Multinational Corporations And globalization

International Economic Issues Over the years, Canadians have taken to the streets to voice their opinions on many social movements, including civil rights, women’s right to vote, nuclear disarmament, and protection of the environment In recent years, as global organizations have met behind closed doors, activist groups from around the world have reacted with persistent, sometimes violent, protests

International Economic Issues Globalization, in its present form, is perceived by many to promote the exploitation of the poor by the rich, through the spread of capitalism In this chapter, we’ll investigate many issues arising from the globalization movement

What is Globalization? Globalization is the process of creating a global economy Driven by three forces Technology Removal of trade barriers International finance system

What is Globalization? Technology Improvements in telecommunications, computer technology, and transportation infrastructure allows large companies to produce goods and services on a global basis and market them around the world

What is Globalization? Removal of trade barriers Many nations have removed, or are removing, various barriers to cross-border trade, resulting in a huge increase in the volume of international trade

What is Globalization? International finance system A vast international financial system is facilitating trade and financing international business activity

What is Globalization? Each of these three forces have been promoted by globalization’s defenders as beneficial for national economies and their citizens They have also been just as strongly attacked by globalization’s detractors as damaging to people Let’s examine each in greater detail

The Multinational Corporation multinational corporation (MNC) is fundamental to globalization Remember that an MNC is a firm that operates in several countries Also called transnational corporations These large businesses can now… Set up production in any number of companies Communicate orders and production plans by computer and satellite links Sell their products and services

The Multinational Corporation Consider the example of Caterpillar, a Canadian tractor manufacturer located near Toronto The various parts for the tractor are manufactured in several countries Engines in Japan Transmission in the US Winches in Brazil Axles in Belgium

The Multinational Corporation The parts are all shipped to an Ontario plant, where they are assembled into tractors The completed tractors are sold to Japan, the US, Brazil, Belgium, and other countries Computer and satellite links enable companies such as Caterpillar to… Send their specifications for parts from the home office to their foreign parts manufacturers quickly To test a finished part while it is still on the factory floor on another continent

The Multinational Corporation The business arrangement of hiring outside contractors to produce either parts or finished products is called outsourcing Using this strategy, multinationals can “shop around” in many countries for the subcontractor that will produce the good for the least amount of money The business arrangement of setting up a subsidiary, or branch plant, in another country, is another way of conducting an international operation

The Multinational Corporation In the case of multinationals that sell services, arrangements usually depend on the transfer of data via computers and satellite links For example, Ireland has become a major centre for the processing of US insurance claims A US insurance company, New York Life, sends the day’s claims to an Irish branch office at the end of the business day in the US Because of the 5-6 hour time difference, Irish employees can spend their workday processing the claims before their US counterparts even wake up They then relay the processed claims back to the US, where American employees can begin their day by sending out processed claims to the company’s insurance claimants

The Multinational Corporation With this international arrangement, the US company takes advantage of: Lower labour costs in Ireland Favourable tax levels offered to foreign companies by the Irish government The fact that the Irish employees speak English The time difference between the two countries to create a comparative advantage for itself

The Multinational Corporation Caterpillar and New York Life give us what appear to be positive examples of the global economy If the manufacturer or service company opens a branch plant… It builds, buys, or leases a plant for its operations in the host country It hires and trains local people, sometimes introducing them to new technology Pays wages to these employees Pays taxes to the host government May use local suppliers for component parts needed in its production process

Foreign Multinationals in Canada The debate today over foreign multinationals in Canada has shifted… From concern over their presence… To concern when they shift their operations to other countries and eliminate jobs for Canadians On the one hand, many foreign multinationals moved operations from Canada while they continued to sell products here On the other hand, many Canadian firms have expanded their operations to export products and services to markets in other countries

Foreign Multinationals in Canada Over the last 30 years, larger and larger companies have been expanding their operations to larger and larger markets in their quest for profit According to Fortune magazine, the list of world’s top 30 economies included 5 multinationals: General Motors Wal-mart Exxon Mobil Ford DaimlerChrysler The multinationals, therefore, are a fundamental force driving globalization