Copy of Global Development 7 Multinational Corporations
.pdf
School
The University of Hong Kong**We aren't endorsed by this school
Course
GEOG 2030
Subject
Economics
Date
Dec 18, 2024
Pages
16
Uploaded by BaronDanger2941
Regarding the question of ‘what HDI ismeasuring’, I am not sure why the answer isonly economic development, instead of botheconomic growth and development. As one ofthe dimensions of HDI – decent standard ofliving – is measured by GNI, which is one of theindicator of economic growth. So shouldn’tboth be included in the answer? Common Quiz QuestionThe question centers on the concept that isbeing measured, not the measurements itself.Growth one of several HDI measures but theHuman Development Index is supposed tomeasure... development :-)PlanAsk Me Anything~ 5 MinutesQuiz Review~5 MinutesKey Concepts: MNCs~25 MinutesGlobal MNC Patterns~10 MinutesBreak10 MinutesTheories of the Firm~45 MinutesGlobal Value Chains~10 Minutesfirms that hold either total orpartial control over themanagement of revenue-generating assets in more thanone country by engaging ininternational productionthrough foreign directinvestment (FDI). Dunning and Lundan, 2008What is are MultinationalCorporations(MNCs)?[when] an investor resident inone economy establishes alasting interest in and asignificant degree of influenceover an enterprise resident inanother economy. OECDWhat is Foreign Direct Investment?(FDI)
Example: Apple Store RetailNetworkEXAMPLE Tesla and BYD EVManufacturingTesla and BYD are the largestEV manufacturers in the world,commanding 40% of themarket. They each havesprawling, global supply chains,connecting raw materials,components, manufacture andretail.Example: Tesla’s electric batteryproductionTesla’s electric charger network
Commercial enterprise[s] thatoperate substantial facilities,does business in more than onecountry and do not consider anyparticular country its nationalhome. Business DictionaryTransnational CorporationsComparisonMNCsControl of worldwideoperations is morecentralized in a singlemanagement structureTNCsLocal operations tendto be directed by localheadquarters incoordination with otherunitsIn practice, the line between the two can be blurry...Variable Interest Enterprises(VIEs), are agreements thatallow for overseas investors toinvest in Chinese companies,without acquiring equity(control)TNC Example: Chinese TechCompaniesTNC Example: Chinese TechCompanies
HSBC’s retail banking operations have beenshrinking, as retail banking faces competitionfrom online sources, and as the costs ofoperations mount.Example HSBC’s DeglobalizationShell CorporationsShell corporations are opposite to transnationalcorporations in that they do not exercisesignificant power. They are set up to takeadvantage of regulatory advantages to beingseparate from the main country.“Corporate Tax Havens”PlanAsk Me Anything~ 5 MinutesQuiz Review~5 MinutesKey Concepts: MNCs~25 MinutesGlobal MNC Patterns~10 MinutesBreak10 MinutesTheories of the Firm~35 MinutesGlobal Value Chains~20 Minutes
FDI Inflows 1990-2022 (UNTAD)Outflow and inflowpatterns are similar(somewhat contradictingH-O model) FDI Outflows 1990-2022 (UNTAD)Hong Kong Patterns 1990-2022(UNTAD)Dashboard Link2024 World Investment Report(UNTAD)
FDI declines across most regionslast yearHigh Degree of Cross-Investment,Europe leads as a Foreign Investor20% of European Workforce worksin MNCS (32 MIllion)Manufacturing leads the way
French MNCs employ more workersoutside of France!More HerePlanAsk Me Anything~ 5 MinutesQuiz Review~5 MinutesKey Concepts: MNCs~25 MinutesGlobal MNC Patterns~10 MinutesBreak10 MinutesTheories of the Firm~45 MinutesGlobal Value Chains~10 MinutesWhy do we have multinationalcorporations?Expensive tooperate: Infrastructure, brandpower, humanresources, Why do we have multinationalcorporations?UnpopularTargets of political andcultural scapegoatingand backlash. Seen asthe main actors behindimmoral privatebehavior.Gallup Polling
Why do we have multinationalcorporations?Not MoralPrimarily responsible toshareholders and not society at large. Lessanchored to particularsocieties.Exxon Valdez Oil SpillOnline Job PlatformsOnline WorkspacesOnline MarketplacesWhy do we have multinationalcorporations now?Theories of the firm explain why so mucheconomic activity is organized in firms, in spite ofthese disadvantages, and why firms continue toresist pressure from alternate formsTheories of the Firm
Three Important TheoriesTransactions TheoryResource TheoryStakeholder TheoryIn Brief:Firms exist to lower the costs totrade. They want to minimize thetotal cost of production.Sometimes, it is cheaper tointernalize production to the firmthan to go to the open market.Transactions TheoryRonald CoaseThe costs imposed by buying orselling a good, as opposed to byproducing it. Also called tradecosts. Total Cost = Trade costs +Production CostsTransactions CostsSearchNegotiationContractingMonitoringDispute ResolutionAdjustmentsTypes of Transactions Costs
