Transnational Corporations

- Bhuwan Vikram Singh

Theories

Cases

Introduction
The modern transnational or multinational company (TNC or MNC) has developed and grown in decades after WWII. However, Transborder direct business operations have existed for many centuries; the Medici bank in fifteenth century Florence can be considered a company with such business activity. The East India Company, Hudson Bay Company, the Royal African Company and others in the 17th and 18th are also sometimes considered to be the forerunners of the modern TNC but these being chartered by their governments make them substantially different from the modern TNC.

Definition
TNC has been technically defined by United Nations Commission on Transnational Corporations and Investment as enterprises which own or control production or service facilities outside the country in which they are based. In general, A Transnational corporation is a corporation that owns assets and has direct business activities in two or more countries. Able to plan, organize, co-ordinate and control production in many countries from a centre and under common objectives and strategies.

The MNC/TNC confusion

Multinational (MNC) and Transnational (TNC) companies are types of international corporations. Both maintain management headquarters in one country, known as the home country, and operate in several other countries, known as host countries. Most TNCs and MNCs are massive in terms of budget and are highly influential to globalization. They are also considered as main drivers of the local economy, government policies, environmental and political lobbying. MNC have investment in other countries, but do not have coordinated product offerings in each country. It is more focused on adapting their products and service to each individual local market, example- Proctor & Gamble, Mc Donalds and Seven-Eleven. A TNC, on the other hand, have invested in foreign operations, have a central corporate facility but give decision-making, R&D and marketing powers to each individual foreign market. Examples are Shell, Accenture, Deloitte, Glaxo-Smith Klein, and Roche.

CLASSICAL THEORIES (Pre WW II Approaches to International Investment)

Marxist Approach

Neo Classical Approach

Marxist Approach
Main exponents of relevant works John A. Hobson (1902) Vladimir Ilich Lenin (1916) Nikolai Bukharin (1917) Rosa Luxemburg (1913) Key elements of the theories Explanations of imperialism in its colonial phase Links between industrial and finance capital Concentration of capital in fewer firms (Lenin &Bukharin) Capitalism generates lacks of effective demand because of its uneven distribution of income and wealth (Hobson, Luxemborg) Economic, social and political analyses Prominent role of finance capital in imperialism Level of aggregation of analysis Firms, Industries and National economies.

Neoclassical Approach
Main exponents of relevant works Bertil Ohlin (1933) Ragnar Nurkse (1933) Carl Iversen (1935) Key elements of the theories Developed mostly, as a by-product of the theory of international trade (Ohlin) No distinction between international portfolio and direct investment Neoclassical assumptions on the economic systems Assumptions of mobility of products and capital and immobility of labor Movements of capital determined by differentials in interest rates between countries Level of aggregation of analysis Mainly the Macro-economy

Modern Theories

Hymers seminal work ( Criticized neoclassical theories, porfolio vs direct investment based on control) IPLC Theory - Product life cycle and international production ( technology gap theory) Knickerbockers theory-(Oligopolistic reactions & Geographical pattern of FDI) Alibers theory Currency areas and internationalization Internalization Theory TNC (Direct foreign production versus licensing) Dunnings eclectic framework (Ownership, Location & Internalization advantages) Scandinavian school: Stages in internalization process ( Market commitment & spread from one foreign country to another. Exports, sales through agents, direct sales and production) Cantwells theory Technological accumulation and international activities (Innovation and technological competitive advantage) New trade theories & the activities of TNCs ( Vary in developing and developed countries, increasing returns) Cowling and Sugdens approach Transnational monopoly capitalism (based on strategic decisions) Nation-states & TNCs strategic behavior (advantages of trans nationality, towards labor and governments via strategies of geographical or organizational fragmentation)

OLPC XO-1 The $100 Laptop Intel Classmate

Case Studies

The Future of TNCs

ING Asia/Pacific

Marketing the $100 Laptop

In 2002, Professor Nicholas Negroponte, successful venture capitalist, author, and cofounder & Chairman emeritus of the MIT Media Lab announced his intention to build a PC so cheap as to make it possible to provide internet and multimedia capable machines to millions of children in developing countries. The concept, later referred to as the $100 Laptop was launched at the Media Lab in 2003 before being spun into a separate non-profit association, One Laptop Per Child (OLPC) founded by Negroponte in January 2005. OLPCs critics said the laptop can not be built and Intel chairman dismissed it as a 100 gadget Yet in 2005 Negroponte unveiled a working prototype of a $100 laptop at the UN World Summit on the Information Society. Within the next 2 years companies like AMD, Google, Red Hat and News Corp. gave $29 million to fund this project and pledged additional monies and tech expertise in future.

 The project received instant appreciation and support, in 2006 OLPC received purchase orders (but not deposits) for six million laptops (at $175 a piece) from education ministries in China, Brazil and other countries while the retail price was being estimated from $200 - 250. Negroponte refused to go into production unless he received strong commitments from non US governments to purchase at least 5 million of his laptops. OLPC promised the prices to drop to $100 by 2009 and $50 in the next decade. While OLPC was negotiating and its laptops were not in the physical market, the economy was changing. Prices for basic notebooks fell from $2000 in 2005 to less than $800 in early 2007. Intel launched a $285 Classmate PC in 2006, followed by Dell launching one at $336. Asus also announced its plans to manufacture cheap notebooks at $189. Intels classmate PC, being in production from 2007 went on trial with over 35 nations and produced more than a million PCs in 2007. Also, many US schools started dropping laptops, stating that laptops are a distraction to the education process. OLPC perceived the right opportunity but failed at proper execution.

ING Insurance Asia/Pacific

ING was a TNC with highly disintegrated power due to its structure of hierarchy.

ING A/Ps activities were organized by business units (countries) & the regional office in Hong Kong fulfilled the role as monitoring centre. Individual offices had high level of autonomy. This culture created a very high level of entrepreneurial environment, and also some friction between the regional office in Hong Kong and the country business units.

All business units had different ideas, standards and priorities. By large the units were successful, but there were no corporate wide approach and the benefits of a more common approach were rarely explored.
Results were difficult to measure as they were reported in local format, and not measured against group benchmarks. Local marketing campaigns did not reflect existing corporate identity standards. In fact, many business unit managers did not even know the current corporate standards. In my view, It was difficult to manage the different business units, so finally the A/P COE of ING, Jacques Kemp decided to do what he called managing the managers even though the individual units were doing good and making enough profits.

IKEAs Global Sourcing Challenge: Indian Rugs and Child Labour

IKEA has long been a TNC with a strong commitment towards public and social welfare. When the corporation faced criticism as one of its suppliers was using child labour, the management had to make some tough calls Should the company try to deal with the issue through its own relationship with its suppliers? Should it step back and allow NGOs to monitor the use of child labour on its behalf Or should it recognize the problem is too deeply embedded in the culture of there countries for it to have any real impact and simply withdraw? Many Different TNCs across the globe face many different and unique problems, it is the choices they will make that will determine the future of MNCs in large.

Reference List
Bartlett, C.A., Beamish, P.W., 2011. Transnational Management, 6th ed. The McGraw-Hill Education (Asia). Ietto-Gillies, G., 2005. Transnational Corporations and International Production, 1st ed. Edward Elgar Publishing.

Sitkin, A., Bowen, N., 2010. International Business: Challenges & Choices, 1st ed. Oxford University Press.
Stonehouse, G., Campbell, D., Hamill, J., Purdie, T., 2004. Global and Transnational Business, 2nd ed. WILEY.