global business practice assignment - the changing relationships between transnational corporations...

Module Leader: Roger Cook

Module Code: MS70069E

Student Number: 21202244

GLOBAL BUSINESS PRACTICE

Global Business Practice

The changing relationships between Transnational

Corporations and Nation-States

(McKinsey & Company, 2010)

GBP Assignment - Essay

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Table of Contents

1. Introduction .......................................................................................................................................................................... 2

2. Globalization ...................................................................................................................................................................... 3

2.1. Salient characteristics of globalization emerge from the debate ...................................................................... 3

2.2. Drivers of Globalisation............................................................................................................................................... 4

3. Transnational Corporations - The engines of Globalisation ..................................................................................... 5

4. The nature and purpose of the nation state ................................................................................................................. 7

5. The uneasy relationship between the TNCs and the states ..................................................................................... 11

6. Influences affecting the actions of the State and the TNC ...................................................................................... 13

7. Conclusion .......................................................................................................................................................................... 15

8. Acronyms ............................................................................................................................................................................ 16

9. Bibliography ..................................................................................................................................................................... 17

10. Appendixes .................................................................................................................................................................. 19


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Unveiling TNC’s-nation states Intertwined Relationship

“Competing internationally is a necessity rather than a matter of discretion for many firms.”

(Porter, 1986)

1. Introduction

The endemic tension – in the form of cooperation and contradiction, sometimes confrontation – that

reigns the relations between transnational corporations and nation-states imply opportunities for both

to seize but, also, threats to be countered (Vernon, 2009). In order for a firm to operate across national

borders and determine the decisions to configure its activities upon strategies that improve its

efficiency and improve its distinctive competences of that business or unit, it needs to identify the

characteristics that underpin its relationship with nation-states to capture the viable strategic

framework for its operations. Hence, the mechanisms of these transnational corporations – that

include, but are not limited to, Greenfield foreign direct investment, acquisitions and outsourcing –

merit urgent exploration in the light of the economic turmoil that began in 2007. These mechanisms are

the dynamics of two contradictory premises. On the one hand, the operations of TNCs are adhered to

fragmented productive facilities and commercial activities across geospatial boundaries. On the other

hand, these operations incorporate cross border flows of know-how, intra-firm trade, and, most

notably, capital flows. Thereof, the process itself leads to staggering international interconnectedness of

economies that shape the underlying forces of the globalization (Ietto-Gillies, 2002 cited in Mitchie,

2011). From this token, TNCs are the tools of integrating the world economy within a global outreach. In

the same sense, TNCs could be the “vehicles of accelerated globalisation” as posited by Szentes (1999,

cited in Dörner, 2005).

Accordingly, TNCs partake in a global activity which entails considerable complexity in its functions.

Thus, the starting point is to attempt to answer the following questions: What is globalisation? What are

its eminent driving forces? Do the prolonged economic turmoil that persists in aftermath of the financial

crisis in 2007 and the snowballing of the crisis from one country to another herald the end of

globalization? (Dicken, 2011)

Furthermore, this paper aims to distil and critically analyse the changing relations between TNCs and

nation-states and to what extent other multilateral institutions do influence these relations. In this

respect, the emphasis is placed on the nature of TNCs and nation-states and their respective roles in the

global shift of economic activity in quest of the determinants to best structure and manage the firm’s

activities across different territories. To this end, exploring these stances constitutes guidance for firms

in their global search for convenient affiliates and investment sites and on how to balance the directives

that are placed upon them by home and host governments and their firm needs.


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2. Globalization

In Globalization 1.0, which began around 1492, the world went from size large to size medium. In

Globalization 2.0, the era that introduced us to multinational companies, it went from size medium

to size small. And then around 2000, came Globalization 3.0, in which the world went from being

small to tiny.

Thomas Friedman cited in Strauss, 2012

The fact that there is no consensus on a single definition of globalization has provoked fierce debates.

