Transnational corporations SUM 30004000 March 7' 2006

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Transnational corporationsSUM 3000/4000March
7. 2006
Audun Ruud, Centre for Development and the
Environment - SUM University of Oslo
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A Transnational corporations (TNC) is a
corporation (firm) with power resources to
control value-added activities in two or more
countries even without formal equity control of
the commercial activity in question

• Foreign Direct Investment (FDI)
• Financial, physical or human transfers of capital
  with the purpose to control management and
  revenues.
• A FDI contitutes a TNC

FDI is normally related to shares of ownership
beyond 50 (this is the reporting (tax)
requirements in Norway). However, formal control
can also be achived with significantly lower
equity shares. Influence can even be exercised
without any formal ownership of the
unit/plant/firm in question
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Internationalization (Int.) refers to the
extension of economic activities across national
borders for example through trade and
investments. Globalization is qualitatively
different as it also involves a functional
integration across national borders of economic
activities Internationalization creates a basis
for globalization through increasing
transnationalization (trans) driven by foreign
investments. Bilateral Regional Global Int. B
arents Sea Nordic Council EU WTO Trans
. Raufoss supplies SAS Shell to
Volvo Eurofighter
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• There are three basic questions to be raised if
  we want to
• study (or discuss) TNCs
• Why do TNCs exist?
• How do they operate?
• What are the effects of TNC activities?

My own focus is particularly on politics impacts
and execution of corporate power What kind of
power is used and what is the purpose?
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The Power relation between a TNC and political
authorities (both at home and abroad ) may be a
function of The relative interest by the
authorities The share of control that the TNC
concerning the TNC activities
X exercises over these activities ________________
_________________________________________ The
relative interest the TNC has The share of
control the autho- for what the authorities may
offer rities have concerning the
TNC activity in question
However, is it feasible only to study this power
relation as simply a function of Interests and
control?
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TNC Vertsland Limitations Power
resources Powerresources Limitations Degree
of Technology Access to Alternative competition
and and innovation, home market global concentra
tion in integration Industy Management Cont
rol of natural resources Competition Financ
e between The corporate Solid infra- host
countries dependency of Distribution structure th
e host country Trade balance as customer
or Marketing Political climate and foreign
debt distributor Employment Incentives Dependen
ce of FDI ....... Political
climate
Advantage TNC Changes in relative bargaining
strength Advantage host country
However, structural and idea-based power also
influence these dynamics
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Different national political-economic
systems ideological capitalist base
orientation a. The market oriented state
strong strong b. The regulation
oriented state weak pragmatic strong c.
The active developmental state weak pragmatic
weaker d. The steering oriented state
strong weak What is the actual
national politics for sustainable development
formulated by a. The market oriented state
? b. The regulation oriented state ? c.
The active developmental state ? d. The
steering oriented state ?
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The current international political economy
creates new dynamics
International politics Government vs. government
International economics Firm vs. firm
Actual decisions implemented ???
International political economy Governments) vs.
one or several firms
International political economy is more than just
states and markets. Firms are increasingly
becoming an independent political agent!
(In this context I consciously ignore the civil
society as the focus is on TNCs)
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AUTHORITIES On which level, and with what kind
of policy tools?
National border
?
TNC Where and to what extent
LOCAL INDUSTRY On what conditions, and with what
kind of knowledge
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Motivations driving TNCs to see promote
FDI 1. Markets for existing resources down
the value chain 2. New - up the value chain
(upstream) 3. Efficiency gains oriented
toward current activities Often, all the three
drivers influence the firm simultaneously, but
often at different locations of the firm (at home
(HQ) or abroad (OECD or LDCs) A continous
consideration of International ko-ordination
versus national adaptation
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The evolution of TNCs
3. Complex global strategy (with growing
service component
High
1. Transnational strategy
Focus Control of raw materials
2. Multinational strategy
Export-based strategy
Low
Low
High
Focus Control of markets
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The features of national politics are
increasingly influenced by corporate
firm-specific strategies
positive
Political needs in a host country
Economic international requirements
The strategy and action of the TNC
negative
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To understand the direct impact of TNCs
activities on sustainable development, first of
all we need to understand

• The feature of the transnational organization
• Then we need to study
• 2. Transnational transfers
• What is transferred internally within the firm
  including intra-firm trade
• Then we need to study
• 3. Transnational local demand
• To what degree do the TNC procure goods and
  services locally?
• 4. Transnational investments
• What is de facto plought into local and the
  hosting economy/society
• These are four necessary, but still insufficient
  question to answer
• Sustainable Development is not created
  automatically?
• To a large extent a question of politics

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Cross Border Environment Management A Systemic
approach
1. environmental policies
6 Control and communication
2. environmental standards
5 environmental auditing
3. environmental guidelines
4. local procedures
A vicious or a virtuous circle? a race to the top
or to the bottom?
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Factors influencing the environmental practice of
TNCs in India (findings based on fieldworking
among 53 TNCs in 1999) Policy and practices of
TNC headquarters 50 per cent Regulations
23 per cent Local Management 13 per
cent NGOs 6 per cent Consumers 6
per cent Fear of accidents (only) 2 per
cent
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• Policy implications based on a survey of 53 TNCs
• 1. TNCs are not necessarily using India as a
  dumping ground for
• obsolete technologies
• Local networking within the value-chain, however,
  is limited
• Path dependency is strong
• Developmental impacts are limited
• TNCs are creating islands of excellence in a
  sea of dirt!