Transnational corporations

Student name: Saqer Alkhaja

Student number: 77149356

Part A:

FDI Inflows by region 2014-2016:

(source: created by author based on the figures from UNCTAD, World investment report 2017)

The table above categorizes the salient trends in the data for FDI inflows by region in 2014-2016. Latin America and the Caribbean in 2014 had 170 billion dollars invested. However, over the course of 2 years’ Foreign Direct investments inflows made towards them was decreased in 2015 being 165 billion and in 2016 money invested had moved down to 142 billion. Asia in 2014 ended with 460 Billion invested, in the course of a year FDI within the country had increased by 64 Billion ending 2015 with a total of 524 billion FDI inflows invested within the continent. Though in 2016 the inflows had decreased by 81 billion ended the year 2016 with 443 billion invested. Africa had ended the year 2014 with 71 billion invested. However, in 2015 it had decreased to 61 Billion and dropping down even further to 59 billion invested in 2016. North America had ended the year 2014 with 231 Billion invested. In 2015, investments had drastically increased ended the year with 390 Billion invested. Furthermore, in the end of 2016 investments had jumped even further with a staggering 425 billion. Europe’s FDI inflows in the end of the year 2014 was 272 billion. However, FDI Inflows had excessively increased with a staggering 566 billion. Furthermore, in the end of 2016 inflows had slightly decreased ending with a total of 533 Billion.

Global trends in the value of cross border M&A:

by the billions:

(source: created by author based on the figures from UNCTAD, World investment report 2017)

The table above identifies the global trends in the value of cross border M&A’s. distinguashing them by year (2005-2007,2014,2015 and 2016). Between the years 2005-2007 the cross border M&A’s were at 729 billion. Moving up to 2014 the M&A’s were dcresed ending in 426 billion. However, in the end of the year 2015 the M&A’s had increased by a staggering 735 billion. Towards the year ending 2016, the M&A’s had jumped even further to 869 Billion.

Announced Greenfeild projects over period 2010-2016 worlwide:

(Make a graph jackass)

The table above displays the announced Greenfield projects worldwide by the millions between the years 2010-2016. In 2010, the Project went on to make 818,974 million. In 2011 though, the project had increased ending with 867,192 million. In the year ending 2012 however, the project had seen an extravagant drop ending with 642,002 billion. In the year ending 2013 an up rise within the project was made ending the year with 826,620 billion. Moving down the following year 2014, the greenfield project had a massive drop from the year 2013 ending with 721,320. In 2015 however, the investments towards the Greenfield projects had a slight increase with 772,866. Finally in 2016, the project investments was raised ending with a total of 827,670.

Global shares of FDI stock for services, Manufacturing and primary sectors in 2015:

(source: created by author based on the figures from UNCTAD, World investment report 2017)

The table above displays the estimated global inward FDI stock by sector in 2015. It also categorizes them by sector (Services, Manufacturing, Primary and unspecified). In the services sector, an estimated 16 Trillion was invested worldwide being the highest of sectors to be invested. The second highest industry invested was the manufacturing. Ending the year 2015 with an estimated 7 trillion. The primary industry had ended with a total of 2 trillion. Furthermore, 0.6 trillion invested was placed in the unspecified category.

Increase in employment by foreign affiliates 1990-2016:

(source: created by author based on the figures from UNCTAD, World investment report 2017)

The table above presents the employments made by foreign affiliates in the years (1990,2005-2007,2014,2015 and 2016). The employment ratio is applied by the thousands. In the year 1990 the people employed by foreign affiliates were at 21,438. Furthermore, between the years 2005 to 2007 the employment fraction had moved up too 49,478 people employed. Moving up to 2014, the number of people employed has increased to 75,565. One year later in the year ending 2015, the employment had slightly increased with a total of 79,817. Finally, the year ending 2016, the employments made by foreign affiliates had reached an all-time high ending with 82,140.

Part B:

An analysis on The internalization theory by (Casson and Buckley) :

Internalization according to Casson and Buckley (2009) is the theoretical identification towards the limitations of a multinational organizations and the reactions based on its boundaries. Similarly, Rugman (1982) defines internalization as “the modern theory of the multinational enterprise”.

It subsidizes the knowledge of multinationalism with the internal organization and the external environment. Internalization originally was based on the explanation on which guides would stimulate organizations to expand internationally as well as its choice of entry mode. This may be the case however it is important to recognize the Coasion theory by Coase (1937) as the idea of the internalization theory towards organization is quite old dating back to 1937 by Ronald H. Coase in his formative paper. He mentions recourses within firms are distributed through the price mechanism and the idea of it is strategically organized rather than through the self-interest of the parties involved. This further elaborates Casson and Buckley’s (1998) positions towards the multinational organizations internal agenda in a method that transcribes the progress and corruption through firm specific knowledge and technological benefits. As organizations with such benefits aim to avoid them from becoming a public good. The research provided by various authors points out that organizations intending to expand production abroad which will then be known as multinational enterprises will proceed to use a mode of entry that will inevitably be cheaper and overshadow any progress or exploitation of the firm’s abilities. The is supported by one of the three expectations brought forth by Casson and Buckley (2009):1. The multinational enterprise internalization is a method of adaptation within market limitations. 2. Organizations preference in location is primarily based with cost effectiveness in mind. 3. An organization expands through internalizing markets to the extend in with the price of internalization overshadows its benefits. Similarly, As mentioned by Coase” A firm will tend to expand until the costs of organizing becomes equal to the costs of carrying out the same transactions by means of an exchange on the open market or the costs of organizing in another firm”.

