1. Multinational Corporations
And globalization

2. 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

3. 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

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

5. 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

6. 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

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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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