However, if there is a common denominator that cuts across all these debates, this would be that

globalisation appears to be inevitable (contested later by Dicken) and all embracing (Turner & Khondker,

2010). It is increasingly omnipresent. Now both an ordinary person and a British Billionaire can follow

BBC to monitor their shares in the market (Friedman, 1999). Even though this suggests a degree of

equality, globalisation is actually accused of demising that. Beyond the discourse of this discontent that

will be treated more in the relations with multilateral institutions, aspects of modern life – global

telecommunications, global brands, integrated global economic system – are the implications of

globalisation that have been witnessed over the last three decades. The debate amid the protagonists

and critics of globalisation continues.

Globalisation has often been seen as the spread of capitalism. It is claimed that liberalisation,

unregulated markets and self-regulation by large businesses and, particularly, TNCs are the defining

attributes of globalisation. Moreover, the analogy of the world as becoming a global village, as

described in the publication of Marshall Mcluhan’s The Medium is the Massage in 1967 (cited in

Martens et al, 2010), is one of the manifestations that points at the decline of international boundaries.

Drawing from this, Friedman (1999) further elaborates that the world is ‘being tied together into a

single globalized marketplace and village’. In essence, he claims that globalisation is everything and its

opposite, hence globalisation denotes a paradoxical premise. Moreover, he argues that ‘the world is

flat’ whereby geographical barriers have been torn down and world is dominated by globalisation. He

does concur with the liberalism ideology, wherein current globalisation is one facet of capitalism. In this

view, robust free market capitalism across frontiers attributes to the globalisation growth (Morrison,

2009). The neo-liberals advocate the hyper-globalist thesis that views the ‘global’ as the natural order in

which time-space has been compressed (Dicken, 2011). Issues associated with a thoroughly hyper-

globalist approach gave the rise to the anti-globalisers. Opponents demonstrate their resentment to the

consequences that globalisation has brought about by the short-term profit of the capitalism paradigm

over the social welfare (Wells et al, 2001). This movement has been situated in the context of protests

against the irresponsible practices of TNCs’ plants and facilities as well as the adverse impact on human

rights in the host countries (Hill, 2011).

2.1. Salient characteristics of globalization emerge from the debate

Unfocused debate over globalisation stems from the lack of uniform definition. At a macro level of

analysis, the qualitative characteristics of globalisation are manifested in the macroeconomic

dynamics of international integration in terms of productivity, trade and FDI (Foreign Direct

Investment) (De Wit & Meyer, 2010). In accordance with this, Dicken (2011) argues that globalisation

stems from the structural changes of the way the global economy is organised and integrated wherein


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TNCs are intertwined as networks within networks. This is highly correlated with addressing

globalisation as a syndrome of processes. He, further, provides an insightful view that globalisation is

not an inevitable end-state contesting, by this, some of globalisation polemical myths. In this respect,

the world is neither flat nor borderless. Moreover, globalisation is not always good or always bad. He

points out that the nature and degree of integrations between countries are in a state of influx due to

these processes being slow or rapid over time.

Some of the facets of globalisation include the globalization of markets and the globalization of

production. The former refers to the formation of one single global market from the merging of

distinct and existing national markets. Drawing from this view, TNCs can achieve economies of scale by

seeking standardisation in their management strategies as the integration mechanism (Porter &

Rudden, 1982 and Levitt, 1983 cited in De Wit & Meyer, 2010). As for the latter, it evolves from the

rational thinking of TNCs adapting a global mind-set in structuring their organisational architecture in

terms of production with the scope of outsourcing or manufacturing in countries in which the national

differences in the cost and quality factors of production are one of the competitive advantages TNCs

bank on (Dicken, 2011).

