MULTINATIONAL

CORPORATION
IN GLOBAL ECONOMY AND POLICY

Lecturer: PhD Nguyen Bich Ngoc

Department of International Economics
School of Trade and International Economics
Email: bichngocktqt@[Link]
Tel: 0936500505
 ABOUT
COURSE LEARNING
OBJECTIVES
Understanding about the nature, definition Evaluating the impacts of MNCs activities on
01 and features of multinational corporations. it
also provides the understanding about the
03 the home and host countries in which they
operate as well as stakehoders
motivation and the pivotal role of MNCs in
the world economic growth

Understanding and analysing the theory Analysing the national

Lorem ipsum andconsectetur
dolor sit amet, supranational
02 related to MNCs and the theory of 04 adipiscing elit, sed do eiusmod tempor
policy response to MNCs activities;
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investment in the perspective of understanding the relationship between
macroeconomics and microeconomics. It MNCs and host countries and review how to
provide the theoretical framework to modify policy towards FDI and the use of
explain the capital movement forced by incentives to attract FDI.
MNCs
 COURSE SCHEDULE

01 02 03 04 05
Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5
Introduction: Overview of the FDI Economic and International MNC and host
Definitions, Facts Theories Political investment country
about Determinants of FDI: agreements: government policy
Multinational Vertical FDI and Trends and policy
Corporation, and Horizontal developments
Case Studies FDI

Week 1-2 Week 3-4-5 Week 6-7 Week 8 Week 9-10 Week 11-12 Week 13-14
Group
Mid-term test
presentation
 REQUIRED MATERIALS AND DATASOURCES

TEXTBOOKS
1. John H. Dunning, 2008. Multinational Enterprises and the Global Economy. Edward Elgar
2. Navaretti, G.B. and A.J. Venables. 2006. Multinational Firms in the World Economy.
Princeton University Press.
3. Nathan [Link]. 2008. Nation-States and the Multinational Corporations: A Political
Economy of Foreign Direct Investment, Princeton University Press
WEBSITE
1. [Link]
2.[Link]
3.[Link]

REPORTS
1. United Nations Transnational Corporations: investment and development
[Link] World Investment Report (by year)
WORLD INVESTMENT TRENDS
WORLD INVESTMENT TRENDS
READING AND DISCUSSION

Required Reading: “ Corporate control, investment and the expansion of MNEs” (15
minutes)

Q&A (10 minutes)

1. Why do firms expand business activities abroad? and by which way?
[Link] do national firms become internationalized?
[Link] does regional liberalization affect the formation of multinational
corporations?
DISCUSSION (15 minutes)
According to the video and reading material, give your arguments about the
role of multinational corporation in driving world investment trends in the
world today.
HOMEWORK
REQUIRED MATERIAL:
Vietnam investment factsheet 2024

Analyse the Vietnam’s situation on foreign

direct investment by FDI flows, FDI stock,
cross-border M&A and greenfield
investment project from 2020 to 2023.

Write an paragraph (maximum 500 words)

 CHAPTER 1
Introduction: Definitions, Facts about
Multinational Corporation, and Case Studies
WHAT IS MULTINATIONAL CORPORATIONS
Definition 1
Multinational corporation as a business entity with one or more foreign
affiliates in which the parent company holds at least a 10% ownership stake.

Definition 2 (by UNCTAD and OECD)

A multinational or transnational enterprise is an enterprise that engages in
foreign direct investment (FDI) and owns or, in some way, controls value-
added activities in more than one country

Definition 3 (by business analysts)

MNEs govern a group of largely independent multidomestic foreign subsidiaries,
each of which produces goods and services mainly for the local market, and
those that treat their affiliates as an important part of a regionally or globally
coordinated network of asset-creating and asset-exploiting activities.
CRITERIA TO ASSESS THE DEGREE OF TRANSNATIONALITY

1. The number and size of foreign affiliates or associate companies it owns

or control over
2. The number of countries in which it owns or in some way controls value-
added activities
3. The proportion of its global assets, revenue, income, or employment
accounted for by its foreign affiliates
4. The degree to which its management or ownership is internationalized;
CRITERIA TO ASSESS THE DEGREE OF TRANSNATIONALITY
5. The extent to which its higher-value activities, for example, research and
development (R&D) (the criteria to capture the quality or depth of foreign
production)
6. The extent and pattern of the systemic advantages arising from its
governance of and influence over a network of economic activities located
in different countries
7. The extent to which responsibility for the creation and usage of institutions
and assets, as well as decision making concerning financial and marketing
issues, are devolved to foreign affiliates.
ABOUT
TRANSNATIONALITY INDEX
Transnationality index is the composite
index used by UNCTAD since 1995 to
measure the degree of internationalization
of the leading MNEs, which is published
each year as part of the World Investment
Report.

Practice (20 minutes)

Based on the statistics of transnationality index by year, list 10
leading Multinational corporations in the world and give the
understanding about one of these MNEs
THE NATURE OF MULTINATIONAL CORPORATIONS
1. MNEs organize value-creating activities across borders

2. MNEs access at least one or several cross-border markets for

intermediate products arising from these activities.

 FORMS OF FOREIGN INVOLVEMENT BY MNE
MNE as an enterprise that engages in Foreign direct investment and

organize the production of goods and services in more than one country

Why not FPI?

