.

Without predicting whether these efforts would lead in the foreseeable future to a comprehensive multilateral framework, the WIR asserts that such a framework when established could well rival in importance, the international trade framework created by establishing the General Agreement on Tariffs and Trade (GATT) 50 years ago, and setting parameters within which TNCs could maintain or increase their competitiveness and countries could improve economic performance.

But whether or not there is a difference of substance between negotiations for a framework (that conceptually would imply a large leeway for individual governments to set their own rules, to suit their own conditions) and a multilateral agreement that would give rights to the TNCs to 'invest' in any country for production of goods and services and 'discipline' governments against interference with these rights, the European Union (the leading exponent of a WTO investment agreement) promptly welcomed the WIR, but called for a WTO working group to make progress on the idea.

Incentives for investment

The WIR also details the number of incentives that developed and developing countries offer to attract FDI to their countries, or particular regions within the country, and says that 'unbridled competition among governments in this area can lead to abuses, as the world experienced in the inter-war years through successive rounds of currency devaluations in a beggar-my-neighbour attempt to boost exports, and the more recent export-credit competition.'

Some incentives could lead to waste of governmental financial resources and economic distortions, the WIR says, and advocates an international eminent persons group on incentives to be set up to make recommendations.

World sales generated by foreign affiliates of TNCs amounted to $5.2 trillion in 1992, exceeding the $4.9 trillion of world exports of goods and non-factor services in that year. During 1991-1993, the world FDI stock grew twice as fast as world trade and which again was one and a half times faster than world output.

The world outward FDI stock at the end of 1994 is estimated to be $2.4 trillion, with the industrialised countries as a whole accounting for about three-quarters of this.

Total FDI outflows to all countries in 1994 is put at $224 billion by the WIR - compared to the $208 billion in 1993 (according to a press release) and $222 billion according to the WIR review. An official of the division explained this as due to statistical discrepancy and lack of uniform international reporting standards.

The WIR projects FDI outflows in 1995 at $230 billion, with 15% of this originating in developing countries.

The United States was both the largest source of outward investment ($46 billion in 1994, down from $69 billion in 1993) and the largest inward flows ($49 billion in 1994, up from $41 billion in 1993). The stock of FDI in the US in 1994 is estimated to be more than $500 billion or 7% of its gross domestic product (GDP), while the outward FDI of US TNCs is $610 billion (9% of its GDP) or about a quarter of the world FDI stock.

While some 34,353 TNCs, with 93,311 affiliates, are based in the industrialised countries, some 3,788 with 101,139 affiliates are based in the developing countries. But the WIR definition of affiliates covers any kind of relationships between parent and 'affiliate', and makes comparisons difficult.

FDI flows concentrated in a few South countries

Developing countries are now increasingly attracting FDI, continuing a trend that began in 1990, with the 1994 FDI flows to the developing countries reaching $84 billion or 37% of the world FDI inward flows.

But the FDI flows continue to be concentrated in a few countries of the South, with China's $34 billion inflows in 1994 being the second largest and accounting for 40% of all flows into the developing world. But the Chinese figures may be over-valued by about a quarter because of 'round-tripping' and some double-counting. China though is more selective in the FDI flows it seeks.

The Asia-Pacific region (which now accounts for some 70% of developing country FDI stock) got $61 billion in 1994. While China and South-East Asia were at the forefront,

the Pacific Island economies and South Asian countries are lagging behind, according to the WIR 1995.

Inward flows into Latin America and the Caribbean are fragile and depend very much on privatisation programmes (which don't create new production, though some with additional FDI may involve expansion).

Flows into the region increased only marginally in 1994, to some $40 billion, largely shaped by privatisation programmes open to foreign investors. Argentina, the largest recipient in 1993 with $6 billion inflows, saw a sharp decline to $1.2 billion in 1994. Peru with $2.7 billion, mostly privatisation FDI, and Chile with $1.8 billion saw a sharp upswing.

FDI flows into Brazil increased from $891 million in 1993 to $1,504 million in 1994. The WIR suggests and argues for further privatisation in Brazil which it estimates would bring in substantially more FDI.

[The increase in 1994 was an outcome of the successful Real plan, the more liberal attitude to all kinds of foreign inflows and the effects on the macro-economy. But in the aftermath of the Mexican crisis, Brazilian authorities became more cautious and some Brazilian analysts suggest that Brazil won't precipitately follow the neo-liberalism of Mexico and Argentina.]

