Multinational companies Flashcards
What are multinational companies?
Companies that operate in two or more countries
Shift from multinational corporations to become more complex. Because of demand for more goods and specialised products and a change in global financial markets has led to massive growth in private companies.
Complex to find out who owns the company.
MNCs employ more people outside of home-state than inside, own greater assets abroad and earn greater profits from sales of affiliates than they do at home.
drivers of this shift to multinational companies
- Rising production costs in the West
- Liberalisation of trade and investment rules
- Growth of international capital markets
- Technology and transportation
- Consumer demands
- Shrinking product life-cycles
challenges to governments
• Enhanced competition for investment, contracts
• Places pressure on governments to relax regulation,
offer financial incentives and creates economic
dependencies
• Social responsibility
• Defining national origin (of goods and services)
• Ensuring socially responsible corporate behaviour
• Tax avoidance
• Maximising benefits for domestic economies
Bilateral Investment Treaties
Protect and liberalize foreign investment
Guarantees for compensation in event of expropriation of assets by government
• Govern three areas:
• Entry and exit of foreign investment
• Treatment of foreign investment
• Dispute settlement
hyper-globalists vs neo-statists
Hyperglobalists:
MNCs are dominant global actors, mobile across borders
MNCs seek regulatory environments that maximise profit
Reduces bargaining power of labour and governments
Growing homogeneity in regulatory environments
Neo-statists:
States continue to exert power over MNC activities
MNCs adjust operations to fit unique national contexts
‘Varieties of capitalism’ continue to exist and influence corporate behaviour
Economic powers
TNC’s account for 50% of world trade. Increasing number of Chinese firms in the global 500 shows rise of china as new economic power.
Rising FDI levels has transformed the global production system.
FDI – investment made outside of the home country, the resources transferred remains with the investor. Foreign indirect (portfolio) – investment with specific assets which are transferred between 2 independent economic agents.
