multinational corporations

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International Economics International Economics and Multinational and Multinational Corporations Corporations I have long dreamed of I have long dreamed of buying an island owned by buying an island owned by no nation and of no nation and of establishing the world establishing the world headquarters of the Dow headquarters of the Dow company on the truly company on the truly neutral ground of such an neutral ground of such an island, beholden to no island, beholden to no nation or society…” nation or society…” Carl A Carl A Gerstacker-Chaiman of the Dow Chemical Gerstacker-Chaiman of the Dow Chemical Compny Compny

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Page 1: Multinational Corporations

International Economics and International Economics and Multinational CorporationsMultinational Corporations

““I have long dreamed of I have long dreamed of buying an island owned buying an island owned by no nation and of by no nation and of establishing the world establishing the world headquarters of the Dow headquarters of the Dow company on the truly company on the truly neutral ground of such neutral ground of such an island, beholden to an island, beholden to no nation or society…”no nation or society…” Carl A Gerstacker-Chaiman of the Dow Chemical Carl A Gerstacker-Chaiman of the Dow Chemical CompnyCompny

Page 2: Multinational Corporations

The Nature of MNC’sThe Nature of MNC’s

Multinational Corporations (MNC’s) are Multinational Corporations (MNC’s) are economic organisations engaged in economic organisations engaged in productive activities in two or more productive activities in two or more countries.countries.

Typically have HTypically have Headquarters (Headquarters (HQQ)) in in the the country of origincountry of origin

Build or acquire affiliates or subsidiaries Build or acquire affiliates or subsidiaries in other countries (the host nation)in other countries (the host nation)

This kind of expansion is referred to as This kind of expansion is referred to as Foreign Direct Investment (FDI)Foreign Direct Investment (FDI)

Page 3: Multinational Corporations

What is a What is a MMNC?NC?

DefinitionDefinition

A corporation that owns and operates production A corporation that owns and operates production facilities in two or more countriesfacilities in two or more countriesA corporation with power to coordinate and A corporation with power to coordinate and control operations in two or more countries control operations in two or more countries without owning themwithout owning them..

Page 4: Multinational Corporations

What is a What is a MMNC?NC?

MNC’s can develop through MNC’s can develop through mmergersergers and and acquisitionsacquisitions (example: Tata (example: Tata Steel and Corus, $13,2 billion Steel and Corus, $13,2 billion acquisition)acquisition)

Or they can evolve through Or they can evolve through

sstrategic alliances trategic alliances (TPCA) (TPCA)

Page 5: Multinational Corporations

Scale of International Scale of International ProductionProduction

In 2003, In 2003, MMNCs numberNCs numbereded 64,000 parent 64,000 parent firms controlling 870,000 foreign affiliates.firms controlling 870,000 foreign affiliates.MMNCs employNCs employeded 53 million people abroad. 53 million people abroad.Sales of foreign affiliates ($18 trillion in Sales of foreign affiliates ($18 trillion in 2002) are two times global exports2002) are two times global exports

Global sales of Global sales of MMNCs in 2002 reached $18 NCs in 2002 reached $18 trillion, compared with world exports of $8 trillion, compared with world exports of $8 trillion.trillion.

UNCTAD, UNCTAD, World Investment Report, World Investment Report, 20032003..

Page 6: Multinational Corporations

FDI proliferationFDI proliferation

Which region in the world has Which region in the world has consistently experienced the highest consistently experienced the highest inflow of FDI in last decade?inflow of FDI in last decade?

Which region has recently Which region has recently experienced the highest growth of experienced the highest growth of inflow of FDI?inflow of FDI?