Africa, the WIR stresses, remains marginalised. Despite the considerable efforts of African governments to undertake far- reaching domestic policy reforms and improving their domestic frameworks for investment, and the higher returns for investors in Africa, the FDI boom in other regions has largely bypassed that continent. Sub-Saharan Africa received only $1.8 billion of FDI in 1994, while North Africa got $1.3 billion. Most FDI in Africa also continues to be concentrated in a small number of countries, endowed with natural resources and especially in oil.

As for Central and Eastern Europe (the WIR definition includes most of the former Soviet Union, and thus the data is not easily comparable with data of other organisations), FDI flows reached $6.3 billion in 1993 and $6.5 billion in 1994, increasing the total FDI stock in the region to an estimated $22 billion. Inflows, the WIR says, have slowed down due to lingering economic recession in some West European countries and the slower transition to a market economy. The gap between investors' commitments and implementation in the region also remains high. The flows are also unevenly distributed.

The report suggests that while the dominant actors on the TNC scene are the industrialised countries - and more so the US, the EU (with Germany in the lead within it), Japan, Switzerland - developing countries are also undertaking outward FDI, accounting for $33 billion of outflows in 1994. The WIR notes that developing country-firms, because of the need to remain internationally competitive, are becoming significant foreign investors and says that prospects of large increases in FDI by TNCs headquartered in the South are bright. –

1. Corporations — Global Issues

Corporations

Author and Page information

by Anup Shah This Page Last Updated Saturday, October 02, 2010

This page: http://www.globalissues.org/issue/50/corporations. To print all information e.g. expanded side notes, shows alternative links, use the

print version: o http://www.globalissues.org/print/issue/50

As the world starts to globalize, it is accompanied by criticism of the current forms of globalization, which are feared to be overly corporate-led. As corporations become larger and multinational, their influence and interests go further accordingly. Being able to influence and own most media companies, it is hard to be able to publicly debate the notions and ideals that corporations pursue. Some choices that corporations take to make profits can affect people all over the world. Sometimes fatally.

13 articles on “Corporations” and 2 related issues:

The Rise of Corporations

Last updated Thursday, December 05, 2002.

Today we know that corporations, for good or bad, are major influences on our lives. For example, of the 100 largest economies in the world, 51 are corporations while only 49 are countries. In this era of globalization, marginalized people are becoming especially angry at the motives of multinational corporations, and corporate-led globalization is being met with increasing protest and resistance. How did corporations ever get such power in the first place? What was the impact of giving corporations the same right as individuals in 1886 in the United States?

Read “The Rise of Corporations” to learn more.

Corporations and Human Rights

Last updated Thursday, September 19, 2002.

Large, transnational corporations are becoming increasingly powerful. As profits are naturally the most important goal, damaging results can arise, such as violation of human rights, lobbying for and participating in manipulated international agreements, environmental damage, child labor, driving towards cheaper and cheaper labor, and so on. Multinational corporations claim that their involvement in foreign countries is actually a constructive engagement as it can promote human rights in non-democratic nations. However, it seems that that is more of a convenient excuse to continue exploitative practices.

Read “Corporations and Human Rights” to learn more.

Tax Havens; Undermining Democracy

Last updated Sunday, July 12, 2009.

Through corporate crime, tax havens, transfer pricing and many other policies — both legal and illegal — billions of dollars are prevented from being taxed. The much-needed money would helped developing (and developed) countries provide important social services for their populations. Usually, these crimes, which often have far worse effects than individual crimes, go unaccounted.

Read “Tax Havens; Undermining Democracy” to learn more.

Pharmaceutical Corporations and Medical Research

Last updated Saturday, October 02, 2010.

For a while now, pharmaceutical companies have been criticized about their priorties. It seems the profit motive has led to emphasis on research that is aimed more at things like baldness and impotence, rather than various tropical diseases that affect millions of people in developing countries.

Unfortunately, while a large market therefore exists, most of these people are poor and unable to afford treatments, so the pharmaceutical companies develop products that can sell and hence target wealthier consumers.

In addition, there is concern at how some pharmaceutical companies have been operating: from poor research and trial practice to distorting results, and politically lobbying and pressuring developing countries who try to produce generics or try to get cheaper medicines for their citizens.

