Global Business Practice Assignment - The changing relationships between Transnational Corporations and Nation-States

Module Leader: Roger Cook
Module Code: MS70069E
Student Number: 21202244
GLOBAL BUSINESS PRACTICE
Global Business Practice
The changing relationships between Transnational
Corporations and Nation-States
(McKinsey & Company, 2010)

GBP Assignment - Essay
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Table of Contents
1. Introduction.......................................................................................................................................................................... 2
2. Globalization...................................................................................................................................................................... 3
2.1. Salient characteristics of globalization emerge from the debate...................................................................... 3
2.2. Drivers of Globalisation............................................................................................................................................... 4
3. Transnational Corporations - The engines of Globalisation ..................................................................................... 5
4. The nature and purpose of the nation state................................................................................................................. 7
5. The uneasy relationship between the TNCs and the states.....................................................................................11
6. Influences affecting the actions of the State and the TNC......................................................................................13
7. Conclusion ..........................................................................................................................................................................15
8. Acronyms............................................................................................................................................................................16
9. Bibliography .....................................................................................................................................................................17
10. Appendixes ..................................................................................................................................................................19

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Unveiling TNC’s-nation states Intertwined Relationship
“Competing internationally is a necessity rather than a matter of discretion for many firms.”
(Porter, 1986)
1. Introduction
The endemic tension – in the form of cooperation and contradiction, sometimes confrontation – that
reigns the relations between transnational corporations and nation-states imply opportunities for both
to seize but, also, threats to be countered (Vernon, 2009). In order for a firm to operate across national
borders and determine the decisions to configure its activities upon strategies that improve its
efficiency and improve its distinctive competences of that business or unit, it needs to identify the
characteristics that underpin its relationship with nation-states to capture the viable strategic
framework for its operations. Hence, the mechanisms of these transnational corporations – that
include, but are not limited to, Greenfield foreign direct investment, acquisitions and outsourcing –
merit urgent exploration in the light of the economic turmoil that began in 2007. These mechanisms are
the dynamics of two contradictory premises. On the one hand, the operations of TNCs are adhered to
fragmented productive facilities and commercial activities across geospatial boundaries. On the other
hand, these operations incorporate cross border flows of know-how, intra-firm trade, and, most
notably, capital flows. Thereof, the process itself leads to staggering international interconnectedness of
economies that shape the underlying forces of the globalization (Ietto-Gillies, 2002 cited in Mitchie,
2011). From this token, TNCs are the tools of integrating the world economy within a global outreach. In
the same sense, TNCs could be the “vehicles of accelerated globalisation” as posited by Szentes (1999,
cited in Dörner, 2005).
Accordingly, TNCs partake in a global activity which entails considerable complexity in its functions.
Thus, the starting point is to attempt to answer the following questions: What is globalisation? What are
its eminent driving forces? Do the prolonged economic turmoil that persists in aftermath of the financial
crisis in 2007 and the snowballing of the crisis from one country to another herald the end of
globalization? (Dicken, 2011)
Furthermore, this paper aims to distil and critically analyse the changing relations between TNCs and
nation-states and to what extent other multilateral institutions do influence these relations. In this
respect, the emphasis is placed on the nature of TNCs and nation-states and their respective roles in the
global shift of economic activity in quest of the determinants to best structure and manage the firm’s
activities across different territories. To this end, exploring these stances constitutes guidance for firms
in their global search for convenient affiliates and investment sites and on how to balance the directives
that are placed upon them by home and host governments and their firm needs.