Page 7: Multinational Corporations

Spatial FragmentationSpatial Fragmentation

(and its trade consequences(and its trade consequences))

Horizontal Horizontal MMNCsNCsFirms replicate production process at home and Firms replicate production process at home and abroadabroadMost common between equally developed Most common between equally developed countriescountriesVertical Vertical MMNCsNCsFirms divide production into stages and undertake Firms divide production into stages and undertake each stage where it is relatively cheapereach stage where it is relatively cheaperMost common between countries at different levels Most common between countries at different levels of developmentof developmentIntra-firm tradeIntra-firm tradeTrade between affiliates of the same MNCTrade between affiliates of the same MNCAccounts for one-third of total world tradeAccounts for one-third of total world trade

Page 8: Multinational Corporations

The Internationalisation of The Internationalisation of ProductionProduction

Page 9: Multinational Corporations

International Product Life International Product Life Cycle Theory (IPLC)Cycle Theory (IPLC)

1) 1) Release:Release: As competition in Industrialised As competition in Industrialised countries tends to be fierce, ‘Manufactures countries tends to be fierce, ‘Manufactures are therefore forced to search constantly for are therefore forced to search constantly for better ways to satisfy their customer needs.’ better ways to satisfy their customer needs.’ (Ball et al, 1999). (Ball et al, 1999).

The core elements in new product design The core elements in new product design are gained from customer feedback from are gained from customer feedback from previous modelsprevious models

Once the product enters the domestic Once the product enters the domestic market and begins to create a positive market and begins to create a positive reputation, the demand increases and hence reputation, the demand increases and hence we come to an end of the first stage of the we come to an end of the first stage of the IPLCIPLC

Page 10: Multinational Corporations

2)2)ExportsExports

As the product receives positive customer As the product receives positive customer response, the international demand for the response, the international demand for the product begins. The manufacturer begins product begins. The manufacturer begins exporting to increase its market shareexporting to increase its market share

Example: personal computer (PC) craze of Example: personal computer (PC) craze of the early 1980’sthe early 1980’s

In 1980, 55,000 PCs sold in the USIn 1980, 55,000 PCs sold in the US By 1984 the industry experienced a 136-By 1984 the industry experienced a 136-

fold increase to 7 million PCs (Richter-fold increase to 7 million PCs (Richter-Buttery, 1998)Buttery, 1998)

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3)3)Foreign Production beginsForeign Production begins

As demand increases with the new global As demand increases with the new global market, it becomes economically feasible to market, it becomes economically feasible to begin local production in various nationsbegin local production in various nations

By sharing technology on the manufacturing By sharing technology on the manufacturing of the product, the company has lost an of the product, the company has lost an advantageadvantage

The end of this stage signifies the highest point The end of this stage signifies the highest point in the International Product Life Cycle Theoryin the International Product Life Cycle Theory

Page 12: Multinational Corporations

4)4)Foreign Competition in exports Foreign Competition in exports marketsmarkets

Threatening stage for the companyThreatening stage for the company Local manufactures gained experience in producing Local manufactures gained experience in producing

and selling their product and selling their product their costs have fallen their costs have fallen Once saturated their initial market, they may begin to Once saturated their initial market, they may begin to

look elsewhere (i.e.. other nations) to promote their look elsewhere (i.e.. other nations) to promote their productproduct

If this other nation/producer had a competitive If this other nation/producer had a competitive advantage advantage threatening to the initial producer’s own threatening to the initial producer’s own domestic market share domestic market share

Page 13: Multinational Corporations

5)5)Import Competition in Home Import Competition in Home MarketMarket

If the new competitors have a competitive advantage, If the new competitors have a competitive advantage, or they reach the economies of scale needed, they will or they reach the economies of scale needed, they will enter the original home marketenter the original home market

At this stage the competitors will have a quality At this stage the competitors will have a quality product which will be able to undersell the original product which will be able to undersell the original manufactures. manufactures.

‘‘With future innovations and new products and With future innovations and new products and services the eventuality is that it’s value and hence its services the eventuality is that it’s value and hence its price are likely to diminish’ (Lendrum, 1995).price are likely to diminish’ (Lendrum, 1995).