2.2. Drivers of Globalisation

The robust growth of globalisation at the end of 1970s is rooted in the revolution of information and

communication technology (ICT) and transportation technology. The ease and speed of

communication increase the perception of the integration of economies and societies. New

technologies are the causa causans – developed by Keynes (1937) – behind the increased extensity of

globalisation (Ietto-Gillies, 2002 cited in Mitchie, 2011). Consistent with this is the argument by

Ohmae that the advancements in modern technology have changed the economy landscape. He

asserts that technology enables rapid transformations in both investment and industry, as capital

becomes more mobile across the globe (Bonanno & Constance, 2010). In addition, ICT contribute to

rapid spill-over of improved know-how and unprecedented diffusion of innovation which is conveyed

through TNCs. Technological developments of aircraft, transport container and the optic fibre

revolution have vastly increased the ease of coordinating spatial dispersed operations of TNCs and,

moreover, facilitated the growth of TNCs activities (Jenkins, 2013).

The catalyst effect of the technological development in accelerating the growth of globalisation saw

the second birth of globalisation where its fundamental kindle was the declining trade and investment

barriers. In effect, this is enshrined in the GATT agreements with the promulgation of many tariff

reductions. As Table 1 depicts, the average tariff rates have fallen significantly since 1950 and now

stand at about 4% (Hill, 2011). Further lowering of these barriers has been regulated by other

supranational and multilateral institutions. One of the most remarkable agreements is the

“Washington Consensus” came to advocate creating more favourable environment for trade (Utkin,

2002).


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3. Transnational Corporations - The engines of Globalisation

Given that TNCs have a key integrative role in the globalisation process through their strategies –

export, trade, FDI, alliances –, it merits to pay a thorough attention to their entities’ configuration and

their inner dynamics. TNCs, therefore, are one of the few organisations that capture the attention of

many monographs from various social sciences (Balasubramanyam, 1994). TNCs’ collusive relations with

host countries are the prominent cause for their exposure to even the civil societies (Eden & Lenway,

2001). Furthermore, it is argued that TNCs are Janus-faced which is framed as being an engine of

eliminating economic inequality but also as a major obstacle to development through a massive drain of

surplus to the advanced capitalist countries. The TNCs, as defined by the UN Economic and Social

Council (1978), are “all enterprises which control assets – factories, mines, sales offices and the like – in

two or more countries”(Jenkins , 2013). It is argued that TNCs, coined with FDI as the primary

investment vehicle, are contrasting the fact that 90% of all foreign investment at the outbreak of World

War I was “portfolio”. However, the turning point that fuelled the spread of TNCs and their bargaining

power is the high level of equity participation through FDI investments. The domination of FDI

incorporates the rational decision making of deriving ownership advantages in the host countries

through the TNCs’ strategic subsidiaries. Stephen Hymer (1960s cited in Morrison, 2009) noted that

location and ownership advantages are sought by TNCs to offset the extra cost of foreignness and

distance. Consequently, the building blocks that lie behind the expansion of TNCs are the economies of

scale, imperfect market that TNCs can capitalise on (Balasubramanyam, 1994).

Table 1: Average Tariff Rates on Manufactured Products as Percent of Value

(Hill, 2011)


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(Adapted from Bartlett and Ghoshal, 1995 cited in De Wit & Meyer, 2010)

The key to a TNC with its border-spanning nature is to reap cross-border synergies as integration

mechanisms for its operations. This could be through standardisation, coordination, or centralisation.

While coordination underpins the alignment of various activities by means of cross-border coordination

instead of standardising products or activities, centralisation is the integration of activities at one

central location – for example, the centralisation of knowledge intensive activities to preserve quality.

Furthermore, Bartlett & Ghoshal (1989 – cited in De Wit & Meyer, 2010) outline four generic

organisational models, each of which has its own mix of the three integration mechanisms (Figure 1).

While, in the Multinational model, the companies managed a portfolio of national businesses – that is

dominated by European companies – in which national units have preference for local autonomy, the

international model – that is prevalent in US corporations – exhibits quite tight control over the

subsidiaries which make them less responsive to local needs. As for the global model, it is based on tight

centralisation of most decisions and it capitalises on scale economies with no responsiveness to local

market needs (see Appendix I).