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2. Globalization
In Globalization 1.0, which began around 1492, the world went from size large to size medium. In
Globalization 2.0, the era that introduced us to multinational companies, it went from size medium
to size small. And then around 2000, came Globalization 3.0, in which the world went from being
small to tiny.
Thomas Friedman cited in Strauss, 2012
The fact that there is no consensus on a single definition of globalization has provoked fierce debates.
However, if there is a common denominator that cuts across all these debates, this would be that
globalisation appears to be inevitable (contested later by Dicken) and all embracing (Turner & Khondker,
2010). It is increasingly omnipresent. Now both an ordinary person and a British Billionaire can follow
BBC to monitor their shares in the market (Friedman, 1999). Even though this suggests a degree of
equality, globalisation is actually accused of demising that. Beyond the discourse of this discontent that
will be treated more in the relations with multilateral institutions, aspects of modern life – global
telecommunications, global brands, integrated global economic system – are the implications of
globalisation that have been witnessed over the last three decades. The debate amid the protagonists
and critics of globalisation continues.
Globalisation has often been seen as the spread of capitalism. It is claimed that liberalisation,
unregulated markets and self-regulation by large businesses and, particularly, TNCs are the defining
attributes of globalisation. Moreover, the analogy of the world as becoming a global village, as
described in the publication of Marshall Mcluhan’s The Medium is the Massage in 1967 (cited in
Martens et al, 2010), is one of the manifestations that points at the decline of international boundaries.
Drawing from this, Friedman (1999) further elaborates that the world is ‘being tied together into a
single globalized marketplace and village’. In essence, he claims that globalisation is everything and its
opposite, hence globalisation denotes a paradoxical premise. Moreover, he argues that ‘the world is
flat’ whereby geographical barriers have been torn down and world is dominated by globalisation. He
does concur with the liberalism ideology, wherein current globalisation is one facet of capitalism. In this
view, robust free market capitalism across frontiers attributes to the globalisation growth (Morrison,
2009). The neo-liberals advocate the hyper-globalist thesis that views the ‘global’ as the natural order in
which time-space has been compressed (Dicken, 2011). Issues associated with a thoroughly hyper-
globalist approach gave the rise to the anti-globalisers. Opponents demonstrate their resentment to the
consequences that globalisation has brought about by the short-term profit of the capitalism paradigm
over the social welfare (Wells et al, 2001). This movement has been situated in the context of protests
against the irresponsible practices of TNCs’ plants and facilities as well as the adverse impact on human
rights in the host countries (Hill, 2011).
2.1. Salient characteristics of globalization emerge from the debate
Unfocused debate over globalisation stems from the lack of uniform definition. At a macro level of
analysis, the qualitative characteristics of globalisation are manifested in the macroeconomic
dynamics of international integration in terms of productivity, trade and FDI (Foreign Direct
Investment) (De Wit & Meyer, 2010). In accordance with this, Dicken (2011) argues that globalisation
stems from the structural changes of the way the global economy is organised and integrated wherein

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TNCs are intertwined as networks within networks. This is highly correlated with addressing
globalisation as a syndrome of processes. He, further, provides an insightful view that globalisation is
not an inevitable end-state contesting, by this, some of globalisation polemical myths. In this respect,
the world is neither flat nor borderless. Moreover, globalisation is not always good or always bad. He
points out that the nature and degree of integrations between countries are in a state of influx due to
these processes being slow or rapid over time.
Some of the facets of globalisation include the globalization of markets and the globalization of
production. The former refers to the formation of one single global market from the merging of
distinct and existing national markets. Drawing from this view, TNCs can achieve economies of scale by
seeking standardisation in their management strategies as the integration mechanism (Porter &
Rudden, 1982 and Levitt, 1983 cited in De Wit & Meyer, 2010). As for the latter, it evolves from the
rational thinking of TNCs adapting a global mind-set in structuring their organisational architecture in
terms of production with the scope of outsourcing or manufacturing in countries in which the national
differences in the cost and quality factors of production are one of the competitive advantages TNCs
bank on (Dicken, 2011).
2.2. Drivers of Globalisation
The robust growth of globalisation at the end of 1970s is rooted in the revolution of information and
communication technology (ICT) and transportation technology. The ease and speed of
communication increase the perception of the integration of economies and societies. New
technologies are the causa causans – developed by Keynes (1937) – behind the increased extensity of
globalisation (Ietto-Gillies, 2002 cited in Mitchie, 2011). Consistent with this is the argument by
Ohmae that the advancements in modern technology have changed the economy landscape. He
asserts that technology enables rapid transformations in both investment and industry, as capital
becomes more mobile across the globe (Bonanno & Constance, 2010). In addition, ICT contribute to
rapid spill-over of improved know-how and unprecedented diffusion of innovation which is conveyed
through TNCs. Technological developments of aircraft, transport container and the optic fibre
revolution have vastly increased the ease of coordinating spatial dispersed operations of TNCs and,
moreover, facilitated the growth of TNCs activities (Jenkins, 2013).
The catalyst effect of the technological development in accelerating the growth of globalisation saw
the second birth of globalisation where its fundamental kindle was the declining trade and investment
barriers. In effect, this is enshrined in the GATT agreements with the promulgation of many tariff
reductions. As Table 1 depicts, the average tariff rates have fallen significantly since 1950 and now
stand at about 4% (Hill, 2011). Further lowering of these barriers has been regulated by other
supranational and multilateral institutions. One of the most remarkable agreements is the
“Washington Consensus” came to advocate creating more favourable environment for trade (Utkin,
2002).