Read “Pharmaceutical Corporations and Medical Research” to learn more.

Pharmaceutical Corporations and AIDS

Last updated Sunday, June 02, 2002.

The AIDS crisis is one example that highlights the motives of some of the larger pharmaceutical corporations. When South Africa wanted to try and produce cheaper drugs to help its own people, by producing more generic and cheaper drugs, these companies actually lobbied the US government to impose sanctions on them!

Read “Pharmaceutical Corporations and AIDS” to learn more.

Corporations and the Environment

Last updated Saturday, May 25, 2002.

Many industries such as the energy and fossil fuels industry leave many environmental problems in their wake. Because international lending schemes are tied with reforms that include cutting back on regulatory and safety measures such as health, education and the environment, problems can arise without many resources available to deal with them. While large corporations are able to profit, the costs from environmental and other damage has to be borne by the local population.

Read “Corporations and the Environment” to learn more.

Corporate Social Responsibility

Posted Saturday, July 07, 2007.

Corporate Social Responsibility is a bit of a buzz word and some feel that it has been diluted from its original aims, while others are trying to find innovative ways to engage with businesses to be more responsible in their practices.

Read “Corporate Social Responsibility” to learn more.

Corporate Influence on Children

Last updated Saturday, June 02, 2001.

When companies see children as an enormous market with incredible purchasing power, it leads to a lot of advertising and marketing targeted directly at them. Some are concerned at the effect it has as children, teaching them to be consumers and overly conscious about materialistic things, perhaps even at the expense of human qualities from an early age.

Read “Corporate Influence on Children” to learn more.

Corporations and Worker’s Rights

Last updated Sunday, May 28, 2006.

For many companies, the largest cost is often the work force. Hence, where profits are the bottom line, it is only natural for companies to seek out the cheapest labor possible. However, when international agreements are often designed to foster an environment where cheaper and cheaper labor is promoted, the workers themselves are often not paid enough to live on. When a nation tries to provide regulatory steps to improve workers conditions (which does mean more costs to the companies), multinational corporations naturally pick up and go to other places where there are less measures in place. In this way, improving working conditions will always be difficult, as it is not in the interest of the large companies.

Read “Corporations and Worker’s Rights” to learn more.

Influence at the World Trade Organization

Last updated Tuesday, May 15, 2001.

Transnational corporations are able to exert enormous influence in no less a powerful body as the World Trade Organization (WTO). These corporations are closely linked to the WTO decision-makers themselves.

Read “Influence at the World Trade Organization” to learn more.

Corporate Power Facts and Stats

Last updated Tuesday, May 15, 2001.

As transnational corporations grow in size and power, their influence and impacts affect more and more people. These stats provide an insight into the growing size and influence of corporations.

The Facts About Globalization, Including The Winners And Losers Of Gatt And Details About Which Corporations Make More Money Than Which CountriesShare this: Issue 296

GLOBALIZATIONTHE FACTS

The integration of the world's economy may look as if it's gathering pace. But the trends conceal more than they reveal about the way the world's economy works - and about whose interests would be served if 'globalization' ever achieved all its ambitions.1

CORPORATE POWER

Transnational corporations (TNCs) have almost total controlover the process of 'globalization' - their grip is tighter herethan at a national or local level.

* 2/3 of international trade is accounted for by just 500 corporations.

* 40% of the trade they control is between different parts of the same TNC.

* Of the world's 100 largest economies, 50 are TNCs.

THE STATE AND CORPORATE POWER 1994 ($billions)

Country orcorporation

Total GDP orcorporate sales

Indonesia 174.6 General Motors 168.8

Turkey 149.8

Denmark 146.1 Ford 137.1 South Africa 123.3 Toyota 111.1 Exxon 110.0

Shell 109.8 Norway 109.6 Poland 92.8 Portugal 91.6 IBM 72.0 Malaysia 68.5 Venezuela 59.0 Pakistan 57.1 Unilever 49.7 Nestlé 47.8 Sony 47.6 Egypt 43.9 Nigeria 30.4 Total sales:Top five corporations 871.4

871.4

Total GDP:Least developed countries

76.5

South Asia 451.3 Sub-Saharan Africa 246.8

* The 10 largest TNCs have a total income greater than that of 100 of the world's poorest countries.