Bartlett & Ghoshal (2012) argued that the first three models could compete effectively as long as the

firm’s capability fits the strategic demand of the business. However, by the mid-1980s, the forces of

global integration, local responsiveness and innovation resulted in the need for multiple strategies to

develop global competitiveness, geographical flexibility and worldwide learning capability

simultaneously. Hence, a heterarchical structure emerged forming the last model – integrated network

organisation model – to fit in the business landscape and be the winners in the game of the global

chess. Given the staggering advantages of the globally integrated strategy, there are substantial

disadvantages that exhibit the tension within a global integration and responsiveness to local conditions

framework (Appendix II).

Furthermore, the organisation of TNCs forms a complex nexus of relational networks which are the

predominant diagnosis of the world economy interconnectedness. These networks shape tangled webs

Figure 1: Generic Organizational models for international firms


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(Dicken, 2011)

of production circuits that entail mobility and flexible adaptation which implies switching and

reswitching its resources and operations between locations at a global scale. Thus, TNCs’ dynamics are

gained from developing unique organisational learning and significant first movers advantages (Dicken,

2011).

Yet, the real rebound in the spread of TNCs is attributed to FDI that has accelerated faster than the

growth in world trade and world output as in Figure 2.

4. The nature and purpose of the nation state

The successive financial crises, since the 1990s, brought questions about the role of nation-states,

governmental intervention and political control. As a way to characterise this, we can draw on the

prevalent paradigms – liberalism, neo-mercantilism and neo-imperialism. The liberal ideology condoned

governmental intervention only to enhance competition and correct market failures such as when the

American government bailed some of the banks out of the 2007 financial crisis. Governments are also

inclined to pursue cooperative economic solutions that promoted global welfare. The neo-mercantilist

shows a preference for government intervention to promote a nation’s own firms as a way of meeting

national needs and protecting domestic industries, while the neo-imperialist exhibits a propensity for

direct public sector participation in economic activity (Dunning, 1993).

Figure 2 –


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Hence, we can envision four roles of nation-states, the first being acting as containers in which

distinctive cultures and institutions are ‘bundled together’. The second role is acting as regulators where

the state facilitates two basic types of macroeconomic policies to manage its national economy – fiscal

policies that pertain to the tax policies applied to companies and monetary policies whose main

mechanism is manipulating the interest rate on borrowing (Dicken, 2011). Starting in the mid-1980s,

direct involvement in national economies was reduced in many states which was driven by the process

of marketisation in both industrialised countries as well as many developing ones in Eastern Europe, the

former Soviet Union and China. This was first demonstrated through the deregulation in the financial

services and telecommunications with a significant focus to deregulate the labour market. The seven

main instruments that are regulated by trade policies: tariffs, subsidies, import quotas, voluntary export

restraints, local content requirements, administrative policies, and antidumping duties among others

that employed in trade policy are depicted in Figure 3. These seven instruments have been limited most

successfully by the GATT and WTO.

The second premise is the privatisation which has not reduced government expenditure as much as was

expected (Figure 4). However, the effect of the deep economic crisis in 2008 would have been reflected

on these figures as all governments have intervened to rescue their economies. Attempting to protect

domestic producers and hold onto jobs in the wake of this economic slowdown, a wide range of

countries has intervened to re-stimulate their economies (Dicken, 2011).

Figure 4 –

Figure 3 –

(Dicken, 2011)

(Dicken, 2011)


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With regards to investment regimes, it is argued that the unprecedented expansion of FDI flow signifies

a wave of internationalisation taking place in the world economy due to the compelling FDI policies

deployed among developed countries as well as nascent countries although there are exceptions within

each broad group. Singapore and Hong Kong virtually have no restrictions on the FDI investments in

most sectors, while others have restrictive policies or tend to reduce FDI investments or phase it out

over time. According to the United Nations, the period between 1992 and 2007 witnessed some 90% of

2,524 changes incurred worldwide in laws governing foreign investments with tendency for a more

favourable environment for FDI as illustrated in Figure 5 (Hill, 2011).