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3. Transnational Corporations - The engines of Globalisation
Given that TNCs have a key integrative role in the globalisation process through their strategies –
export, trade, FDI, alliances –, it merits to pay a thorough attention to their entities’ configuration and
their inner dynamics. TNCs, therefore, are one of the few organisations that capture the attention of
many monographs from various social sciences (Balasubramanyam, 1994). TNCs’ collusive relations with
host countries are the prominent cause for their exposure to even the civil societies (Eden & Lenway,
2001). Furthermore, it is argued that TNCs are Janus-faced which is framed as being an engine of
eliminating economic inequality but also as a major obstacle to development through a massive drain of
surplus to the advanced capitalist countries. The TNCs, as defined by the UN Economic and Social
Council (1978), are “all enterprises which control assets – factories, mines, sales offices and the like – in
two or more countries”(Jenkins , 2013). It is argued that TNCs, coined with FDI as the primary
investment vehicle, are contrasting the fact that 90% of all foreign investment at the outbreak of World
War I was “portfolio”. However, the turning point that fuelled the spread of TNCs and their bargaining
power is the high level of equity participation through FDI investments. The domination of FDI
incorporates the rational decision making of deriving ownership advantages in the host countries
through the TNCs’ strategic subsidiaries. Stephen Hymer (1960s cited in Morrison, 2009) noted that
location and ownership advantages are sought by TNCs to offset the extra cost of foreignness and
distance. Consequently, the building blocks that lie behind the expansion of TNCs are the economies of
scale, imperfect market that TNCs can capitalise on (Balasubramanyam, 1994).
Table 1: Average Tariff Rates on Manufactured Products as Percent of Value
(Hill, 2011)

