Unit 1, Section 2 - Transnational Corporations as Actors
A TNC is a firm with the power to coordinate and control operations in more than one country, even it does not own them. TNCs are drivers and benefiters of globalization – tailor their investment to their profit needs. TNCs are driving force of worldwide trade and investment. Control roughly 60% of global trade, 80% if financial services included. Just 50 companies hold combined wealth equivalent to that of 100 nations
Decision where to locate operations fosters competitive “race to the bottom” – desire cheap land, infrastructure subsidies, wage and employment flexibility and union avoidance
Corporate social responsibility (CSR) policies. Voluntary regulation is through unilateral voluntary statement of purpose called codes of conduct
“Super-entity” = 147 companies that amount to 1% of all TNCs (Chase, Goldman Sachs, Barclays, etc.)
The 100 largest TNC employed 15 million workers directly in 2011 (9 million were located outside the firm’s home country).
Most TNCs are private capitalist enterprises.
Motivation for engaging in transnational operations
- market seeking
o FDI designed to serve specific geographic market (important factors are size, structure and accessibility)
- asset seeking
o relevant to natural resource industries as the product necessitates certain assets
Global important location-specific factors include access to knowledge and access to labor. From here relevant factors are knowledge and skills, wage costs, labor productivity and labor ‘controllability’
TNCs are networks within networks and are spread and embedded within different national jurisdictions and contexts
There is no international legal framework. TNC’s core is the set of formally organized rules and conventions, regulated and institutionalized through the firm’s own internal mechanism.
External versus corporate embeddedness (i.e. through subsidiaries)
Influences on how TNCs organize and configure their network:
nature and complexity of industry environment(s) in which the firm operates
firm’s specific history and geography
its culture and administrative heritage (it’s strategic predisposition)
characteristics from its home-country embeddedness (most TNCs continue to recruit senior executives from their home country)
Corporations are learning organizations
TNC’s organization architecture:
- Western Hierarchical Model: transform their organization structural from a functional form (production, marketing, finance) into a divisional form (usually product based). In a divisional structure each product division is responsible for its own functions and usually acts as a separate profit center.
- Multinational Organization Model: emerged in the 1930s. Economic, political and social factors forced firms to organize their operations in response to national market differences. Resulted in decentralized federation of overseas units
- International Organization Model: 1950s/60s, more formal control and coordination by the corporate headquarters over the overseas subsidiaries.
- Global Organization Model: based on tight centralization of assets and responsibilities in which the role of the local units is to assemble/sell products and implement plans/policies developed at the center. Capitalizes on scale economies and centralized knowledge and expertise.
- Integrated Network Organization Model: allows for global efficiency, geographical flexibility, capability to capture benefits of worldwide learning
- local implementer – adapt TNCs products for local market
- specialized contributor – specific expertise tightly integrates into activities of other subsidiaries
- world mandate – worldwide responsibility for particular product/type of business
TNCS within networks of externalized relationships
- commercial outsourcing: manufacture of a finished product
- industrial outsourcing: specialty outsourcing, cost-saving outsourcing, complementary/intermittent outsourcing
Forces underlying reorganization and restructuring: External conditions and Internal pressures