As for the third role of the states, as competitors, Porter argues that nation-state remains the centre of

the socioeconomic life whereby global corporations cannot successfully operate without relying on local

resources. He points out that the crux of achieving national competitive advantages is through highly

localized processes internal to the country as illustrated in Figure 6. The double-headed arrows that

connect all of the components highlight the fact that the ‘diamond’ is a mutually reinforcing system. The

objective of the state is to attract productive investment to build up their national production base

which, in turn, enhances their international competitive position. Thereof, states induce intense

Figure 5 –

Figure 6 –

(Dicken, 2011)

(Dicken, 2011)


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(Rugman et al, 2005)


involvements of competition between each other into what is called ‘locational tournaments’ (Dicken,

2011). Porter further claims that state competitive advantage pins down on having corporate colony

whereby interrelated affiliated industries, suppliers and specialised institutions – e.g. chamber of

commerce – co-exist in a special field under certain areas and, hence, he emphasised that this will be

the new form of state competitive advantage. At the core of the diamond theory, four factors embody

the state competitive advantage, these are: essential productive factors, demanding conditions, firm

strategy and the performance of supporting industries (Chuanli & Gang, 2007).

Another distinctive role of the state is conceived as being a collaborator, whereby most global trade and

investment by TNCs (as in Table 2) is conducted within triad-based business networks or clusters – such

as most automobiles, chemicals and heavy electrical equipment.

Operating globally for TNCs means operating regionally in the triad markets of North America, EU, and

Japan (Rugman, 2012). Table 3 depicts that most of world’s FDI is intra-regional.

Table 3:

Table 2 –

Table 2 –


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TNCs that emerge into strategic alliances or into other forms of FDI patterns in one of these blocs

perceive a number of benefits that remove trade barriers such as import duties. The creation of NAFTA

aimed at creating a single free trade area. Moreover, American companies have set up maquiladoras

which involves production operations on both sides of the border in a free trade zone for shipping

produced goods to the United Sates or other foreign markets under favourable tariff. In the same vein,

the EU is the most highly complex region amid the rest of the regional blocs. It forged some important

developments including the Single European Market, the Treaty on European Union and the expansion

of its membership from 15 to 27 states (Dicken, 2011). Yet it is the ASEAN bloc – the economic tier of

countries such as Australia, China, India, South Korea, and Taiwan – which provides a balance to NAFTA

and the EU (Rugman et al, 2005).

Ultimately, it is argued, FDI plays an essential role in building long-term capabilities that could support

the overall competitiveness of a country wherein domestic firms benefit via systematic and positive

productivity spill-overs. China’s exploitation of FDI to promote the development of domestic sectors of

the economy is an example of how nation-state can succeed (Appendix III). Conversely, China

communist paradigm manoeuvres FDI investments in the form of joint ventures rather than wholly-

owned entities (Dicken, 2011). Moreover, China is regarded as the manufacturing hub in Asia, while

India is considered the hub for exports of services. Not surprisingly, the pattern of specialisation is

classified as: manufacturing in Asia, agricultural goods in Latin America in and natural resources in Africa

(The Economic Times, 2010).

In countries like Taiwan and South Korea, state governments promote economic growth by linking

development to TNCs’ activities that must be of net benefit to local businesses resulting in foreign

investments expanding the country’s trade base and have created a lot of new employment. Another

strand by the Taiwanese companies, that aspires to keep pace with the demands of markets and to

globalise their brands, is to inject the labour sector with western innovation by employing a total of

4,613 foreign business workers in 2013 (Reid, 2014) (Appendix IV). Yet, despite the emergence of many

nation-states successfully into the international investments, some other states failed in this such as

Somalia and Sudan or those situated as highly risky ones such as Russia (Appendix V).

These roles spell out the nature of nation-states in preserving jobs, stimulating national economies,

protecting industries that deemed important for national security against unfair foreign competition,

protecting consumers from dangerous products, furthering the goals of foreign policy, and advancing

the human rights of individuals in exporting countries (Hill, 2011).