* Many TNCs have larger corporate sales than some developed countries.

DRIVING GROWTH

International trade is expanding faster than the world's economy - at the moment. This means that trade is argued to be one of the main 'engines' of economic growth.

* International trade has grown 12-fold in the post-War period and is expected to grow 6% annually for the next 10 years.

* In 1947 the average trade tariff on manufactured imports was 47%; by 1980 it was only 6%; it is set to fall to just 3%.

BUT

Since 1973 growth has slowed as trade has accelerated. Both the absolute importance of international trade and its novelty are often exaggerated.

* The total value of foreign trade was little more than a quarter of total output (GDP) in the Western hemisphere between 1980 and 1989.

* In 17 countries for which there are data, exports as a share of GDP were 14.5% in 1993, not much above the level (12.9%) 80 years earlier in 1913.

Winners and losers from GATT

Projected annual gains and losses from trade liberalization to the year 2000(based on a 30% cut in tariffs and subsidies)

European Union $80 billion gain

China $40 billion gain

Japan $25 billion gain

US $18 billion gain

Upper Income Asia $18 billion gain

Other Industrialized countries

$18 billion gain

Latin America $8 billion gain

India $5 billion gain

Eastern Europe and former USSR

$2.5 billion gain

Low Income Asia $2.5 billion gain

Other $1 billion gain

Africa Loss of $3 billion

* The bulk of international trade is not 'global' but between a small number of 'developed' economies in the North.

* These countries are the main beneficiaries of the trade-liberalizing 'Uruguay Round' of theGeneral Agreement on Tariffs and Trade (GATT) which was completed in the early 1990s.The least developed countries are expected to lose $600 million a year; sub-Saharan Africa $1,200 million.

MONEY MAKES THE WORLD GO AROUND

'Global' financial transactions, dominated by a small number of banks - most of them still based in the US have been growing even faster than trade.

* Flows of foreign direct investment (FDI) in 1995 reached $315 billion, almost a 6-fold increase over the level for 1981-85: over the same period world trade increased by little more than a half.

* Total borrowing on international capital markets increased from an annual average $95.6 billion between 1976 and 1980 to $818.6 billion in 1993 a 34.3% increase on the previous year alone.4

* Between the mid-1970s and 1996 the daily turnover of the world's foreign-exchange markets increased a thousand-fold from around $1 billion to $1,200 billion.

BUT

* 2/3 of these transactions are between the few already-rich countries of the Organization for Economic Co-operation and Development (OECD).

* Capital transfers as a share of industrial countries' economies are still smaller than they were in the 1890s.

* Although the share of poor (non-OECD) countries in FDI has increased, China alone accounts for about a third of this share and just 9 countries for another third.

* The remaining third is split between 135 countries: the Least Developed get just 0.5%.

NETWORKED

The speed of worldwide transport and communication has increased, while the monetary cost has fallen sharply.

* Between 1960 and 1990 operating costs per mile for world's airlines fell by 60%.

* Between 1940 and 1970 the cost of an international telephone call fell by more than 80% between 1970 and 1990 by 90%.

* Since the 1980s telecommunications traffic has been expanding by an average 20% a year.

* The Internet is now used by upwards of 50 million people and the numbers are doubling every year.

* In 1995 the number of messages sent by e-mail in the US exceeded those sent by post for the first time.

* The global trade in TV programing is growing by 15% a year.

BUT

* A small number of corporations control this global expansion. Just 6 of them control the world's recorded music business.

Recorded music: world market share

Polygram 19% Time Warner

18%

Sony 17% EMI 15% Bertelsmann

13%

Universal 9% The rest 9%

Footnotes

1 Unless otherwise stated, source is UNDP, Human Development Report 1997, OUP, New York and Oxford, 1997.2 World Trade Organization, Annual Report 1996, Geneva.3 I Goldin et al, Trade Liberalization: Global Economic Implications, OECD/World Bank, Paris, 1993.4 Paul Hirst and Grahame Thompson, Globalization in Question, Polity Press, Cambridge, 1996.5 Edward S Herman and Robert W McChesney, The Global Media: The New Missionaries of Global Capitalism, Cassell, London, 1997.

