3.3.6 Multinational Corporations

8/3/2019 3.3.6 Multinational Corporations

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Economics & Business

Multinational Corporations1. 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

http://www.xtremepapers.net
http://www.xtremepapers.net/http://www.xtremepapers.net/


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Multinational CorporationsYour group has been allocated an MNC toresearch.Your task is to put together a PowerPointpresentation to show the rest of the classabout your particular MNC. It shouldcontain the following information....What the company does and a briefhistoryCurrent state of the company with somefinancial data

Any benefits your company brings tooverseas countriesAny negative impacts your company hason overseas countriesAny attempts to control its behaviour and

how successful they have beenIn addition you will need to prepare anA4 handout which will be copied andgiven to the class.

Your starting point will be thecompanys website (but dontbelieve all that you read there!).The usual search engines will alsohelp.In addition here are some moreuseful sites, but be aware that manyhave a political slant.

http://www.bized.co.uk/learn/economics/notes/multi.htm http://www.corporatewatch.org.

uk/ http://www.oilwatch.org/ www.somo.nl www.foei.org http://www.business-

humanrights.org/Home http://www.newint.org/



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Teachers GuideThe 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 elaboratedon. 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 negativeimpacts 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 realMNCs. The presentations should give the class a range of examples as suggested in the specificationunder teacher guidance. If each pair of students produces an A4 handout this can be photocopied for theclass 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 wantthe 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 somethat do appear to be taking corporate responsibility seriously.



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Multinational CorporationsMNCs



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What is an MNC? A business that has some of its facilities and assetsin at least one other foreign country.

Sometimes referred to as a TransnationalCorporation (TNC).

MNCs have offices and/or factories in differentcountries and usually have a centralised head office

The United Nations calculates there are 77,000MNCs in the world

Very large multinationals have revenues that exceedthose of many small countries.



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The 5 largestMNCs 2009



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Rank Company Revenue ($ millions) Profit ($ millions)

1 Royal Dutch Shell 458,361 26,2772 Exxon Mobil 442,851 45,220

3 Wal-Mart Stores 405,607 13,400

4 BP 367,053 21,1575 Chevron 263,159 23,931

6 Total 234,674 15,500

7 Conoco Phillips 230,764 -16,998

8 ING Group 226,577 -1,067

9 Sinopec 207,814 961 10

10 Toyota 204,352 -4,349



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Rank Country/Company GDP (Nominalestimated)/Revenue($ millions)

6 UNITED KINGDOM 2,198,163

19 BELGIUM 461,489

1 Royal Dutch Shell 458,3612 Exxon Mobil 442,851

21 POLAND 422,965

3 Wal-Mart Stores 405,607

25 NORWAY 368,962

4 BP 367,053

28 GREECE 338,250

5 Chevron 263,159



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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 andnegative externalities MNCs have both positive and negative

impacts on host countries and the globaleconomy



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Why multinational? MNCs are not new...



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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



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To reduce costs Economies of scale

By expanding its sales a business may be ableto take advantage of falling average costs

Overheads are spread Risk may be spread and reduced



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To reduce costsDifferences in factors of production Cheaper labour force Greater availability of skilled labour Cheaper land and raw materials



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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



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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)



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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 salton high desert lake bedin Bolivia



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Case study...Lithium in Bolivia

China and Japan and various MNCs are trying to gainaccess to the mineral rights from the BolivianGovernment

China has offered cash, military vehicles and ships toBolivia

Japan has pledged to share mining technology withBolivia MNCs keen to gain access include France's Bollore

Group, South Korea's LG Group and Japan'sSumitomo and Mitsubishi



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To take advantage of governmentsupport 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 itsdomicile in the Netherlands.



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Saints or Sinners? the social

responsibility of business is to increaseits profits Milton

Friedman (1970)

MNCs have a moral

obligation to societiesin which they operate,including the protection

of the environment andrespect of humanrights



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MNCs bring FDI...

FDI Foreign Direct Investment,money flowing into a country from

overseas for investment purposes



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...but they can also bring...Bhopal Union Carbide Nigeria - Shell



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Benefits of MNCs to host countriesFDI brings with it investment and employment

Local businesses may benefit from presence of MNCAmple evidence to suggest that MNCs often payhigher wages

Skills transfer local employees receive training andbecome more productiveTechnology transfer host country gains new

knowledge



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Sales of products from MNCs can boost export

earnings......or replace importsTax revenues increaseProducts from MNC may benefit host consumersMNC may have strong ethical drive or FairtradepolicyOverall improvement in economy and livingstandards

Trade not Aid



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Disadvantages of MNCs to hostcountries

X Power of MNC can be too much for host

country to controlX Transfer pricing and effects on tax revenues

X Profits may be repatriatedX Possible exploitation of workforce child

labour, sweatshopsX Wages may be driven down



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X MNCs can go just as easily as they came

X MNC s may drive local firms out of businessX 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 includingpollution, deforestation, damage to peopleshealth and the environment.



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A case study MNCs flooded into

Ecuador in the 1970sfollowing the discoveryof oil by Texaco.

In 1972 a 312 mile oilpipeline was opened totransport oil from theAmazon across theAndes.



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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 inagriculture dropped from 60 in 1969to 30 in 1990.



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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 toextract oil.

Massive deforestation devastated the rainforest The government continued to auction off blocks of

Yasuni National Park to oil companies.



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The oil pipelineruptured 27

times in 20 years,releasing 16.8million tons of crude oil into theAmazon basin.



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Contaminationresulted in high

rates of cancer,miscarriages,and birth

defects insurroundingcommunities



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There is a $27

billion lawsuitcurrently beingbrought against

Chevron for theseenvironmentaldamages



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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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