Page 14: Multinational Corporations

The IPLC theory does have its disadvantages. The IPLC theory does have its disadvantages. Perhaps the most recognisable is the Perhaps the most recognisable is the

assumption that products are released initially assumption that products are released initially in the domestic markets. Many globalized in the domestic markets. Many globalized companies tend to release their new product companies tend to release their new product lines internationally, not domestically. lines internationally, not domestically.

Page 15: Multinational Corporations

Everybody likes FDI?Everybody likes FDI?

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National Regulatory Changes National Regulatory Changes (Number of countries making changes and (Number of countries making changes and

number of changes made. number of changes made.

UNCTAD, World Investment Report, 2003

Page 17: Multinational Corporations

Sources and Distribution of Sources and Distribution of FDI are Highly ConcentratedFDI are Highly Concentrated

Developed Developed countries account for about countries account for about two-thirds of world FDI stock (both two-thirds of world FDI stock (both ownership and location)ownership and location)

About 3/4 of world total FDI flows About 3/4 of world total FDI flows toto developed countries each yeardeveloped countries each year

Ten developing countries annually Ten developing countries annually receive about 80% of total FDI flows to receive about 80% of total FDI flows to the developing world (SE Asia, the developing world (SE Asia, Mexico…)Mexico…)

China in 2002 received one-third of all China in 2002 received one-third of all FDI flowing to FDI flowing to the the developing countriesdeveloping countries--

UNCTAD, World Investment Report, 2003

Page 18: Multinational Corporations

FDI Inflows, by RegionFDI Inflows, by Region(millions of dollars)(millions of dollars)

UNCTAD, World Investment Report, 2003

Page 19: Multinational Corporations

Regional Shares of FDI Flows, 2001Regional Shares of FDI Flows, 2001

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What Influences Growth of FDI InflowWhat Influences Growth of FDI Inflow

Technological environmentTechnological environment

Laws and regulations of potential Laws and regulations of potential hostshosts

Openness to capital flowsOpenness to capital flows

Exchange rate regimeExchange rate regime

International security, stabilityInternational security, stability

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Competition forces Competition forces MMNC to seek new markets NC to seek new markets (horizontal expansion) and lower costs of (horizontal expansion) and lower costs of production (vertical expansion).production (vertical expansion).

Product cycle theory: Product cycle theory: MMNC may possessNC may possessan an ownership-specific advantageownership-specific advantage; seeks to ; seeks to realize greatest profit by realize greatest profit by internalizinginternalizing the use of the use of its advantage; andits advantage; and

location-specific factorslocation-specific factors make it more make it more profitable for firm to exploit its asset abroad than profitable for firm to exploit its asset abroad than at home.at home.

Why Locate Production Abroad?Why Locate Production Abroad?

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Negative effects of outsourcing for Negative effects of outsourcing for the home market? (economic and the home market? (economic and social impact)social impact)

Is vertical expansion more harmful Is vertical expansion more harmful than horizontal one?than horizontal one?

How can be the negative effects on How can be the negative effects on home market moderated?home market moderated?

Page 23: Multinational Corporations

What makes a What makes a corporation truly corporation truly ‘multinational’?‘multinational’?

Page 24: Multinational Corporations

Ownership criterionOwnership criterion

SSome ome economists economists argue that argue that ownership is a key criterion. A firm ownership is a key criterion. A firm becomes multinational only when becomes multinational only when the headquarter or parent the headquarter or parent company is effectively owned by company is effectively owned by nationals of two or more countries. nationals of two or more countries.

For example, Shell and Unilever, For example, Shell and Unilever, controlled by British and Dutch controlled by British and Dutch interests, are good examples. interests, are good examples. However, by ownership test, very However, by ownership test, very few multinationals are few multinationals are multinational. multinational.

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Nationality mix of headquarter Nationality mix of headquarter

managersmanagers::Others argue that aOthers argue that an n

international company is international company is multinational if the managers of multinational if the managers of the parent company are the parent company are nationals of several countries. nationals of several countries.