There are two types of market imperfections that are created by the cost of operation within the markets. Thus, applicable in the usage of the price mechanism. The two types of market imperfections as mentioned by Ietto-Gillies,2012 are as follows: Structural and Transactional imperfections.

Structural imperfections are the foundation of the industry and market in the grounds pf which the organization operates. Transnational imperfections are the inadequacy of education and irregularities towards data between two parties which usually consist of buyer and seller.

Cantwell debates about the internalization theory that it has been criticized for its dependency on the essentials within its nature of exchange as opposed to the essentials of production (Williams,2017). The internalization theory places the trade towards goods and services amongst the organization and other organizations within the social spectrum as the main intent behind the subsistence of MNEs. Although, the flaw behind the theory is that it fails to acknowledge the production components affected through a country’s development level. For example, the theory disputes that MNEs capitalize in untapped markets in developing countries. Though, this dispute fails to understand the productions levels within the developing country. The more fragile establishments and structures within developing countries have more of a negative impact on the production capabilities towards developing countries (Williams,2017).

Another direction of the internalization concept is the hypothesis that the market limitations are external to the business corporation (Casson and Buckley,2010). Relevant theorists towards internalization add emphasis towards the idea that structural and trans actual flaws are based from outside the organization. Although, according to Coase, it is clear that market limitations are external to the business corporation. Trans actual issues illustrate how firms grows in two methods. 1. The capabilities of knowledge within a foreign market can aid its sustainability within the country. 2. Without knowledge towards the foreign market will affect its sustainability of the MNE. This issue is not clear towards the components of the internalization theory. (Casson and Buckley, 2010).

An analysis of transnational monopoly capitalism (Cowling et al): influence of governments

The basis of the Monopoly capitalism theory is based on why Multi-national organization expand into foreign markets. Cowling and Sudgen (1987) further elaborate transnational cooperation’s into 2 aspects of focus. An organization is the foundation of synchronizing production from one center of strategic decision making. A transnational is the basis of directing production from one center to another when the direction is headed towards international borders (ibid.:12). According to Williams (2017), the purpose of a multinational organization to expand internationally is primary because of oligopolistic or monopolistic benefits.

Cowling and Sugden (1987), state that the framework of control within TNC’s is closely linked to the framework of decision making. Furthermore, they also state that the influence on strategic decision making is equal to the power to control a firm. Thus, implying the expanding is the key to sustainability for a TNC. Business organizations situated within perfect markets is non-existent. Organizations classified within the Multinational spectrum situated within the country of establishment have an advantage when expanding into a foreign market. This is due to the monopolistic gains and lack of local competition. Thus, eliminating the opportunity for local firms to prosper. Focusing on the Monopoly theory, it is mentioned that the function that is taking part through the economy of scale is the presence of Multinational organizations within developing countries.

Foreign investments play a significant role towards TNC’s as Baron and Sweezy (Ietto, Gillies,2012) further elaborate on foreign investments and the applicable demand in external environments. Furthermore, the authors continue by arguing that external investments can be closely linked with population growth or new product development. The main reason behind Foreign investments is simply a surplus absorber. Regardless of the motive behind the Foreign investments the MNC is still grower making it an advantage.

Monopoly capitalism has seen a paradigm shift in Multinational enterprises in production growth. As firms look to expand internationally as production costs are cheaper than the host country. According to Cowling and Tomlinson the production has vastly moved to Greenfield sites away from local labor. More towards regional base and even vaster within a global scale. This illustrates how monopolistic companies can grow even further by easily moving production facilities to a cheaper zone. This can then lead to persuasion from the governments to make the companies stay within the host countries. The basis and survivability of monopolistic cultures is based towards the income brought within the host countries and the jobs it provides as well.

One of the critiques towards the monopoly capitalism theory that it is unreliable towards any alterations within global trends in multinational enterprises. it suggests the MNE sustainability is protected by its advantages competitively. (Casson and Buckley, 2010). This is unreliable as MNE’s within developed countries attempt to engage in licensing and acquisitions within developing countries. The aims of large organizations is focused generating income as the reason they engage in FDI. As of now. Multinational firms share the same competitive advantage with local and smaller firms in developing countries. With then shares the wisdom that has been gained by MNEs towards the smaller local firms.

Keith and Cowling (2005), mention that trajectory of the developments paths that have been chosen by leading TNC’s have not met the interest of the global community and have left it outside their spectrum. The authors mention that the public must take an interest in TNC behavior as they are the only attempt in change as well as strict policies towards industrial laws.

2014 Europe North America Africa Asia Latin America and the caribbean 272 231 71 460 170 2015 Europe North America Africa Asia Latin America and the caribbean 566 390 61 524 165 2016 Europe North America Africa Asia Latin America and the caribbean 533 425 59 443 142