CASE STUDY –

India: TNCs muscling into cottage industry sectors

By TWN/Mahesh Prasad

New Delhi (Jan 11 1996) : Taking advantage of the ruling Congress government's policies of economic reform and liberalisation, transnational corporations, already established in the country, are making some aggressive moves to take over well-managed Indian companies and to muscle their way into consumer goods sectors where suppliers are small and cottage-industry producers.

This is not only arousing strong backlash among the public, but also among domestic business and industry asking for a "level playing field" inside the country so that domestic industry can compete on fair terms and not be overwhelmed by the predatory practices of TNCs.

The move of Pepsi foods (the US TNC Pepsi-cola company's Indian operation) to edge out small Indian cottage industry snack food manufacturers of 'Bikaneri Bhujia' has attracted wide publicity in the media, has aroused concerns among thousands of cottage-industry producers and workers, and is forcing some of the regional and local governments to intervene.

But the Pepsi move to muscle into the cottage industry sector, and which would inevitably result in throwing hundreds of thousands of artisanal production and dependent families out of work and on the scrap heap, is not only the attempt of its kind.

The entry into India of the other US soft-drink TNC, Coca Cola, was based on the takeover of the largest soft-drink manufacturer in India, Parle -- although Parle's owner, Ramesh Chauhan, had willingly sold its stake in his company to Coca Cola.

There are other examples galore of attempts by the TNCs to take over Indian industry cheap and sell the goods manufactured by them at three or four times the prices charged by the domestic manufacturers.

The board room battles through which the UK transnational BAT has attempted, though unsuccessfully so far, to take over the Indian Tobacco Company (ITC), a well-managed Indian company and the abortive bids by telecom TNCs, in collusion with some Indian partners, to acquire large chunks of India's basic telecom services cheap, are now hitting headlines in the media, and is cited by political circles as examples.

When the Pepsi opened a Kentucky Fried Chicken fast-food shop in Delhi, the Delhi Municipal Corporation (run by the opposition Bharatiya Janata Party) tried to close it down by citing health violations, but had to retreat under court orders.

While the episode got some wide media attention, within and outside the country, and got trivialized as the case of "two flies in the KFC kitchen", it has raised some politically and socially charged issues and debate about foreign investments and role of TNCs in the country.

Among the westernized, de-culturized, upper middle class Indians, there is a craze for 'foreign' goods and foreign trade-marks -- and the US and European TNCs are moving in to cash in on this, under the new reform policy of the Congress-run central government in New Delhi, not so much to bring new technology and new production, but merely take over existing ones or thins already being done.

Westernised elitists inside the country and the foreign media, as well as some of the business writers in the Indian media mock at critics and the politicians raising these issues.

But these episodes are touching a raw nerve in a country where, even after nearly 50 years of independence, the historical memories of foreign traders (the British East India Co) coming as traders and taking over the country and subjugating it run deep.

Foreign governments, international institutions (the Fund, World Bank and the WTO) scoff at such concerns, speak of the inevitable march of history and globalization, and often lecture Indians -- the latest being the Singapore Foreign Trade Minister at the Confederation of Industry jubilee celebration meeting in Bombay.

Bikaneri Bhujia is a salted spicy snack food, and is a characteristic product of Bikaner, a town in the western state of Rajasthan and is a generic name. it provides livelihood for some 50,000 people in Bikaner Although Pepsi has denied it, fears persist among the bhujia manufactures that the TNC was trying to patent the snack food and sell it under its own brand name 'Pepsi Namkeen' and that this would prevent the local manufacturers to produce and sell their own product.

A delegation of the 'bhujia' manufactures of Bikaner recently met the chief minister of that State, Mr. Bhairon Singh Sekhawat, and told him that if the TNC was not prevented, it would similarly take up other products like 'papad' (wafer-thin round salted spicy preparation) which was a major cottage industry in the state, employing some 100,000 people.

Gopal Agarwal, President of the 'Bikaneri Bhujia Kutir Udyog Bachao Sangharsh Samiti' (Save Bikaneri Bhujia Cottage Industry struggle committee) is reported to have said that while they were selling Bikaneri Bhujia at Rs. 40 a kg ($1= Rs 35.77), the TNC was selling it at Rs 75 a kg. The same company was selling potato chips at Rs 240 a kg, while local manufacturers sell theirs at Rs 60 a kg. The price of potato in the Indian rural market is Rs. 2 a kg.