5. The uneasy relationship between the TNCs and the states

Inevitable interjurisdictional conflicts crafted in the relationship between TNCs and nation-states

capture the oscillations in this relationship. Changes in this relationship are regarded as the key in

forming the evolution of nation-states’ historical trajectory as well as in reflecting the recent global

shifts in economic activity and major transformations in the developmental logic of the world system. In

this vein, the half century following World War II faced an initial climate of uncertainty, hostility and

restrictions for this relationship. The international economic relations were badly strained by economic

distress by the close of World War II (Vernon, 2009). Towards the end of the 1960s, concerned about

the impact of foreign investment on the national economy, some industrialised countries imposed

restrictive policies towards these investments (Mytelka, 2000). Nevertheless, the LDCs (Less Developed

Countries) kept fairly closed economies after the war. They had a benign attitude towards TNCs in the


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1950s and 1960s. This relation was altered to a period of conflict in TNCs-government relations with

tendency to expropriations, non-discriminatory treatment and performance requirements (Table 4).

These adversarial relations manifested in governments’ interventions such as when 400 TNCs were

forced by the Indian government to reduce their ownership by selling their shares to Indians. Also the

governments of Saudi Arabia, Qatar and Abu Dhabi forced negotiations with oil companies that gave

them majority ownership of their oil operations and hence contributed to the increase of oil prices and

major convulsion in the world’s economies (Buckman, 2004). In an attempt to understand the tension in

the TNC-state relation in the third world, Person claimed that a bilateral monopoly framework

characterised this relation, wherein exploitative power stems from TNCs are getting more than the bare

minimum to attract them to invest (Dunning 1993). Vernon (1971) further argued that the evolution of

risk and uncertainty over the life of a successful TNC is what gives dynamism to the bargaining process –

he called this “obsolescing bargain”. The focal point of his bargaining model is that governments offer

fiscal incentives – so-called carrots – (Table 5) as well as threats of regulation – so-called sticks – to

achieve macroeconomic objectives for their states wherein their relation with TNCs could lack

Table 4 –

Table 5 –

(Vernon, 2009)

(Vernon, 2009)


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commitments. This leads to unfavourable conditions to TNCs and hence TNCs need to renegotiate the

allocation of their operations elsewhere (Eden & Lenway, 2001).

However, from the mid-1980s onwards, changes in the investment legislation occurred that stimulated

privatisation, trade liberalisation and market-driven development. Hence, the wheel had taken another

turn in the relation between TNCs and nation-states whereby they engaged in numerous bilateral,

regional and global negotiations to facilitate the penetration of TNCs’ internationalisation into foreign

markets (Hill, 2011).

Given the different contours of each institution’s objectives and goals, Vernon argues that the

tranquillity that marks the TNCs-nation-states relations is coming to an end. States have broad

objectives such as job creation, rising standard of living, sociocultural and the like while TNCs’ narrow

objectives entail maximising shareholders profit. Moreover, some governments attempt to appropriate

their economic rent in the locational tournaments to attract investments to their markets in order to

achieve their economic objectives (Panic, 1997). Likewise, Firm-Specific Advantages (FSAs) – derived

from Dunning eclectic model – are of considerable importance bargaining up their power vis-à-vis the

states. FSAs are primarily those of: production knowledge, marketing, economics of scale and large size

(Rugman et al, 2005). However, correlating transnationality with firm size has been criticised by Dicken

(2011) based on the emergence of new firms starting out as transnational operations from the very

beginning which are called ‘born globals’.

Vernon (1971) addresses another issue between TNCs and states which is the overlapping jurisdictions.

