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Globalisation andMultinational Business
Some Popular Definitions Of Development
The capacity of a national
economy, whose initial economic
condition has been more or less static for a long time, to generate
and sustain an annual increase in its gross national product at rates
of perhaps 5% to 7 % or more.
Development refers to the ability
of a country to expand its output
at a rate faster than the growth rate of
its population.
Development refers to the
planned alteration of the structure of
production and employment so
that agriculture’s share of both
declines and that of manufacturing
and services increases.
Development must be conceived of a multi-dimensional process involving major changes in social structures, popular attitudes,
and national institutions, as
well as the acceleration of
economic growth, the reduction of
unemployment, the eradication of
poverty, and the reduction of inequality.
Development must represent
the whole gamut of change by
which an entire social system tuned to the diverse basic
needs and desires of individuals and
social groups within that
system, moves away from a
condition widely perceived as
unsatisfactory towards a
situation or condition of life
regarded as materially and
spiritually better.
DTK, After Todaro 2011
Dimensions of
Development
Sustenance: The ability to meet basic needs
Self-Esteem: To be a person
Freedom from servitude: To be able to
choose
To increase the availability and widen the distribution of basic life-
sustaining goods
To raise levels of living; e.g.
Food, shelter, health, protection
To expand the range of economic and social
choices
Three Core Values
Of Development
Three objectives
of Development
DTK, After Todaro 2011
Sustain-ability
Social Environmental
Equitable Viable
Bearable
Economic
Profit
CreateValue
Eliminate Waste
ShareKnowledge
RecognizedInterdependence
EnergyFlows
ModelNature
HumansNature
Co-exist
Quality Of
LifeAccept
Responsibility
PeoplePlanet
Sustainable
Ecology
Nature &
Environmentalism
Ecology/ Equity
Economy/Ecology
Ecology/Economy
Equity/Ecology
Society And
SocialismEquity/
Economy
Business&
CapitalismEconomy/
Equity
EconomyEquity
Sustainable
Development
Development : Definitions & Measurements
1. Development process by which:
political; 2. social and 3. economic structures of a country are improved for purpose of ensuring wellbeing of its populace. (Fisher, 1995)
3. Human development is:- process of enlarging people’s choices - choices that are created by
expanding human capabilities and functions,
- i.e. what people do and can do in their lives.
2. Development is a comprehensive: 1. economic; 2.
social -cultural and 3. political process - aims at constant
improvement of wellbeing of entire population and individuals on basis of active, free and meaningful participation in development
- and fair distribution of benefits resulting there of .
(AUSAID, NGO information package, Canberra)
4. Any adequate definition of development includes 6 dimensions:(1) An economic
component(2) A social
ingredient(3) A political
dimension,(4) A cultural
dimension,(5) Ecological
soundness,(6) The full-life
paradigm.
6 DIMENSIONS OF DEVELOPMENT
6 DIMENSIONS
OF DEVELOPMENT
(1) An economic component dealing with the creation of wealth and improved conditions of material life – equitably distributed
(2) A social ingredient measured in wellbeing in: (a) health, (b) education, (c) Housing & (d) employment
(3) A political dimension: embracing values such as:
(a) Human rights, (b) Political freedom, (c) legal enfranchisement of persons, (d) Some form of democracy
(6) The full-life paradigm:Refers to meanings systems,symbols and beliefs concerning ultimate meaning of life and history
(5) Ecological soundness:
(4) A cultural element:In recognition of fact that cultures confer identity and self-worth to people
The Economic System
Source: Witherick et al., 1995
Summary Of The Impact Of TNCs On Host Economies
Source: Witherick et al., 1995
Globalisation
Global Interactions/Globalization could involve all these things!
