Textbook Notes (369,067)
Canada (162,366)
POLS 2080 (26)
Adam Sneyd (20)
Chapter

Chapter Eleven Summary

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Department
Political Science
Course Code
POLS 2080
Professor
Adam Sneyd

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Chapter Eleven: Multinational Corporations What is a Multinational Corporation?  Various terms reflect disciplinary and institutional divides and practices: o MNC: Preferred by social scientists/media o transnational corporation (TNCs): term preferred by the United Nations o multinational enterprise (MNE): term preferred by international business o foreign direct investment (FDI): term preferred by economists  The word “direct” implies that there's a presence in the country through some sort of corporate form –different from indirect investment  Multinational Corporation: enterprise that engages in foreign direct investment and owns or controls value- adding activities in more than one country o Must coordinate value-adding activities across borders (product base) o Internalizes the cross-border transfer of inputs (the goods come from within the company not the free market)  Characteristics of multinationals: o MNCs are mainly from the developed world o MNCs are highly concentrated (this means they own a significant portion of foreign assets, sales, etc.) o Top 100 MNCs control most foreign assets o They control most of employment o MNCs invest more on developed countries o MNCs investment concentrates on a handful of dynamic industrialized developing countries o MNCs prefer mergers and acquisitions (M&As) over productive investments What Motivates MNCs to go Abroad?  Two important questions here: o Why do MNCs establish branch plants or subsidiaries rather than just trade? o How do MNCs effect politics, economy, and society of the host country?  The answers are found in three different approaches: o Dependency Theory o The Nationalist Approach o The Liberal or International Business Approach Dependency and Critical Approaches  These approaches claim that MNCs: o represent the global capitalist system o are negative for the host countries o keep the periphery underdeveloped o make autonomous local development impossible  Exception: Industrialization and development can occur in the form of „associated dependent development‟ The Mercantile Approach and the National Interest  This approach claims that MNCs: o represent economic interests of home country: access to oil and natural resources, foster liberal policies, and fund military expenses o represent the home country‟s political interests and foreign policy objectives, including overthrow of „unfriendly‟ governments (Guatemala, Chile) International Business Perspective  The international business perspective raises two types of questions: o Is there a common feature of a MNC that distinguishes it from other kinds of firms? o What explains the myriad forms of internationalization chosen by MNCs?  John Dunning‟s OLI paradigm: o O: Ownership (patents, management, marketing, access to capital) o L: Location-specific (a convergence of advantages: political stability) o I: Internalization (coordination of production within the firm rather than exposing to market competition)  Location-specific assets can have four different strategies: o Resource-seeking strategy  MNCs require things only available abroad like natural resources, desirable skills, etc. o Market-seeking strategy  MNCs establishing a market presence directly instead of through trade  This permits the item to be adapted to local conditions, less expensive, can better compete with other firms o Cost-reducing strategy  Exploiting differences through cost of goods and labour as well as setting up the business etc. o Strategic asset-seeking strategy  MNCs purchase assets of other international companies to improve their competitiveness  May enable the firm to be more competitive because of all of the above reasons Relationships between States and Multinationals  States and MNCs bargain over assumed benefits  Bargaining is affected by parties‟ relative power (mining vs. manufacturing industries)  Obsolescing Bargaining Tool: this approach assumes that each actor –state and firm –wants to capture a greater share of the benefits of the foreign investment o The firm wants more profits and the government wants more control over the developmental spillover o The model says that when firms first invest they hold the upper hand however over time the bargaining power shifts to the government because
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