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(Adapted from Bartlett and Ghoshal, 1995 cited in De Wit & Meyer, 2010)
The key to a TNC with its border-spanning nature is to reap cross-border synergies as integration
mechanisms for its operations. This could be through standardisation, coordination, or centralisation.
While coordination underpins the alignment of various activities by means of cross-border coordination
instead of standardising products or activities, centralisation is the integration of activities at one
central location – for example, the centralisation of knowledge intensive activities to preserve quality.
Furthermore, Bartlett & Ghoshal (1989 – cited in De Wit & Meyer, 2010) outline four generic
organisational models, each of which has its own mix of the three integration mechanisms (Figure 1).
While, in the Multinational model, the companies managed a portfolio of national businesses – that is
dominated by European companies – in which national units have preference for local autonomy, the
international model – that is prevalent in US corporations – exhibits quite tight control over the
subsidiaries which make them less responsive to local needs. As for the global model, it is based on tight
centralisation of most decisions and it capitalises on scale economies with no responsiveness to local
market needs (see Appendix I).
Bartlett & Ghoshal (2012) argued that the first three models could compete effectively as long as the
firm’s capability fits the strategic demand of the business. However, by the mid-1980s, the forces of
global integration, local responsiveness and innovation resulted in the need for multiple strategies to
develop global competitiveness, geographical flexibility and worldwide learning capability
simultaneously. Hence, a heterarchical structure emerged forming the last model – integrated network
organisation model – to fit in the business landscape and be the winners in the game of the global
chess. Given the staggering advantages of the globally integrated strategy, there are substantial
disadvantages that exhibit the tension within a global integration and responsiveness to local conditions
framework (Appendix II).
Furthermore, the organisation of TNCs forms a complex nexus of relational networks which are the
predominant diagnosis of the world economy interconnectedness. These networks shape tangled webs
Figure 1: Generic Organizational models for international firms

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(Dicken, 2011)
of production circuits that entail mobility and flexible adaptation which implies switching and
reswitching its resources and operations between locations at a global scale. Thus, TNCs’ dynamics are
gained from developing unique organisational learning and significant first movers advantages (Dicken,
2011).
Yet, the real rebound in the spread of TNCs is attributed to FDI that has accelerated faster than the
growth in world trade and world output as in Figure 2.
4. The nature and purpose of the nation state
The successive financial crises, since the 1990s, brought questions about the role of nation-states,
governmental intervention and political control. As a way to characterise this, we can draw on the
prevalent paradigms – liberalism, neo-mercantilism and neo-imperialism. The liberal ideology condoned
governmental intervention only to enhance competition and correct market failures such as when the
American government bailed some of the banks out of the 2007 financial crisis. Governments are also
inclined to pursue cooperative economic solutions that promoted global welfare. The neo-mercantilist
shows a preference for government intervention to promote a nation’s own firms as a way of meeting
national needs and protecting domestic industries, while the neo-imperialist exhibits a propensity for
direct public sector participation in economic activity (Dunning, 1993).
Figure 2 –

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Hence, we can envision four roles of nation-states, the first being acting as containers in which
distinctive cultures and institutions are ‘bundled together’. The second role is acting as regulators where
the state facilitates two basic types of macroeconomic policies to manage its national economy – fiscal
policies that pertain to the tax policies applied to companies and monetary policies whose main
mechanism is manipulating the interest rate on borrowing (Dicken, 2011). Starting in the mid-1980s,
direct involvement in national economies was reduced in many states which was driven by the process
of marketisation in both industrialised countries as well as many developing ones in Eastern Europe, the
former Soviet Union and China. This was first demonstrated through the deregulation in the financial
services and telecommunications with a significant focus to deregulate the labour market. The seven
main instruments that are regulated by trade policies: tariffs, subsidies, import quotas, voluntary export
restraints, local content requirements, administrative policies, and antidumping duties among others
that employed in trade policy are depicted in Figure 3. These seven instruments have been limited most
successfully by the GATT and WTO.
The second premise is the privatisation which has not reduced government expenditure as much as was
expected (Figure 4). However, the effect of the deep economic crisis in 2008 would have been reflected
on these figures as all governments have intervened to rescue their economies. Attempting to protect
domestic producers and hold onto jobs in the wake of this economic slowdown, a wide range of
countries has intervened to re-stimulate their economies (Dicken, 2011).
Figure 4 –
Figure 3 –
(Dicken, 2011)
(Dicken, 2011)