Imagine that you own an e-commerce platform that sellsgoods from Shenzhen artists to awestern audience.You need to continuouslyproduce product descriptions inEnglish for new goodsExample: Looking for a Proofreader Option 1 Hire a Copywriter(Grow your firm)Your Choice: The make or buydecisionOption 2 Pay by job onUpworkUpfront CostsMakingHigher Upfront Costs(salary commitment+firm resources)Buying Lower upfront costs,lower commitmentWhat graphic designer isbest?What is a fairrate?What is ouragreement?How do I knowthat they are workingfor me?Who wins a dispute?What if i needadjsutments?Transactions Costs to BuyingTransacting imposes significant labor time on the buyer.Even if these costs are absorbed, the outcome might besuboptimal (i.e. poor quality, slow service)
Search once, and fullyusing stablished routineNegotiate sporadicallyRecycle ContractualAgreementsSelf-monitoring due to repeated exchangeEasier disputeresolution due torepeated exchangeMaintenance and creation governed by the same contractThe Benefits of an EmployerContractIn exchange for upfront and more permanent costs, thecontract reduces all manner of transactions costsTransaction Costs View of the FirmFirms exist becausethey lowertransactions costs toproductionFirms still use themarket when totalcosts are lower (i.e.when costs aresporadic or innatetransactions costsare lower)Example: Make or Buy Advertising?A small e-commerce platformwill likely not do enoughadvertising to be able to justifyan advertising firm. In this case,contracting makes more sense.Search, monitoring, contractingcosts are less significant with‘as-is’ merchandise likeuniforms.Example: Make or Buy Employeeuniforms?
Upfront CostsMakingHigher Upfront Costs(salary commitment+firm resources)Buying Lower upfront costs,lower commitmentIn Brief:Firms exist to develop andaccumulate unique competitiveadvantages that are not availableoutside of the firmResource-Based TheoryEdith PenroseStrategic ResourcesCentral to a firm’s competitiveadvantage, allow it productivitythat other firms can’t haveResources ThemselvesLinkCapabilitiesCapacity of a firm to apply itsstrategic resources to its benefitDynamic CapabilitiesCapacity of a firm to upgrade itsown capabilities as thecompetitive environent changesCapabilitiesLink
Example: Apple versus SamsungApple’s Capabilities LinkApple’s Hardware-ChannelIntegrationLinkExample: Vkushno and Tochka inRussiaLink
In Brief:Firms exist to maximize value fortheir stakeholders, not just theirowners. The firm is a vehicle forsocial change that is not otherwiseachievableStakeholder TheoryEdward FreemanStakeholdersAny individual, group, ororganization that can affect or isaffected by the practices, orobjectives of an organization.Defining StakeholdersEdward FreemanCorporations can deploy their strategic resourcestoward powerful ends Corporations as Vehicles for SocialChange: PhilantrophyCorporations as Vehicles for SocialChange: Responsible SourcingThe more visible and scrutinized corporation might bethe best vehicle for achieving responsible sourcing ofgoods.
Stakeholder theory does not insist thatcorporations act morally. It’s more thatthey generate a unique capacity forsocial.This view can be true even ifcorproations also engage in“greenwashing” and other self-interested acts of Corporate SocialResponsibility Stakeholder Theory vs ‘Spin’GreenwashingPlanAsk Me Anything~ 5 MinutesQuiz Review~5 MinutesKey Concepts: MNCs~25 MinutesGlobal MNC Patterns~10 MinutesBreak10 MinutesTheories of the Firm~45 MinutesGlobal Value Chains~10 MinutesDefining Global Value Chains“The value chain describes the full range of activities that firms and workers perform to bring a product from its conception toend use and beyond. This includes activities such as design, production, marketing, distribution and support to the finalconsumer. The activities that comprise a value chain can be contained within a single firm or divided among different firms(globalvaluechains.org, 2011). In the context of globalization, the activities that constitute a value chain have generally beencarried out in inter-firm networks on a global scale. By focusing on the sequences of tangible and intangible value-adding activities, from conception and production to enduse, GVC analysis provides a holistic view of global industries – both from the top down (for example, examining how leadfirms “govern” their global-scale affiliate and supplier networks) and from the bottom up (for example, asking how thesebusiness decisions affect the trajectory of economic and social “upgrading” or “downgrading” in specific countries andregions).”Gereffi and Fernandez-StarkGlobal Value Chain Analysis
More focus on actorsoutside of MNCs/TNCsAdvantage of the Value Chain FrameworkFocus on powerrelations across thevalue chainProvides geographicstructure to discussionsof MNC/TNCsExample: ApparelLinkMore focus on actorsoutside of MNCs/TNCsAdvantage of the Value Chain FrameworkFocus on powerrelations across thevalue chainProvides geographicstructure to discussionsof MNC/TNCs