Usually, managers of the Usually, managers of the headquarters are nationals of the headquarters are nationals of the home country. This may be a home country. This may be a transitional phenomenon. transitional phenomenon.

Very few companies pass this Very few companies pass this test currently. test currently.

Page 26: Multinational Corporations

Business StrategyBusiness Strategy

Usually assumed to be Usually assumed to be global profit global profit maximization According to Howard Perlmutter maximization According to Howard Perlmutter (1969)*:(1969)*:

Multinational companies may pursue policies that Multinational companies may pursue policies that are are home country-orientedhome country-oriented. .

or or host country-orientedhost country-oriented or or world-orientedworld-oriented. . Perlmutter uses such terms as ethnocentric, Perlmutter uses such terms as ethnocentric, polycentric and geocentric. polycentric and geocentric.

However, "ethnocentric" is misleading because it However, "ethnocentric" is misleading because it focuses on race or ethnicity, especially when the focuses on race or ethnicity, especially when the home country itself is populated by many different home country itself is populated by many different races (example: HP), whereas "polycentric" loses races (example: HP), whereas "polycentric" loses its meaning when the MNCs operate only in one or its meaning when the MNCs operate only in one or two foreign countries. two foreign countries.

Page 27: Multinational Corporations

Business StrategyBusiness Strategy

Franklin Root (1994), an MNC is a parent company Franklin Root (1994), an MNC is a parent company thatthat……

1.1. engages in foreign production through its affiliates engages in foreign production through its affiliates located in several countries, located in several countries,

2.2. exercises direct control over the policies of its exercises direct control over the policies of its affiliates, affiliates,

3.3. implements business strategies in production, implements business strategies in production, marketing, finance and staffing that transcend marketing, finance and staffing that transcend national boundaries (geocentric). national boundaries (geocentric).

In other words, MNCs exhibit no loyalty to the In other words, MNCs exhibit no loyalty to the country in which they are incorporatedcountry in which they are incorporated. .

**Howard V. Perlmutter, "The Tortuous Evolution of the Howard V. Perlmutter, "The Tortuous Evolution of the Multinational Corporation," Columbia Journal of World Business, Multinational Corporation," Columbia Journal of World Business, 1969, pp. 9-18.1969, pp. 9-18.

Page 28: Multinational Corporations

Evolution of MNCsEvolution of MNCs

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1. Export stage1. Export stageinitial inquiries => firms initial inquiries => firms

rely on export agents rely on export agents expansion of export sales expansion of export sales further expansion of foreign further expansion of foreign

sales branch or assembly sales branch or assembly operations (to save operations (to save transport cost) transport cost)

Three Stages of EvolutionThree Stages of Evolution

Page 30: Multinational Corporations

2. Foreign Production Stage2. Foreign Production Stage

There is a limit to foreign sales There is a limit to foreign sales (tariffs, NTBs) (tariffs, NTBs)

FDI versus LicensingFDI versus Licensing

Once the firm chooses foreign Once the firm chooses foreign production as a method of production as a method of delivering goods to foreign delivering goods to foreign markets, it must decide whether markets, it must decide whether to establish a foreign production to establish a foreign production subsidiary or license the subsidiary or license the technology to a foreign firm. technology to a foreign firm.

Three Stages of EvolutionThree Stages of Evolution

Page 31: Multinational Corporations

LicensingLicensing• Licensing is usually first experience (because it is easy) Licensing is usually first experience (because it is easy)

e.g.: Kentucky Fried Chicken in the U.K. e.g.: Kentucky Fried Chicken in the U.K. • it does not require any capital expenditure it does not require any capital expenditure • it is not risky it is not risky • payment = a fixed % of sales payment = a fixed % of sales

• Problem: the mother firm cannot exercise any Problem: the mother firm cannot exercise any managerial control over the licensee (it is independent) managerial control over the licensee (it is independent)

The licensee may transfer industrial secrets to another The licensee may transfer industrial secrets to another independent firm, thereby creating a rival. independent firm, thereby creating a rival.