Global Interactions/Globalization
Seven Key Issues concerning the role and impact of TNCs
Source: Witherick et al., 1995
The Process of cumulative causation
Source: Witherick et al., 1995
Backwash or Spread
Source: Witherick et al., 1995
Friedmann’s model of Spatial Development
Source: Witherick et al., 1995
Globalisation: Setting the Scene
• Current issues in the global economy• Defining globalisation
– global economic interdependence– implications for business
• What is driving globalisation?– market drivers– cost drivers– government drivers– competitive drivers
The drivers of globalisationMarket driversPer capita income converging among industrialised
nationsConvergence of lifestyles and tastesOrganisations beginning to behave as global customersIncreasing travel creating global consumersGrowth of global and regional channelsEstablishment of world brandsPush to develop global advertising
Cost driversContinuing push for economies of scaleAccelerating technological innovationAdvances in transportationEmergence of newly industrialised countries with
productive capability and low labour costs.Increasing cost of product development relative tomarket life
Government driversReduction of tariff barriersReduction of non-tariff barriersCreation of blocsDecline in role of governments as producers and
customersPrivatisation in previously state-dominated economiesShift to open market economies from closed communist
systems in eastern EuropeIncreasing participation of China and India in the global
economy
Competitive driversContinuing increases in the level of world tradeIncreased ownership of corporations by foreign
acquirorsRise of new competitors intent upon becoming global
competitorsGrowth of global networks making countries
interdependent in particular industriesMore companies becoming globally centred rather than
nationally centredIncreased formation of global strategic alliances
Other driversRevolution in information and communication
Globalisation of financial marketsImprovements in business travel
Market driversPer capita income converging among industrialised
nationsConvergence of lifestyles and tastesOrganisations beginning to behave as global customersIncreasing travel creating global consumersGrowth of global and regional channelsEstablishment of world brandsPush to develop global advertising
Cost driversContinuing push for economies of scaleAccelerating technological innovationAdvances in transportationEmergence of newly industrialised countries with
productive capability and low labour costs.Increasing cost of product development relative tomarket life
Government driversReduction of tariff barriersReduction of non-tariff barriersCreation of blocsDecline in role of governments as producers and
customersPrivatisation in previously state-dominated economiesShift to open market economies from closed communist
systems in eastern EuropeIncreasing participation of China and India in the global
economy
Competitive driversContinuing increases in the level of world tradeIncreased ownership of corporations by foreign
acquirorsRise of new competitors intent upon becoming global
competitorsGrowth of global networks making countries
interdependent in particular industriesMore companies becoming globally centred rather than
nationally centredIncreased formation of global strategic alliances
Other driversRevolution in information and communication
Globalisation of financial marketsImprovements in business travel
The drivers of globalisation
Market driversPer capita income converging among industrialised
nationsConvergence of lifestyles and tastesOrganisations beginning to behave as global customersIncreasing travel creating global consumersGrowth of global and regional channelsEstablishment of world brandsPush to develop global advertising
Cost driversContinuing push for economies of scaleAccelerating technological innovationAdvances in transportationEmergence of newly industrialised countries with
productive capability and low labour costs.Increasing cost of product development relative tomarket life
Government driversReduction of tariff barriersReduction of non-tariff barriersCreation of blocsDecline in role of governments as producers and
customersPrivatisation in previously state-dominated economiesShift to open market economies from closed communist
systems in eastern EuropeIncreasing participation of China and India in the global
economy
Competitive driversContinuing increases in the level of world tradeIncreased ownership of corporations by foreign
acquirorsRise of new competitors intent upon becoming global
competitorsGrowth of global networks making countries
interdependent in particular industriesMore companies becoming globally centred rather than
nationally centredIncreased formation of global strategic alliances
Other driversRevolution in information and communication
Globalisation of financial marketsImprovements in business travel
The drivers of globalisation
Market driversPer capita income converging among industrialised
nationsConvergence of lifestyles and tastesOrganisations beginning to behave as global customersIncreasing travel creating global consumersGrowth of global and regional channelsEstablishment of world brandsPush to develop global advertising
Cost driversContinuing push for economies of scaleAccelerating technological innovationAdvances in transportationEmergence of newly industrialised countries with
productive capability and low labour costs.Increasing cost of product development relative tomarket life
Government driversReduction of tariff barriersReduction of non-tariff barriersCreation of blocsDecline in role of governments as producers and
customersPrivatisation in previously state-dominated economiesShift to open market economies from closed communist
systems in eastern EuropeIncreasing participation of China and India in the global
economy
Competitive driversContinuing increases in the level of world tradeIncreased ownership of corporations by foreign
acquirorsRise of new competitors intent upon becoming global
competitorsGrowth of global networks making countries
interdependent in particular industriesMore companies becoming globally centred rather than
nationally centredIncreased formation of global strategic alliances
Other driversRevolution in information and communication
Globalisation of financial marketsImprovements in business travel
The drivers of globalisation
Market driversPer capita income converging among industrialised
nationsConvergence of lifestyles and tastesOrganisations beginning to behave as global customersIncreasing travel creating global consumersGrowth of global and regional channelsEstablishment of world brandsPush to develop global advertising
Cost driversContinuing push for economies of scaleAccelerating technological innovationAdvances in transportationEmergence of newly industrialised countries with