+ 100% owned affiliate

+ Cooperative alliances

+ Joint ventures

+ Merger and Acquisition (M&A)

+ Franchise
WHY DO FIRMS WISH TO ENGAGE IN
FOREIGN PRODUCTION?

MNEs are motivated primarily by what they perceive to

be in the interests of their direct stakeholders, rather
than that of the wider community of which they are
part

Maximisation of these profits (net of tax and

depreciation) in relation to the capital invested, which is
the driving force of the modern business enterprise.

is the rate of return, TR is the total sales revenue, TC is the total cost of
production and K is the owner’s capital invested.
MOTIVATION OF
INVESTING BY MNE

01
NATURAL RESOURCE SEEKERS
03 EFFICIENCY SEEKERS

02 MARKET SEEKERS
04 STRATEGIC ASSET SEEKERS
ABOUT MOTIVATION OF MNES
NATURAL RESOURCE SEEKERS
• Seeking physical resources of one kind or 01
another
They include primary producers and manufacturing
enterprises, from both developed and developing • Acquire technological capability,
countries, who are driven to engage in FDI by the management or marketing expertise and
motives of cost minimisation and security of supply
organisational skills
sources.
EX: mineral fuels, industrial minerals, metals and
Ex: collaborative alliances concluded by Korean,
agricultural products
Taiwanese and Indian companies with EU or US firms in
• Seeking plentiful supplies of cheap and high-technology sectors; executive search subsidiaries
well-motivated unskilled or semi-skilled set up by US firms in the UK; and R&D listening posts
labour established by UK chemical companies in Japan and
French pharmaceutical companies in the US
Undertaken by manufacturing and service MNEs from
countries with high real labour costs, which set up or
acquire subsidiaries in countries with lower real
labour costs, to supply labour-intensive intermediate
or final products for export
ABOUT MOTIVATION OF MNES

Case study: The Impact of Chinese

Investments in Africa: Neocolonialism or
Cooperation? NATURAL RESOURCE SEEKERS
By Marcus Vinicius de Freitas
01
 ABOUT MOTIVATION OF MNES
Undertaken to sustain or protect existing
markets, or to exploit or promote new markets MARKET SEEKERS
4 Main reasons in engaging in market-seekers: 02
• Their main suppliers or customers have set
up foreign-producing facilities, and that to
retain their business they need to follow • Less production and transaction costs
them overseas than supplying it from a distance
Ex: cross-border M&As among accounting, auditing, law Ex: transportation costs, cost from government
and advertising firms; Japanese auto-component regulations, tariff...
suppliers which have set up manufacturing subsidiaries in
the US • Global production and marketing strategy
To have a physical presence in the leading markets
• Products need to be adapted to local tastes served by its competitors.
or needs, cultural mores, and indigenous
resources and capabilities.
Ex: washing machines, audio/video equipment, some
drugs and cosmetics, and a wide variety of food and drink
products
ABOUT MOTIVATION OF MNES

Case study:
McDonald's Global Expansion: A
MARKET SEEKERS
Market-Seeking Motivation of FDI 02
 ABOUT MOTIVATION OF MNES
Rationalise the structure of established resource-
based or market-seeking investment to gain from
the governance of geographically dispersed EFFICIENCY SEEKERS
activities 03
• Benefit from the economies of scale and risk
diversification
⚬ cross-border product or process specialisation, the
learning experiences from producing in different cultures, • Two type of efficiency-seeking FDI
and the opportunities for arbitraging cost and price ⚬ First, take advantage of differences in the
differentials across the exchanges. availability and relative cost of traditional factor
⚬ Take advantage of different factor endowments, cultures, endowments in different countries
institutional arrangements, demand patterns, economic ⚬ Second, takes place in countries with similar
policies and market structures, by concentrating economic structures and income levels/ and
production in a limited number of locations to supply take advantage of the economies of scale, and
multiple markets. of differences in consumer tastes and supply
• Standardized production and engaging in capabilities
internationally production processes
⚬ Usually occurred once resource-based or market-seeking
investments have become sufficiently numerous and
important to warrant some degree of rationalization
ABOUT MOTIVATION OF MNES

Case study:
The Acquisition of IBM’s PC Business
EFFICIENCY SEEKERS
by Lenovo in 2005: An Efficiency- 03
Seeking Motivation of FDI
 ABOUT MOTIVATION OF MNES
Acquiring the assets of foreign corporations to
promote their long-term strategic objectives –
especially that of sustaining or advancing their STRATEGIC-ASSET SEEKERS
global competitiveness. 04
• Firm restructure their assets to meet their
objectives
⚬ To augment the acquiring firm’s global portfolio of • Types of Strategic-seeking FDI
physical assets and human competencies, which ⚬ Collaborative alliance
they perceive will either sustain or strengthen their ⚬ Merge with foreign rivals
ownership-specific advantages or weaken those of ⚬ Acquire the group of suppliers
their competitors ⚬ Gain access over distribution outlets to better
promote its brand of products
• capitalise on the benefits of the common
⚬ buy out a firm producing a complementary range
ownership of diversified activities and of goods or services
capabilities, or of similar activities and ⚬ joint with a local firm to secure contracts from the
capabilities in diverse economic and host government
potential environments
• The management of financial assets
denominated in different currencies.
ABOUT MOTIVATION OF MNES

Case study:
Tata Steel’s Acquisition of Corus in
STRATEGIC SEEKERS
2007: An Efficiency-Seeking 04
Motivation of FDI