3.3.6 Multinational Corporations

Multinational Corporations
1. Next slide student assignment [you may wish to copy this slide into a Word file] 2. Teachers Guide slide 3. Presentation starts after Teachers Guide
Economics & Business
http://www.xtremepapers.net
Multinational Corporations
Your group has been allocated an MNC to research. Your task is to put together a PowerPoint presentation to show the rest of the class about your particular MNC. It should contain the following information.... What the company does and a brief history Current state of the company with some financial data Any benefits your company brings to overseas countries Any negative impacts your company has on overseas countries Any attempts to control its behaviour and how successful they have been In addition you will need to prepare an A4 handout which will be copied and given to the class.
Your starting point will be the companys website (but dont believe all that you read there!). The usual search engines will also help. In addition here are some more useful sites, but be aware that many have a political slant. http://www.bized.co.uk/learn/e conomics/notes/multi.htm http://www.corporatewatch.org. uk/ http://www.oilwatch.org/ www.somo.nl www.foei.org http://www.businesshumanrights.org/Home http://www.newint.org/
Teachers Guide
The PowerPoint is meant to be an introduction to the final section of the unit on MNCs. The notes are not exhaustive and some points will need to be explained and elaborated on. Just a few points here... Slide 3: you might want to pause before slide 3 and ask if the students can guess the biggest MNCs or if they can guess the turnover. Slide 6: you could start a discussion here to see how many positive and negative impacts the students are aware of. Slide 7: a lot can be drawn from this cartoon. Slide 18: students may be aware of other controversial events e.g. Exxon Valdez, Nestle and baby milk etc. Slide 23 onwards: Chevron have an appalling record elsewhere as well, both in the US and around the world, and they managed to evade paying taxes of over $3 billion! The follow up activity gives students the chance to do their own research and find out more about real MNCs. The presentations should give the class a range of examples as suggested in the specification under teacher guidance. If each pair of students produces an A4 handout this can be photocopied for the class and provide each student with a range of case studies for their files. The choice of MNCs is up to you and depends how balanced you want to be and how fired up you want the students to get! Politics is hard to avoid and some sources of information have a definite agenda! (e.g. http://www.mcspotlight.org/). There are some very obvious baddies out there, as well as some that do appear to be taking corporate responsibility seriously.
Multinational Corporations MNCs
What is an MNC?
A business that has some of its facilities and assets in at least one other foreign country. Sometimes referred to as a Transnational Corporation (TNC). MNCs have offices and/or factories in different countries and usually have a centralised head office The United Nations calculates there are 77,000 MNCs in the world Very large multinationals have revenues that exceed those of many small countries.
The 5 largest MNCs 2009
Rank 1 2 3 4 5 6 7 8 9 10
Company Royal Dutch Shell Exxon Mobil Wal-Mart Stores BP Chevron Total Conoco Phillips ING Group Sinopec Toyota
Revenue ($ millions) 458,361 442,851 405,607 367,053 263,159 234,674 230,764 226,577 207,814 204,352
Profit ($ millions) 26,277 45,220 13,400 21,157 23,931 15,500 -16,998 -1,067 961 10 -4,349
Rank
Country/Company
6 19 1 2 21 3 25 4 28 5
UNITED KINGDOM BELGIUM Royal Dutch Shell Exxon Mobil POLAND Wal-Mart Stores NORWAY BP GREECE Chevron
GDP (Nominal estimated)/Revenue ($ millions) 2,198,163 461,489 458,361 442,851 422,965 405,607 368,962 367,053 338,250 263,159
Saints or Sinners?
7 out of the top 10 MNCs are oil/energy companies Their huge size and power creates controversy Potential trade-off between profitability and negative externalities MNCs have both positive and negative impacts on host countries and the global economy
Why multinational?
MNCs are not new...
Why multinational?
To maintain/increase Competitive Advantage and profitability To reduce costs To access new markets To secure resources To take advantage of government support in host countries
To reduce costs
Economies of scale By expanding its sales a business may be able to take advantage of falling average costs Overheads are spread Risk may be spread and reduced
To reduce costs
Differences in factors of production Cheaper labour force Greater availability of skilled labour Cheaper land and raw materials
To access new markets

Saturation in home markets Rising incomes in developing economies leading to rising sales The product life cycle new markets act as extension strategy in maturity stage
To acquire resources
Control of resources and supply chain and implications for costs Energy sources (e.g. Oil and gas) Raw materials (e.g. Metals, palm oil)
Case study...Lithium in Bolivia