productive capability and low labour costs.Increasing cost of product development relative tomarket life
Government driversReduction of tariff barriersReduction of non-tariff barriersCreation of blocsDecline in role of governments as producers and
customersPrivatisation in previously state-dominated economiesShift to open market economies from closed communist
systems in eastern EuropeIncreasing participation of China and India in the global
economy
Competitive driversContinuing increases in the level of world tradeIncreased ownership of corporations by foreign
acquirorsRise of new competitors intent upon becoming global
competitorsGrowth of global networks making countries
interdependent in particular industriesMore companies becoming globally centred rather than
nationally centredIncreased formation of global strategic alliances
Other driversRevolution in information and communication
Globalisation of financial marketsImprovements in business travel
The drivers of globalisation
Market driversPer capita income converging among industrialised
nationsConvergence of lifestyles and tastesOrganisations beginning to behave as global customersIncreasing travel creating global consumersGrowth of global and regional channelsEstablishment of world brandsPush to develop global advertising
Cost driversContinuing push for economies of scaleAccelerating technological innovationAdvances in transportationEmergence of newly industrialised countries with
productive capability and low labour costs.Increasing cost of product development relative tomarket life
Government driversReduction of tariff barriersReduction of non-tariff barriersCreation of blocsDecline in role of governments as producers and
customersPrivatisation in previously state-dominated economiesShift to open market economies from closed communist
systems in eastern EuropeIncreasing participation of China and India in the global
economy
Competitive driversContinuing increases in the level of world tradeIncreased ownership of corporations by foreign
acquirorsRise of new competitors intent upon becoming global
competitorsGrowth of global networks making countries
interdependent in particular industriesMore companies becoming globally centred rather than
nationally centredIncreased formation of global strategic alliances
Other driversRevolution in information and communication
Globalisation of financial marketsImprovements in business travel
The drivers of globalisation
Globalisation: Setting the Scene
• Current issues in the global economy• Defining globalisation
– global economic interdependence– implications for business
• What is driving globalisation?– market drivers– cost drivers– government drivers– competitive drivers
• Globalisation: the good and the bad
Multinational Corporations• Statistics on growth and size of
MNCs– the comparative size of MNCs and
countries' GDP
Comparison of the 10 largest multinational corporations(by gross revenue) and selected countries (by GDP): 2002
MNCrank
Country orCompany
GDP ($bn) orgross revenue
($bn)USA 10,869.1
1 Wal-Mart Stores 219.8Indonesia 212.9Denmark 205.1
2 Exxon Mobil 191.63 General Motors 177.34 BP 174.2
Greece 165.2China: Hong Kong 165.1
5 Ford Motor 162.4Finland 158.2Ireland 150.2
6 Enron 138.77 DaimlerChrysler 136.98 Royal Dutch/Shell Group 135.2
Thailand 132.4Iran 127.8
9 General Electric 125.9Argentina 121.8
10 Toyota Motor 120.8Malaysia 102.7Chile 65.9Luxembourg 23.8Kenya 12.9Albania 5.3
Multinational Corporations• Statistics on growth and size of
MNCs– the comparative size of MNCs and
countries' GDP– foreign direct investment (FDI) inflows
FDI inflows ($ millions)
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1970 1975 1980 1985 1990 1995 2000
FDI i
nflo
ws
($ m
illion
s)
.
World Developed countries Developing countries
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1970 1975 1980 1985 1990 1995 2000
FDI i
nflo
ws
($ m
illion
s)
.
World Developed countries Developing countries
FDI inflows ($ millions)
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1970 1975 1980 1985 1990 1995 2000
FDI i
nflo
ws
($ m
illion
s)
.
World Developed countries Developing countries
FDI inflows ($ millions)
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1970 1975 1980 1985 1990 1995 2000
FDI i
nflo
ws
($ m
illion
s)
.
World Developed countries Developing countries
FDI inflows ($ millions)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
1985 1990 1995 2000
FDI inflowsFD
I as
% o
f gro
ss fi
xed
capi
tal f
orm
atio
n
0.0
5.0
10.0
15.0
20.0
25.0
30.0
1985 1990 1995 2000
Developing countries
FDI a
s %
of g
ross
fixe
d ca
pita
l for
mat
ion
FDI inflows
0.0
5.0
10.0
15.0
20.0
25.0
30.0
1985 1990 1995 2000
Developed countries
Developing countries
FDI a
s %
of g
ross
fixe
d ca
pita
l for
mat
ion
FDI inflows
Multinational Corporations• Diversity among MNCs
– size– the nature of the business– overseas business relative to total
business– production locations– ownership patterns– organisational structure
Why do Businesses go Multinational?
• Categories of multinational organisation– horizontally integrated– vertically integrated– conglomerate
• Advantages to firms– reductions in costs
• international differences in factor prices• international differences in factor
productivity• low-cost access to local markets• spreading overheads
Why do Businesses go Multinational?
• Advantages to firms (cont.)– government support in host countries
• lower taxes• subsidies• provision of infrastructure
– increased demand– spreading risks– can exploit advantages over local firms
• ownership of superior technology• entrepreneurial and managerial skills• R&D capacity
– access to local technology
Why do Businesses go Multinational?
• The product life cycle and the MNC– the launch phase– the growth phase– maturity– late maturity and decline
• Problems facing multinationals– language barriers– selling and marketing– relations with host governments– relationships between subsidiaries
MNC Investment and the Host State
• Advantages of MNC investment– employment– balance of payments– technology transfer– tax revenues
• Disadvantages– uncertainty– power and control by the MNC over the
host– transfer pricing– the environment
MNCs and Developing Countries
• The scale of MNC investment in developing countries
• Advantages to host country– the saving gap
• the importance of development finance• the contribution of saving to growth
– the foreign exchange gap– public finance gap– skills and technology gaps
MNCs and Developing Countries• Disadvantages to host country
– MNCs may drive local firms out of business– limited demand for local components– repatriation of profits– transfer pricing and effects on tax revenues
• competition between developing countries to attract MNCs
– distorting the whole pattern of development• increasing gap between rich and poor• introducing consumerist values
• What can developing countries do?