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With regards to investment regimes, it is argued that the unprecedented expansion of FDI flow signifies
a wave of internationalisation taking place in the world economy due to the compelling FDI policies
deployed among developed countries as well as nascent countries although there are exceptions within
each broad group. Singapore and Hong Kong virtually have no restrictions on the FDI investments in
most sectors, while others have restrictive policies or tend to reduce FDI investments or phase it out
over time. According to the United Nations, the period between 1992 and 2007 witnessed some 90% of
2,524 changes incurred worldwide in laws governing foreign investments with tendency for a more
favourable environment for FDI as illustrated in Figure 5 (Hill, 2011).
As for the third role of the states, as competitors, Porter argues that nation-state remains the centre of
the socioeconomic life whereby global corporations cannot successfully operate without relying on local
resources. He points out that the crux of achieving national competitive advantages is through highly
localized processes internal to the country as illustrated in Figure 6. The double-headed arrows that
connect all of the components highlight the fact that the ‘diamond’ is a mutually reinforcing system. The
objective of the state is to attract productive investment to build up their national production base
which, in turn, enhances their international competitive position. Thereof, states induce intense
Figure 5 –
Figure 6 –
(Dicken, 2011)
(Dicken, 2011)

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(Rugman et al, 2005)
involvements of competition between each other into what is called ‘locational tournaments’ (Dicken,
2011). Porter further claims that state competitive advantage pins down on having corporate colony
whereby interrelated affiliated industries, suppliers and specialised institutions – e.g. chamber of
commerce – co-exist in a special field under certain areas and, hence, he emphasised that this will be
the new form of state competitive advantage. At the core of the diamond theory, four factors embody
the state competitive advantage, these are: essential productive factors, demanding conditions, firm
strategy and the performance of supporting industries (Chuanli & Gang, 2007).
Another distinctive role of the state is conceived as being a collaborator, whereby most global trade and
investment by TNCs (as in Table 2) is conducted within triad-based business networks or clusters – such
as most automobiles, chemicals and heavy electrical equipment.
Operating globally for TNCs means operating regionally in the triad markets of North America, EU, and
Japan (Rugman, 2012). Table 3 depicts that most of world’s FDI is intra-regional.
Table 3:
Table 2 –

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TNCs that emerge into strategic alliances or into other forms of FDI patterns in one of these blocs
perceive a number of benefits that remove trade barriers such as import duties. The creation of NAFTA
aimed at creating a single free trade area. Moreover, American companies have set up maquiladoras
which involves production operations on both sides of the border in a free trade zone for shipping
produced goods to the United Sates or other foreign markets under favourable tariff. In the same vein,
the EU is the most highly complex region amid the rest of the regional blocs. It forged some important
developments including the Single European Market, the Treaty on European Union and the expansion
of its membership from 15 to 27 states (Dicken, 2011). Yet it is the ASEAN bloc – the economic tier of
countries such as Australia, China, India, South Korea, and Taiwan – which provides a balance to NAFTA
and the EU (Rugman et al, 2005).
Ultimately, it is argued, FDI plays an essential role in building long-term capabilities that could support
the overall competitiveness of a country wherein domestic firms benefit via systematic and positive
productivity spill-overs. China’s exploitation of FDI to promote the development of domestic sectors of
the economy is an example of how nation-state can succeed (Appendix III). Conversely, China
communist paradigm manoeuvres FDI investments in the form of joint ventures rather than wholly-
owned entities (Dicken, 2011). Moreover, China is regarded as the manufacturing hub in Asia, while
India is considered the hub for exports of services. Not surprisingly, the pattern of specialisation is
classified as: manufacturing in Asia, agricultural goods in Latin America in and natural resources in Africa
(The Economic Times, 2010).
In countries like Taiwan and South Korea, state governments promote economic growth by linking
development to TNCs’ activities that must be of net benefit to local businesses resulting in foreign
investments expanding the country’s trade base and have created a lot of new employment. Another
strand by the Taiwanese companies, that aspires to keep pace with the demands of markets and to
globalise their brands, is to inject the labour sector with western innovation by employing a total of
4,613 foreign business workers in 2013 (Reid, 2014) (Appendix IV). Yet, despite the emergence of many
nation-states successfully into the international investments, some other states failed in this such as
Somalia and Sudan or those situated as highly risky ones such as Russia (Appendix V).
These roles spell out the nature of nation-states in preserving jobs, stimulating national economies,
protecting industries that deemed important for national security against unfair foreign competition,
protecting consumers from dangerous products, furthering the goals of foreign policy, and advancing
the human rights of individuals in exporting countries (Hill, 2011).
5. The uneasy relationship between the TNCs and the states
Inevitable interjurisdictional conflicts crafted in the relationship between TNCs and nation-states
capture the oscillations in this relationship. Changes in this relationship are regarded as the key in
forming the evolution of nation-states’ historical trajectory as well as in reflecting the recent global
shifts in economic activity and major transformations in the developmental logic of the world system. In
this vein, the half century following World War II faced an initial climate of uncertainty, hostility and
restrictions for this relationship. The international economic relations were badly strained by economic
distress by the close of World War II (Vernon, 2009). Towards the end of the 1960s, concerned about
the impact of foreign investment on the national economy, some industrialised countries imposed
restrictive policies towards these investments (Mytelka, 2000). Nevertheless, the LDCs (Less Developed
Countries) kept fairly closed economies after the war. They had a benign attitude towards TNCs in the