Despite the higher price, the metropolitan westernized upper middle classes are prepared to pay the higher price for the 'foreign goods' and the TNCs are cashing in on this.

There are allegations in the media of the TNC majors seeking to bully their way into the Indian market place.

These allegations were recently taken note of by no other person than a former Governor of the Reserve Bank of India, the country's apex bank, who was also a former Finance Secretary (civil service head of the Finance ministry), Mr. S. Venkitaramanan.

In an article on 'inflation' in a leading Indian daily, Venkitaraman quoted a friend as asking him "How is it that most grocery shops now do not offer local brands of corn flakes or other food articles and perforce stock up only multinational brands?". The latter are priced much higher and are out of reach of the ordinary Indian consumer. True, the local brands, which were available easily earlier, were soggy. But they were cheaper and affordable.

Says Venkitaramanan: "There is truth in the complaint. The multinational majors seem to have bullied their way into the market place. They insist on competing brands being taken off the shelf -- if not, placed at less conspicuous points of display -- as a price for getting dealership."

The slow, but concerted attempts of the TNCs to take over well-managed Indian companies is also raising concerns.

The hue and cry raised by a group of Indian industrialists, known as the 'Bombay Club' was silenced last year by industry associations and the government in fear that it would hurt inflows of foreign investment. The socalled 'Bombay Club' later described its mission as one of getting from the government 'a level playing field' visavis the TNCs who were getting a preferential treatment.

But what the Bombay Club failed to realise was that a weak Indian industry, particularly in the small- and cottage-sector, needs at the moment not just a level playing field, but a measure of support and protection from the government till they are strong enough to face the TNCs.

The case of the British TNC, BAT, seeking to acquire ITC, one of the largest Indian companies in the private sector, is a good example of the intentions of the TNCs and their modus operandi.

BAT holds 31.5% of share in the ITC.

It first attempted to ease out K.L.Chug as the ITC Chairman, and later tried to block the nomination of Yogesh Chandra Deveshwar, an executive of proven ability.

Having succeeded in easing out Chug in board room battles lasting several months, BAT was confident of putting its own nominee as Chairman of ITC, but failed to do so, as a result of the support extended to incumbent executive, Deveshwar, by the Indian financial institutions who together have a 38% share in the ITC against BAT's 31.5%

The Indian financial institutions, which had earlier supported BAT, although after prolonged wrangles (during which Chug was accused of financial bungling), chose to support Deveshwar against the BAT -- this time obviously under instructions of the government which must have weighed the consequences of supporting a TNC on the outcome of the forthcoming elections to Parliament and the chances of the issue being exploited by opposition parties in their campaigns.

After Deveshwar's appointment was announced following an ITC Board meeting on December 10, BAT did not conceal its disappointment and openly expressed itself against the appointment.

In a statement issued after the Board meeting held in Calcutta, the TNC said: "It is acknowledged that BAT has expressed its viewpoint in all fora that a healing touch could best be brought about by an external candidate for a short period of time."

But when it found that it was losing the battle over its own nominee, BAT appears to have sought bifurcation of the top slot with the Chairman taking charge of overall policy matters of ITC and the vice-Chairman to look after day to day operations, functioning as its Chief Executive Office (CEO). BAT is reported to have proposed the name of Mr. Malcolm Fry as the CEO.-SUNS

ONGC 26th in UN's transnational cos' list

State-run Oil and Natural Gas Corporation is the only Indian company ranked in terms of foreign assets that figures in a UN agency's list of top 100 transnational corporations from developing countries.

However, there is no Indian entity in the list of top 100 TNCs in 2004 worldwide, although Mittal Steel -

owned by NRI steel tycoon L N Mittal [ Images ] - finds a place at 76th position.

ONGC [ Get Quote ] is ranked 26 in the list of developing countries' TNCs. The list is dominated by firms

based in Hong Kong, China, Korea and Singapore, as per the World Investment Report 2006 by United

Nations Centre for Trade and Development.

The public sector oil giant had foreign assets of $4.018 billion and total assets of $18.599 billion in 2004.

The company recorded foreign sales of $1.263 billion, while total sales stood at $14.492 billion.

The world's largest TNC in terms of foreign assets is General Electric. The US-based conglomerate has

foreign assets worth $448 billion and total assets of $750 billion.