Bolivia is thought to hold about half the world's proven lithium reserves. Lithium is used in the manufacturing of batteries crucial in the growing electric car market
piles of lithium-rich salt on high desert lake bed in Bolivia
Case study...Lithium in Bolivia

China and Japan and various MNCs are trying to gain access to the mineral rights from the Bolivian Government China has offered cash, military vehicles and ships to Bolivia Japan has pledged to share mining technology with Bolivia MNCs keen to gain access include France's Bollore Group, South Korea's LG Group and Japan's Sumitomo and Mitsubishi
To take advantage of government support in host countries

Many incentives can be offered to an MNC in order to attract it to a host country These can include grants, tax breaks, training programmes, infrastructure improvements, subsidies, removal of trade barriers etc. E.g. James Hardie (building materials) announced in June that it would shift to Ireland to receive more favourable tax benefits than it currently does with its domicile in the Netherlands.
Saints or Sinners?
MNCs have a moral obligation to societies in which they operate, including the protection of the environment and respect of human rights the social responsibility of business is to increase its profits Milton Friedman (1970)
MNCs bring FDI...
FDI Foreign Direct Investment, money flowing into a country from overseas for investment purposes
...but they can also bring...

Bhopal Union Carbide Nigeria - Shell
Benefits of MNCs to host countries

FDI brings with it investment and employment Local businesses may benefit from presence of MNC Ample evidence to suggest that MNCs often pay higher wages Skills transfer local employees receive training and become more productive Technology transfer host country gains new knowledge
Sales of products from MNCs can boost export earnings... ...or replace imports Tax revenues increase Products from MNC may benefit host consumers MNC may have strong ethical drive or Fairtrade policy Overall improvement in economy and living standards Trade not Aid
Disadvantages of MNCs to host countries

X Power of MNC can be too much for host country to control X Transfer pricing and effects on tax revenues X Profits may be repatriated X Possible exploitation of workforce child labour, sweatshops X Wages may be driven down
X MNCs can go just as easily as they came X MNC s may drive local firms out of business X Concessions to MNCs may outweigh potential benefits (race to the bottom) X Damage to the environment and people MNCs have been accused of causing a wide range of externalities and problems including pollution, deforestation, damage to peoples health and the environment.
A case study
MNCs flooded into Ecuador in the 1970s following the discovery of oil by Texaco. In 1972 a 312 mile oil pipeline was opened to transport oil from the Amazon across the Andes.
At first things went well...

Output increased from $4.35 billion to $10.15 billion in the 1970s. The industrial sector expanded at an average annual rate of 10.5%. Foreign oil exports kept domestic taxes low. Highly subsidized oil became available to Ecuadorians. Percentage of the workforce in agriculture dropped from 60 in 1969 to 30 in 1990.
But...
From 1972 up to 2000, 45% of oil revenue was spent on the armed forces During the late 60s and 70s, the government forced the Huaorani off tribal lands and onto reservations to extract oil. Massive deforestation devastated the rainforest The government continued to auction off blocks of Yasuni National Park to oil companies.
The oil pipeline ruptured 27 times in 20 years, releasing 16.8 million tons of crude oil into the Amazon basin.
Contamination resulted in high rates of cancer, miscarriages, and birth defects in surrounding communities
There is a $27 billion lawsuit currently being brought against Chevron for these environmental damages
Saints or Sinners? -Conclusion?

The reality is not always clear-cut MNCs do create much of the worlds wealth and many create real benefits There have undoubtedly been (and still are) many cases of damaging behaviour by MNCs, some of it appalling and criminal Many MNCs are now trying to improve their corporate behaviour for various reasons some pragmatic, others altruistic There is still a long way to go

3.3.6 Multinational Corporations

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3.3.6 Multinational Corporations

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Multinational Corporations

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Multinational Corporations MNCs

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The 5 largest MNCs 2009

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Economics & Business

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To access new markets

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Case study...Lithium in Bolivia

Economics & Business

Case study...Lithium in Bolivia

To take advantage of government support in host countries

Economics & Business

MNCs bring FDI...

Economics & Business

...but they can also bring...

Economics & Business

Benefits of MNCs to host countries

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Disadvantages of MNCs to host countries

Economics & Business

At first things went well...

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Saints or Sinners? -Conclusion?

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