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1950s and 1960s. This relation was altered to a period of conflict in TNCs-government relations with
tendency to expropriations, non-discriminatory treatment and performance requirements (Table 4).
These adversarial relations manifested in governments’ interventions such as when 400 TNCs were
forced by the Indian government to reduce their ownership by selling their shares to Indians. Also the
governments of Saudi Arabia, Qatar and Abu Dhabi forced negotiations with oil companies that gave
them majority ownership of their oil operations and hence contributed to the increase of oil prices and
major convulsion in the world’s economies (Buckman, 2004). In an attempt to understand the tension in
the TNC-state relation in the third world, Person claimed that a bilateral monopoly framework
characterised this relation, wherein exploitative power stems from TNCs are getting more than the bare
minimum to attract them to invest (Dunning 1993). Vernon (1971) further argued that the evolution of
risk and uncertainty over the life of a successful TNC is what gives dynamism to the bargaining process –
he called this “obsolescing bargain”. The focal point of his bargaining model is that governments offer
fiscal incentives – so-called carrots – (Table 5) as well as threats of regulation – so-called sticks – to
achieve macroeconomic objectives for their states wherein their relation with TNCs could lack
Table 4 –
Table 5 –
(Vernon, 2009)
(Vernon, 2009)

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commitments. This leads to unfavourable conditions to TNCs and hence TNCs need to renegotiate the
allocation of their operations elsewhere (Eden & Lenway, 2001).
However, from the mid-1980s onwards, changes in the investment legislation occurred that stimulated
privatisation, trade liberalisation and market-driven development. Hence, the wheel had taken another
turn in the relation between TNCs and nation-states whereby they engaged in numerous bilateral,
regional and global negotiations to facilitate the penetration of TNCs’ internationalisation into foreign
markets (Hill, 2011).
Given the different contours of each institution’s objectives and goals, Vernon argues that the
tranquillity that marks the TNCs-nation-states relations is coming to an end. States have broad
objectives such as job creation, rising standard of living, sociocultural and the like while TNCs’ narrow
objectives entail maximising shareholders profit. Moreover, some governments attempt to appropriate
their economic rent in the locational tournaments to attract investments to their markets in order to
achieve their economic objectives (Panic, 1997). Likewise, Firm-Specific Advantages (FSAs) – derived
from Dunning eclectic model – are of considerable importance bargaining up their power vis-à-vis the
states. FSAs are primarily those of: production knowledge, marketing, economics of scale and large size
(Rugman et al, 2005). However, correlating transnationality with firm size has been criticised by Dicken
(2011) based on the emergence of new firms starting out as transnational operations from the very
beginning which are called ‘born globals’.
Vernon (1971) addresses another issue between TNCs and states which is the overlapping jurisdictions.
This results from that both are legitimate in their own realms, however host government confers
national legitimacy on the TNCs within its borders, therefore creates inevitable points of friction which
is one of the unfinished agenda of the multilateral agreements. In this context, on one hand, countries
whittle away from reduced barriers to find ways protect their domestic firms such as Indonesia, for
example, specifying that certain kinds of goods can only be imported through five ports where the
limited capacity of these ports will constrain the selling capabilities of foreign companies into the
Indonesian market. On the other hand, TNCs due to their distinctive dispersed activities can have the