   

Three Stages of EvolutionThree Stages of Evolution

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Direct InvestmentDirect InvestmentIt requires the decision of top It requires the decision of top

management because it is a critical management because it is a critical step. step.

it is risky (lack of information) (US it is risky (lack of information) (US Canada vs. Toyota Canada vs. Toyota Czech Rep.) Czech Rep.)

plants are established in several plants are established in several countries countries

licensing is switched from licensing is switched from independent producers to its independent producers to its subsidiaries. subsidiaries.

export continuesexport continues

Three Stages of EvolutionThree Stages of Evolution

Page 33: Multinational Corporations

3. Multinational Stage3. Multinational StageThe company becomes a multinational enterprise The company becomes a multinational enterprise when it begins to plan, organize and coordinate when it begins to plan, organize and coordinate production, marketing, R&D, financing, and production, marketing, R&D, financing, and staffing internationally. For each of these staffing internationally. For each of these operations, the firm must find the best location. operations, the firm must find the best location.

Rule of ThumbRule of ThumbA company whose foreign affiliates’ sales are 25% A company whose foreign affiliates’ sales are 25% or more of total sales. or more of total sales. Examples: Manufacturing MNCs Examples: Manufacturing MNCs 24 of top fifty firms are located in the U.S. 24 of top fifty firms are located in the U.S. 9 in Japan 9 in Japan 6 in Germany. 6 in Germany. Petroleum companies: 6/10 located in the U.S. Petroleum companies: 6/10 located in the U.S.

Three Stages of EvolutionThree Stages of Evolution

Page 34: Multinational Corporations

New MNCs do not pop up randomly in New MNCs do not pop up randomly in foreign nations. It is the result of foreign nations. It is the result of conscious planning by corporate conscious planning by corporate managers. managers. Investment flows from regions Investment flows from regions of low anticipated profits to those of high of low anticipated profits to those of high returnsreturns. .

Growth motive: A company may have Growth motive: A company may have reached a plateau satisfying domestic reached a plateau satisfying domestic demand, which is not growing. Looking demand, which is not growing. Looking for new markets.for new markets.

Motives for Direct Foreign Motives for Direct Foreign InvestmentInvestment

Page 35: Multinational Corporations

Protection in the importing countriesProtection in the importing countriesForeign direct investment is one way to Foreign direct investment is one way to expand bypassing protective instruments expand bypassing protective instruments in the importing country in the importing country

EUEU: imposed common external tariff : imposed common external tariff against outsiders. US companies against outsiders. US companies circumventcircumvent these barriers by setting up these barriers by setting up subsidiaries…subsidiaries…Dell in IrelandDell in Ireland etc. etc.

Japanese corporations located auto Japanese corporations located auto assembly plants in the US, to bypassassembly plants in the US, to bypass non-tariff barriersnon-tariff barriers

Motives for Direct Foreign Motives for Direct Foreign InvestmentInvestment

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1.1. Market competitionMarket competitionThe most certain method of The most certain method of preventing actual or preventing actual or potential competition is to potential competition is to acquire foreign businesses. acquire foreign businesses. GM purchased Monarch (GM GM purchased Monarch (GM Canada) and Opel (GM Canada) and Opel (GM Germany). It did not buy Germany). It did not buy Toyota, Datsun (Nissan) and Toyota, Datsun (Nissan) and Volkswagen. They later Volkswagen. They later became competitors.became competitors.

Motives for Direct Foreign Motives for Direct Foreign InvestmentInvestment

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1.1. Cost reductionCost reductionUnited Fruit has established United Fruit has established banana-producing facilities banana-producing facilities in Honduras. Cheap foreign in Honduras. Cheap foreign labolabouur. r.