This results from that both are legitimate in their own realms, however host government confers

national legitimacy on the TNCs within its borders, therefore creates inevitable points of friction which

is one of the unfinished agenda of the multilateral agreements. In this context, on one hand, countries

whittle away from reduced barriers to find ways protect their domestic firms such as Indonesia, for

example, specifying that certain kinds of goods can only be imported through five ports where the

limited capacity of these ports will constrain the selling capabilities of foreign companies into the

Indonesian market. On the other hand, TNCs due to their distinctive dispersed activities can have the

upper hand in improving their bargaining position if they switch to other plants that have an advantage

due to state support (Hill, 2011) (Appendix VI). To some extent TNCs may not only threat to withdraw

investments but also withdraw political contributions as the case of Sony in the United States (Dunning,

1993).

Seemingly, TNCs’ activities constitute other premises than FDI. Other patterns of activities include

exports, licensing and inter-firm agreements. Thereof, capital mobility that is facilitated through these

activities can be a tool to preserve price differences in the integrated markets and hence shift economic

power away from national governments to TNCs (Panic, 1997).

6. Influences affecting the actions of the State and the TNC

Yet there are public international financial institutions that are have great influence in the promotion of

economic globalisation and assistance of the spread of the TNCs; these are the IMF and WTO.

Accordingly, Greg (2004) stresses that the hegemony of the United Sates after World War II shaped the

IMF as well as other global trade agreements in a form serving their business most. From the 1980s

onward, the IMF and World Bank played a key role in pushing LDCs to impose free-market and pro-FDI

conditions on their loans. Members of WTO are required to follow the WTO’s rules as illustrated in


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Figure 7. However, WTO is taking on a different shape in which it focuses much energy and expertise on

resolving bilateral trade disputes.

Sponsoring multilateral negations to reduce quotes, tariffs and non-tariffs, GATT negotiations have led

to great growth in world trade due to big reductions on tariffs imposed by the developed countries

(Table 6) (Griffin & Pustay, 2012).

Emerging from the nature of TNCs as capitalist enterprises is the argument that their activities are

associated with irresponsible practices with tendency to exploit nations’ economies – e.g. a) short-term

profit and manipulation of self-regulation, moreover home countries are faced with plant closures, the

loss of low skilled jobs and increased unemployment – b) environmental issues pertaining to host

countries are being exposed to environmental degradation, climate change – c) social issues such as

cultural decay. These issues raise concerns among the public and NGOs, hence an increasing number of

TNCs have implemented sustainable development strategies wherein corporate governance set out

responsible practices and prepare sustainability reports about these practices. These reports

Figure 7: The WTO’s principles of the Trading System

Table 6 –

(Griffin & Pustay, 2012)

(Griffin & Pustay, 2012)


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encapsulate economic, environmental and social perspectives of the business. Moreover, these three

premises underline that business does not only have one goal as economic gains to achieve but other

premises which constitute the Triple Bottom Line of business sustainability reporting, developed by

Elkington (1998- cited in Crane & Matten, 2010). There is a tendency for many of these TNCs to be

ranked upon their CSR (Corporate Social Responsibility) strategies (Appendix VII) (Dennis, 2007).

7. Conclusion

Emerging from the above review, the doctrine of capitalism that emanates from the Liberalism ideology

has fed the mushrooming of TNCs in the advanced capitalist economies. The same applies to most LDCs

through deregulation, liberalising their economies and providing a favourable investments environment.

Hence, it is predicted that TNCs will quadruple by 2020 to an average of $800 billion (Utkin, 2002). This

optimistic view is shared by Lagarde, the IMF head, in which she pointed out that “optimism is in the

air” about global economic growth, but the recovery is still “fragile” (BBC, 2014). However, this

speculation could be wrong due to that the subsequent economic failures since 2007 may have an

impact on many governments’ potential policies. Alternatively, the turn could be towards more

reduction of foreign investment barriers, hence a growth into the number of TNCs. There are many

factors, notably, the relations between TNCs and states, international agreements and the actions of

the NGOs.

The vivid spread of TNCs has given them growing influence in the global economy as well as it illustrates

the uneven nature of capital accumulation on an international scale. The sheer size of TNCs brought

about the debate on their efficiency and accountability. The efficiency thread pertains to strategic

decisions for the business configuration. Unsurprisingly, the accountability aspect has attracted not only

governments but other institutions such as labour unions and other NGOs in both home and host

countries. In home countries, some of them have been learning to use the TNCs as levers for the

achievement of new goals such as preventing environmental pollution, promoting religious freedom

and discouraging the use of child labour. While in the latter, they could be in danger if they would

participate in such activities.