upper hand in improving their bargaining position if they switch to other plants that have an advantage
due to state support (Hill, 2011) (Appendix VI). To some extent TNCs may not only threat to withdraw
investments but also withdraw political contributions as the case of Sony in the United States (Dunning,
1993).
Seemingly, TNCs’ activities constitute other premises than FDI. Other patterns of activities include
exports, licensing and inter-firm agreements. Thereof, capital mobility that is facilitated through these
activities can be a tool to preserve price differences in the integrated markets and hence shift economic
power away from national governments to TNCs (Panic, 1997).
6. Influences affecting the actions of the State and the TNC
Yet there are public international financial institutions that are have great influence in the promotion of
economic globalisation and assistance of the spread of the TNCs; these are the IMF and WTO.
Accordingly, Greg (2004) stresses that the hegemony of the United Sates after World War II shaped the
IMF as well as other global trade agreements in a form serving their business most. From the 1980s
onward, the IMF and World Bank played a key role in pushing LDCs to impose free-market and pro-FDI
conditions on their loans. Members of WTO are required to follow the WTO’s rules as illustrated in

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Figure 7. However, WTO is taking on a different shape in which it focuses much energy and expertise on
resolving bilateral trade disputes.
Sponsoring multilateral negations to reduce quotes, tariffs and non-tariffs, GATT negotiations have led
to great growth in world trade due to big reductions on tariffs imposed by the developed countries
(Table 6) (Griffin & Pustay, 2012).
Emerging from the nature of TNCs as capitalist enterprises is the argument that their activities are
associated with irresponsible practices with tendency to exploit nations’ economies – e.g. a) short-term
profit and manipulation of self-regulation, moreover home countries are faced with plant closures, the
loss of low skilled jobs and increased unemployment – b) environmental issues pertaining to host
countries are being exposed to environmental degradation, climate change – c) social issues such as
cultural decay. These issues raise concerns among the public and NGOs, hence an increasing number of
TNCs have implemented sustainable development strategies wherein corporate governance set out
responsible practices and prepare sustainability reports about these practices. These reports
Figure 7: The WTO’s principles of the Trading System
Table 6 –
(Griffin & Pustay, 2012)
(Griffin & Pustay, 2012)

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encapsulate economic, environmental and social perspectives of the business. Moreover, these three
premises underline that business does not only have one goal as economic gains to achieve but other
premises which constitute the Triple Bottom Line of business sustainability reporting, developed by
Elkington (1998- cited in Crane & Matten, 2010). There is a tendency for many of these TNCs to be
ranked upon their CSR (Corporate Social Responsibility) strategies (Appendix VII) (Dennis, 2007).
7. Conclusion
Emerging from the above review, the doctrine of capitalism that emanates from the Liberalism ideology
has fed the mushrooming of TNCs in the advanced capitalist economies. The same applies to most LDCs
through deregulation, liberalising their economies and providing a favourable investments environment.
Hence, it is predicted that TNCs will quadruple by 2020 to an average of $800 billion (Utkin, 2002). This
optimistic view is shared by Lagarde, the IMF head, in which she pointed out that “optimism is in the
air” about global economic growth, but the recovery is still “fragile” (BBC, 2014). However, this
speculation could be wrong due to that the subsequent economic failures since 2007 may have an
impact on many governments’ potential policies. