Unit 4

Transnational Enterprises

Pre-reading activities Learning objectives Information related to the text Words and expressions Exercises

Learning ObjectivesAfter studying this unit, you should be able to:

1.understand correctly the effects of TNCs on social development

2.know TNC’s current situation

3.have an overall idea of the strategies operating in some of the famous TNCs

Pre-reading Activities

A: I heard that you’ve left your company to work in New York for another company.

B: No, that’s not true. The one in New York is only a subsidiary of my company in China. I’ve never left the same transnational corporation.

A: What do you mean by transnational?

B: A transnational corporation is usually composed of a parent company located in the home country and several overseas subsidiaries which are engaged in producing and selling the same goods or services in other countries.

Pre-reading Activities

A: I am still thinking of international trade.

B: They are different. Traditional international trade, which mainly involves import and export, can be traced back to Egypt of thousands of years ago, while the economic phenomenon of the multinational corporation is something after World War II. The rise and development of the transnational corporation is based on the international mobility of certain factors of production- capital, labor, information, and technology.

Pre-reading Activities

1.Effects of TNCs on Social Development

Economic Growth

Transfer of Technology

Information related to the text

Economic Growth

In theory

TNCs can promote social development by fostering economic growth

In practice

• it is unclear whether TNCs are actually responsible for economic growth in host countries.

• even if TNCs do improve a host country’s economy, the relationship between economic growth and social development is not so strong.

Foreign subsidiaries in host country

Parent company in home country

Take most of their profits out of the country

Not reinvest them in the company

TNCs can hardly solve problemspoverty

unemployment Other issues of social

problems

Transfer of technology

The forms of technology transfer

The method of technology transfer

The forms of technology transfer

Machinery and equipment

Soft w

are

Process and product design

Training in

managem

ent

Marketing and quality control methods

The method of technology transfer

Joint ventures

Foreign direct investment

Technical assistance

Non-equity investment

Technology transferIn theory

foster social development in developing countries by transferring management skills as well as research and

development capacities In practice

transferring only minimal management skills

they conduct only a small number of such R&D outside

Most of the technology transferred is often capital intensive and therefore inappropriate for labor-intensive developing countries, and can not meet local needs.

industrialized countries

2. Strategic Management of TNCs

three basic strategies:

Generic strategy

Competitive strategy

Diversification strategy

Generic Strategy

There are two primary generic strategies that companies use

to gain competitive advantage: differentiation and low cost.

Example:There is an evident example: In March 2005,

Target Corporation (Target) had 1,330 retail stores in 47 states

of the United States. Even though it only had a fifth of the sales

and profits of Wal-Mart , it had a loyal customer base that was

looking for a trendy, yet, affordable range of merchandise.

Target's customers, whom it referred to as 'Guests', were younger

and more affluent than that of its rival Wal-Mart.

Target's positioning was based on more than just pricing;

it encompassed quality, style, and trend. This was

the differentiation strategy that was consistently applied since

the launch of the chain. It differentiated itself from its

competitors by offering trendy merchandise at affordable

prices. By 2002, the company became the second largest

discount retailer in US.

Generic Strategy

Competitive Strategy

offensive strategy-companies directly target rivals from whom they wish to occupy market share.

Defensive strategy-companies seek to beat back or discourage the offensive strategies of rivals.

Diversification Strategy :

When a company moves from a single type of business into two or more business, this is called diversification strategy.

two basic types:

• related diversification

• unrelated diversification

related diversification

Example:

IBM With an eye toward generating $1 billion (US$) in hardware, software and services revenue over the next three years, IBM announced that it has formed new alliances in the Internet banking, retail and insurance sectors. The pacts were formed as part of a diversification strategy. “We want to partner with the application leaders in every industry and market segment and have them leading with IBM technologies,” said Bob Timpson, general manager, IBM Solution Developer Marketing.

The recently announced IBM-Lenovo alliance will change the dynamics of the entire global PC marketplace. Because of the significance of the announcement, our customers may have questions about how this affects them and their relationship with IBM.

related diversification

IBM shipped its first PC in August of 1981, over 22 years ago. In July 2004, IBM sold its 100 millionth PC. Over the last 12 months, IBM’s PC business has seen double-digit revenue growth, outperforming the industry in key categories.

related diversification

See what the analysts are saying: • "IBM is a marquee name among businesses around the world, and Lenovo dominates China, the world's fastest-growing market. 'This new player is not to be underestimated,' said Gartner analyst Tom Bittman. 'This is going to become the No. 3 player.' "

— Austin American-Statesman, December 9, 2004

related diversification

An exciting future

IBM and Lenovo both bring the spirit of innovation to the new company; it's the complementary strengths of each one that will create new value for PC customers. Watch this space for exciting products, services and technologies that will continue to raise the bar.

The future is an exciting place to be.

related diversification

Words and Expressions productivity n. 生产率，生产力 entrepreneur n. 企业家 layoff n. 解雇 

welfare n. 福利 facilitate v. 使……便利 semiconductor n. 半导体 subsidiary n. 子公司 exclusively adv 独有 inappropriate adj. 不合适的，不适宜的

volatility n. 快活，易变 generic strategy 一般战略 diversification strategy 多样化战略 affluent adj. 丰富的，流动的 affordable adj. 可支付的，付得起的

offensive adj. 冒犯的

Words and Expressions

Exercises TEXT A II

GDP 国内生产总值host country 东道国TNC 跨国公司joint venture 合资企业FDI 对外直接投资transfer of technology 技术转移capital intensive 资本密集economic growth 经济增长R&D 研发与开发semiconductor plant 半导体工厂

Exercises TEXT B III

1. Industrial policies are different —— 3. from its competitors 2. TNCS in the late 1990s are confronted —— 5.with a series of strategy options 3. It differentiated itself —— 3. from its competitors 4. In a competitive industry, all managers should expect attacks —— 2. from rival firms.5. We want to partner —— 1.with the application leaders in every industry.

The End.

Questions are welcome!