2.2. LaboLabouur costs tend to differ r costs tend to differ among nations. MNCs can among nations. MNCs can hold down costs by locating hold down costs by locating part of all their productive part of all their productive facilities abroad. facilities abroad. (Maquildoras) (Maquildoras)

Motives for Direct Foreign Motives for Direct Foreign InvestmentInvestment

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Export versus Direct Foreign Investment Export versus Direct Foreign Investment Minimum Efficient Scale (Minimum Efficient Scale (MESMES) ) is the minimum is the minimum

rate of output at which Average Cost (AC) is rate of output at which Average Cost (AC) is minimized. If minimum efficient scale (MES) is minimized. If minimum efficient scale (MES) is not achieved, then not achieved, then firms will firms will export export

In other words, if there exists excess capacity, In other words, if there exists excess capacity, why not utilize it and export outputs to other why not utilize it and export outputs to other countries? There is no point in creating another countries? There is no point in creating another plant overseas when domestic capacity is not plant overseas when domestic capacity is not fully utilized.fully utilized.

If, If, however, however, foreign demand exceeds the foreign demand exceeds the minimum efficient scale, then FDI minimum efficient scale, then FDI will be will be the favoured optionthe favoured option

Supplying Products to Foreign BuyersSupplying Products to Foreign Buyers

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An An IIJVJV is a business organization established is a business organization established by two or more companies that combines by two or more companies that combines their skills and assets. their skills and assets.

1.1. A JV is formed by two businesses that A JV is formed by two businesses that conduct business in a third country (French conduct business in a third country (French firm + Japanese firm jointly operate in the firm + Japanese firm jointly operate in the Central Europe - TPCA) Central Europe - TPCA)

2.2. joint venture with a local firm (Copirisco joint venture with a local firm (Copirisco [POR] + Cautor [CZ][POR] + Cautor [CZ]

3.3. joint venture includes local government joint venture includes local government (Messerschmitt-Boelkow-Blom, Germany (Messerschmitt-Boelkow-Blom, Germany => Iran Oil Investment Company + => Iran Oil Investment Company + National Iranian Oil CompanyNational Iranian Oil Company

International Joint VenturesInternational Joint Ventures (IJVs) (IJVs)

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Why? Why? Large capital costs - costs are too Large capital costs - costs are too

large for a single company large for a single company Protection - LDC governments close Protection - LDC governments close

their borders to foreign companies their borders to foreign companies bypass protectionism. e.g.: US bypass protectionism. e.g.: US

workers assemble Japanese parts. The workers assemble Japanese parts. The finished goods are sold to the US finished goods are sold to the US consumers.consumers.

Share know-howShare know-how ProblemsProblems….….Control is divided. The venture Control is divided. The venture

serves "two masters" serves "two masters"

International Joint VenturesInternational Joint Ventures (IJVs) (IJVs)

Page 41: Multinational Corporations

Welfare EffectsWelfare Effects of IJV’s of IJV’s The new venture increases The new venture increases

production, lowers priceproduction, lowers prices s to to consumers consumers

The new business is able to The new business is able to enter the market that neither enter the market that neither parent could have entered parent could have entered separately separately

Cost reductions (otherwise, no Cost reductions (otherwise, no joint ventures will be formed) joint ventures will be formed) increased market power => not increased market power => not necessarily goodnecessarily good

International Joint VenturesInternational Joint Ventures (IJVs) (IJVs)

Page 42: Multinational Corporations

Critique of MNCsCritique of MNCs

Page 43: Multinational Corporations

Exploitation of bargaining power Exploitation of bargaining power (especially vis-à-vis weak governments)(especially vis-à-vis weak governments)

Exploitation of local labour force (usually Exploitation of local labour force (usually due to non-existing or poorly enforced due to non-existing or poorly enforced labour laws; example: Haas Fertigbau)labour laws; example: Haas Fertigbau)

Disregard to environment (same Disregard to environment (same reasons)reasons)