GE is followed by British telecom giant Vodafone, Ford [ Images ] Motors and General Motors [ Images ] of

the US, British Petroleum, Exxon Mobil of US, Royal Dutch/Shell, Japan's [ Images ] Toyota [ Images ]

Motors and French energy giant Total in the list of world's top TNCs.

Mittal Steel ranks 76 with foreign assets of $17.7 billion and total assets of $19.15 billion. The list of TNCs

from developing nations is led by Hong Kong-based diversified group Hutchison Whampoa, with foreign

assets of $67 billion and total assets of $84 billion.

Hutchison is followed by Malaysia's Petronas, Singapore's SingTel and South Korea's Samsung.

IMPACT OF MNCs ON  DEVELOPING COUNTRIES

Introduction:

Multinational corporation (or transnational corporation) (MNC/TNC) is a corporation or enterprise that manages production establishments or delivers services in at least two countries. Very large multinationals have budgets that exceed those of many countries. Multinational corporations can have a powerful influence in international relations and local economies. Multinational corporations play an important role in globalization; some argue that a new form of MNC is evolving in response to globalization: the ‘globally integrated enterprise.’

MNCs are not new in India if we look in the past British East India Company and Dutch East India companies were there which came to India for trade and by taking advantage of political conditions of India gained power. After adopting new economic policy by government of India in July 1991 many MNCs came in the Indian economic scene because the government of India gave many incentives to the foreign investors. So it is clear that government opened the doors of Indian market to MNCs .Now the question is how the MNCs are affecting Indian economy whether they are useful for our economy or not? Let us analyze some brief impacts of MNCs on different sectors of the economy.

MNCs and Indian Industries:

Some economists think that MNCs are helpful for Indian industrial sector they think that Indian companies learn new technique of production and new management techniques with the arrival of MNCs in the Indian economic scene. MNCs increase competition in the industrial sector so when Indian companies compete with global giants they also improve in their working. With the entrance of MNCs in India demand for skilled persons increased to a great extent so more and more people are becoming skillful and the problem of skilled persons is solved for Indian industries also. MNCs also bring foreign capital in the country, which help to expand the market and Indian industries also take benefit of it.

There are some economists who have some different opinion according to them the technology transferred by them is not useful for countries like India because MNCs use capital intensive technique and developing countries have scarce capital and labour abundant so the technology they transfer is of little use. The competition increased by MNCs is also disastrous for domestic industries only few strong domestic industries have enough strength to face the competition with global giants. As well as skilled persons are concerned MNCs give higher salaries to the skilled persons and thus able to explore the services of the most skilled persons and the Indian industries are still out of the services of these skilled people. No doubt MNCs bring foreign capital in India but this capital later becomes the cause of reimbursement of profit to the MNC’s parent countries, which cause capital flight from the country.

MNCs and agriculture:

 Indian economy is an agrarian economy; a major part of the population depends on agriculture directly or indirectly. If we go back to past few decades Indian agriculture was considered backward but now the time is changing and MNCs such as Mahyco-Monsanto help in modernizing Indian agriculture. They provide modern agricultural inputs such as HYV seeds, pesticides, fertilizers and modern agricultural equipments to the Indian farmers and thus Indian agriculture has turned itself

from subsistence level to making profits. MNCs also encourage research activities in the field of agriculture in developing countries like India.

If we see the other part of the picture India with billion plus population, has put agriculture at the heart of its economy and food security at the center of its agriculture policy. In developing countries, MNCs encourage commercial farming because they need cheap raw material. Farmers also get good amount for their crop so the result is danger of food security, which the world is facing these days. A big number of Indian farmers are small and medium farmers who are not able to use expensive agricultural equipments so the gap is widening among rich and poor farmers, which is disastrous for the agriculture.  Moreover MNCs are making Indian farmers dependent on HYV seeds provided by them and thus the biodiversity of Indian varieties are in danger.

MNCs from social and moral viewpoint: 

MNCs are not fair in their working in the developing countries. Many MNCs are not paying their tax liability, they prefer to establish in that country where tax laws are not strict similarly they prefer to establish in that country where environmental laws are also not much strict and these are mainly developing countries. They even send their toxic waste in these countries by taking advantage of loose environmental laws even the quality of their products vary with country to country we can take the example of coca cola which is of superior quality in USA and is of inferior in India. MNCs also responsible for misallocation of resources in the developing countries. They provide mainly luxurious products because there is more profit in it. Thus demand for these products increase due to demonstration effect and this leads to misallocation of resources towards luxurious goods but the need of developing countries is to produce more and more necessary goods because most of the people belong to poor or middle class.