A.T. Kearney (2008) posits that world’s savings is no longer dominated by the West but by emerging

economies – China, India and recently MINT countries. This will change the map of the world economies

and witness the rise of a new era, Globalisation 3.0, one in which A.T. Kearney (2008) points out that

“Beijing model of state ownership, state-led industry strategy, currency controls and authoritarian

politics is the alternative to the Washington Consensus”.

Lastly, the biggest common contributor to globalisation surge is attributed to the key role that TNCs

have been playing over the last few decades as the engines of global economic growth. On the bright

side, they brought the interconnectedness of world economies but, on the dark side, there are the

disadvantages of the societies with less mobility paying more of the cost of globalisation.


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8. Acronyms

CSR Corporate Social Responsibility

EU European Union

FSAs Firm Special Advantages

FDI Foreign Direct Investment

IMF International Monetary Fund

LDC Less Developed Countries

MINT Mexico, Indonesia, Nigeria, Turkey

NAFTA North American Free Trade Agreement

NGO Non-Governmental Organization

WTO World Trade Organization

http://www.wto.org/


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9. Bibliography

A.T. Kearney (2008) Globalization 3.0: Prospects for a new world order [Accessed 25 March, 2014]

https://www.atkearney.com/documents/10192/6afc822b-ca0a-4b70-a029-651f5d646dd4

Balasubramanyam, V. N. (1994) The Transnational Corporation, Business History, 36(2), 83-89

Bartlett, C. & Ghoshal, S. (2012) Managing Across Borders, 2nd Ed, Cornerstone Digital

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10. Appendixes

Appendix I

(Jones, 2005)


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Appendix II

(Bartlett & Ghoshal, 2012)


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Appendix III

(Yeung et al, 2011)


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Appendix IV

(Reid, 2014)


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Appendix V

balan



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Appendix VI

Starbucks dismisses talk of investment threat

By Elizabeth Rigby and Robert Cookson

Starbucks said on Sunday it had no plans to suspend millions of pounds in investment

in Britain amid tensions between the government and the coffee chain over its tax

arrangements.

The US-based coffee chain said it did “not recognise” reports that it had threatened to

pull £100m of investment from the UK in a meeting on Friday with the prime minister.

“We had a very constructive meeting which was long scheduled. We do not discuss the

details of our government meetings but can say that we do not recognise how it has been

reported,” the coffee chain said in a statement.

“Starbucks agrees with the prime minister that all businesses should pay their fair

share. In the UK, we employ 9,000 people, contribute £300m a year to the economy

and are forgoing tax deductions that will make the exchequer at least £20m better off,”

it added.

Mr Cameron exacerbated tensions between the government and coffee chain last week

when he said at the World Economic Forum in Davos in Switzerland that tax avoiders

had to “wake up and smell the coffee”.

The remarks prompted a “frank exchange of views” between Kris Engskov, Starbucks’

managing director, and Mr Cameron on Friday, with the former expressing frustration

that the chain was being targeted despite voluntarily offering to pay additional tax of at

least £20m. Many other multinational companies, such as Amazon and Facebook, also

pay little tax in the UK.

Grant Shapps, Conservative party chairman, sought to damp down tensions on Sunday.

“I don’t think we would ever single out a single company but I do think companies in

this country need to pay their way,” he told Sky News’ Murnaghan programme.

“I think they need to do what’s right as far as that is concerned and I think most people

watching this would agree: companies should pay their fair share of taxation. That

applies to that company and anyone else you care to mention. It certainly applies to

millions of smaller businesses in this country.”

Downing Street refused to comment. “It was a private meeting.”

(Rigby & Cookson, 2013)


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Appendix VII

(Dennis, 2007)