Exploitation of brand-power (often Exploitation of brand-power (often ignored)ignored)

Page 44: Multinational Corporations

Naomi Klein argues in her book Naomi Klein argues in her book No Logo: No Logo: Taking Aim at the Brand BulliesTaking Aim at the Brand Bullies that that the astronomical growth of the wealth and the astronomical growth of the wealth and cultural influence of multinational cultural influence of multinational companies over the last 15 years can be companies over the last 15 years can be traced back to an idea developed by traced back to an idea developed by management theorists in the mid-1980s: management theorists in the mid-1980s: 'successful corporations must primarily 'successful corporations must primarily produce brands, as opposed to products'produce brands, as opposed to products'

Naomi Klein – “NO LOGO”- a critique of Naomi Klein – “NO LOGO”- a critique of MNC’sMNC’s

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MNC’s MNC’s real work, lay in marketing and real work, lay in marketing and not manufacturing thingsnot manufacturing things

Corporations had to concentrate their Corporations had to concentrate their resources on building up their brand resources on building up their brand through sponsorships, advertising, through sponsorships, advertising, packaging, innovation and expansionpackaging, innovation and expansion

Importance of synergies – buying up Importance of synergies – buying up distribution and retail networks – to get distribution and retail networks – to get MNCs brands to as wide a market as MNCs brands to as wide a market as possible. The brand image is primary, possible. The brand image is primary, the product secondary. the product secondary.

Compare with ‘Globalisation of media’Compare with ‘Globalisation of media’

NO LOGO CRITIQUENO LOGO CRITIQUE

Page 46: Multinational Corporations

Phil Knight, Chief Executive Phil Knight, Chief Executive Officer (CEO) of Nike sums up Officer (CEO) of Nike sums up their rationale: their rationale:

'There is no value in making things 'There is no value in making things any more. The value is added by any more. The value is added by careful research, by innovation careful research, by innovation and marketing' and marketing'

Competition, therefore, comes Competition, therefore, comes down to a fierce battle between down to a fierce battle between brands not productsbrands not products

NO LOGO CRITIQUENO LOGO CRITIQUE

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Advertising often more expensive than Advertising often more expensive than productionproduction

US spending on marketing in 1998 at US spending on marketing in 1998 at $196.5bn was nearly four times that of $196.5bn was nearly four times that of 19791979

Global spending on marketing reached Global spending on marketing reached $435bn in 1996, up sevenfold since 1950, $435bn in 1996, up sevenfold since 1950, growing a third faster than the world growing a third faster than the world economyeconomy

Little wonder that brands are expensive Little wonder that brands are expensive

NO LOGO CRITIQUENO LOGO CRITIQUE

Page 48: Multinational Corporations

Marketing, advertising, and buying up brands, Marketing, advertising, and buying up brands, however, produce no value – a point Phil Knight from however, produce no value – a point Phil Knight from Nike cannot grasp and No Logo fails to makeNike cannot grasp and No Logo fails to make

They are paid for out of the consumer price increase They are paid for out of the consumer price increase and workers’ wage depressionand workers’ wage depression

TThe wages of the factory workers, he wages of the factory workers, ((the real producers the real producers of the wealthof the wealth)) constitut constitutee an ever-shrinking slice of an ever-shrinking slice of corporate budgetscorporate budgets

Marketing/sales personnel, not the production and Marketing/sales personnel, not the production and design experts, are becoming the best paid people in design experts, are becoming the best paid people in MNCs (just after the top managers)MNCs (just after the top managers)

NO LOGO CRITIQUENO LOGO CRITIQUE

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COUNTER-CRITIQUECOUNTER-CRITIQUE

Activities of multinationals result of Activities of multinationals result of rational-actor thinkingrational-actor thinking

Utilization of all possible comparative Utilization of all possible comparative advantagesadvantages

As long as consumers are willing to As long as consumers are willing to pay for brands, no reason to change pay for brands, no reason to change strategystrategy