Another aspect, which judges MNCs morally, is political interference. Generally it is the practice of MNCs to gain the economic power in developing countries and then get political power by giving help to the politicians at the time of elections and then manipulate industrial policies in their favor they also interfere in the important political matters of these countries which can cause a big danger to the sovereignty of developing countries. 

Conclusion:

After discussing various aspects of MNCs in developing country like India the big question before us is whether MNCs play positive or negative role in developing countries? Generally the governments of developing countries don’t keep control on the working of MNCs, which is major fault on their side. MNCs can be helpful for developing countries only when they are kept under control. We should not give incentives to the MNCs only because they are coming from some powerful advanced countries. So MNCs should face same rules and regulations as the domestic industries of the developing countries are facing.

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TNC vs MNC

International corporations have several categories depending on the business structure, investment and product/ service offerings. Transnational companies (TNC) and multinational companies (MNC) are two of a these categories. Both MNC and TNC are enterprises that manage production or delivers services in more than one country. They are characterized as business entities that have their management headquarters in one country, known as the home country, and operate in several other countries, known as host countries. Industries like manufacturing, oil mining, agriculture, consulting, accounting, construction, legal, advertising, entertainment, banking, telecommunications and lodging are often run through TNC’s and MNC’s. The said corporations maintain various bases all over the world. Many of them are owned by a mixture of domestic and foreign stock holders. Most TNC’s and MNC’s are massive with budgets that outweigh smaller nations’ GDPs. Thus, TNC and MNC alike are highly influential to globalization, economic and environmental lobbying in most countries. Because of their influence, countries and regional political districts at times tender incentives to MNC and TNC in form of tax breaks, pledges of governmental assistance or improved infrastructure, political favors and lenient environmental and labor standards enforcement in order to be at an advantage from their competitors. Also due to their size, they can have a significant impact on government policy, primarily through the threat of market withdrawal. They

are powerful enough to initiate lobbying that is directed at a variety of business concerns such as tariff structures, aiming to restrict competition of foreign industries. Some of the top TNC’s and MNC’s are General Electric, Toyota Motor, Total, Royal Dutch Shell, ExxonMobil and Vodafone Group

Moreover, a lot of people often interchange MNC and TNC or misconstrue them to be one and the same to pertain to a company that owns production facilities in two or more countries, with the only difference that the former being the original terminology. Contrary to this popular notion, they are of different kinds. TNC has been technically defined by United Nations Commission on Transnational Corporations and Investment as “enterprises which own or control production or service facilities outside the country in which they are based.” The committee has also placed its preference on the term TNC. MNC, on the other hand, is the older term and popularly remains to be the generic label for firms similar to TNC and MNC. Here’s the significant difference, though. Multinational companies (MNC) have investment in other countries, but do not have coordinated product offerings in each country. They are more focused on adapting their products and service to each individual local market. Well-known MNC’s are mostly consumer goods manufacturers and quick-service restaurants like Unilever, Proctor & Gamble, Mc Donald’s and Seven-Eleven. On another note, Transnational companies (TNC) are much more complex firms. They have invested in foreign operations, have a central corporate facility but give decision-making, R&D and marketing powers to each individual foreign market. Most of them come from petroleum, I.T. consulting, pharmaceutical industries among others. Examples are Shell, Accenture, Deloitte, Glaxo-Smith Klein, and Roche.Summary1) Multinational (MNC) and Transnational (TNC) companies are types of international corporations. Both maintain management headquarters in one country, known as the home country, and operate in several other countries, known as host countries.2) Most TNC’s and MNC’s are massive in terms of budget and are highly influential to globalization. They are also considered as main drivers of the local economy, government policies, environmental and political lobbying3) An MNC have investment in other countries, but do not have coordinated product offerings in each country. It is more focused on adapting their products and service to each individual local market. A TNC, on the other hand, have invested in foreign operations, have a central corporate facility but give decision-making, R&D and marketing powers to each individual foreign market.

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