Globalization refers to the shift toward a more integrated and interdependent world economy
Globalization involves the integration of technology, markets, politics, cultures, labor, production, and commerce. Globalization is both the process and the result of this integration.
Our focus at this stage…
We are concerned with globalization as the expansion of international trade to a point where national markets have been overtaken by regional trade blocs, leading eventually to a global marketplace.
Globalization has 2 main components: Globalization of markets: the merging of
historically distinct and separate national markets into 1 huge global marketplace lead to creating of global products e.g. McDonald’s , Coca-Cola, Starbucks, etc.
Globalization of production: the sourcing of goods and services from locations around the globe to take advantage of national differences in cost and quality of factors of production e.g. customer service call center in India for US firms
Drivers of Globalization = ?
Drivers of Globalization
Decline trade and investment barriers
What is MNE(or MNC)?
Multinational enterprises (MNEs) are corporations that “own or control production or service facilities outside the country in which they are based.”
MNEs also are referred to as global, transnational, and international companies.
Multinational corporation A multinational corporation (MNC) or
transnational corporation (TNC), also called multinational enterprise (MNE), is a corporation or enterprise that manages production or delivers services in more than one country. It can also be referred to as an international corporation.
Common Characteristics of Multinational Enterprises (MNE) Operating a sales organization,
manufacturing plant, distribution center, licensed business, or subsidiary in at least two countries
Earning an estimated 25 to 45% of revenue from foreign markets
Having common ownership, resources, and global strategies
Figure 7.3: World’s Largest Companies
Source: Fortune.com/Global 500, “World’s largest corporations.” Also reference Hjelt, P. (July 26, 2004). The Fortune Global 500, Fortune, 179.
MNE Benefits for Host Country
Hire local labor Create new jobs Co-venture with local entrepreneurs and
companies Attract local capital to projects Provide for and enhance technology transfer Develop particular industry sectors Provide business learning and skills Increase industrial output and productivity Help decrease the country’s debt and improve
its balance of payments and standard of living
Host Country Benefits for MNE Low costs of production that enable
MNE sell its products in the lower prices and get higher income.
Less stringent laws and regulations in host country compared with the home one and make it more easier to operate.
MNE Perspective on Unethical Practices by Local Government Limit repatriation of MNE assets and earnings. Pressure and require MNEs to buy component
parts and other materials from local suppliers. Require MNEs to use local nationals in upper-
level management positions. Require MNEs to produce and sell selected
products in order to enter the country. Limit imports and pressure exports. Require a certain amount or percentage of
profit to remain in or be invested in the country.
Host-country Perspective towards MNE MNEs can dominate and protect their core technology
and research and development, thus keeping the host country a consumer, not a partner or producer.
MNEs can destabilize national sovereignty by limiting a country’s access to critical capital and resources, thereby creating a host-country dependency on the MNE’s governments and politics.
MNEs can create a “brain drain” by attracting scientists, expertise, and talent from the host country.
Host-country Perspective towards MNE (cont) MNEs can create an imbalance of capital
outflows over inflows.
MNEs can disturb local government economic planning and business practices by exerting control over the development and capitalization of a country’s infrastructure.
MNEs can destroy, pollute, and endanger host-country and LDC environment and the health of local populations.
Dark Sides of Globalization Crime and corruption: Narcotics
trafficking , sex slave business , black market business, and estimated high corruption costs
Economic poverty and child slave labor: Child labor in developing and industrialized countries .African countries are being ignored by globalization and are not in the global economy because of high illiteracy rates, lack of modern infrastructure, and social chaos.
Dark Sides of Globalization The global digital divide: World continues
to have different levels of access to technology, first and third world countries. Technology revolution and the internet integration increased child pornography business.
Westernization (Americanization) of cultures: “McDonaldization” and also education, work, the criminal justice system, health care, travel, leisure, dieting, politics, the family, religion, and every other aspect of society.
Dark Sides of Globalization Loss of Nation-State
Sovereignty: Globalization gradually destroys the ability of governments to protect the interests of their citizens against more powerful multinational
MNE Guidelines in dealing with LDCs by
DeGeorge Do no intentional harm Produce more good than harm for the host
country Contribute to the host country’s development Respect human rights, local culture Pay fair share of taxes Cooperate with local government as partners Attend to actions, consequences, and failures
of the firm Maintain high safety standards and controls Protect the natural environment
UN Global Compact
A voluntary corporate citizenship initiative endorsing 10 key principles that focus on four key areas of concern: the environment, anticorruption, the welfare of workers around the world, and global human rights.
Consists of more than 2,000 companies in over 80 countries
UN Global Compact
Human Rights Businesses should support & respect the
protection of internationally proclaimed human right.
Businesses should make sure they are not complicit in human rights abuses.
UN Global Compact
Labor Standards Businesses should uphold the freedom of
association and the effective recognition of the right to collective bargaining.
Businesses should uphold the elimination of all forms of forced & compulsory labor.
Business should uphold the effective abolition of child labor.
Businesses should uphold the elimination of discrimination in employment & occupation.
UN Global Compact
Environment Businesses should support a
precautionary approach to environmental challenges.
Businesses should undertake initiatives to promote greater environmental responsibility.
Business should encourage the development & diffusion of environmentally friendly technologies.
UN Global Compact
Anticorruption Businesses should work against all forms
of corruption, including extortion and bribery.
The OECD Guidelines for Multinational Enterprises Governmental initiative endorsed by 30
members of Organization for Economic Cooperation and Development (OECD) and 9 nonmembers, promoting principles and standards of behavior in the following areas: human rights, information disclosure, anticorruption, taxation, labor relations, environment, competition, and consumer protection.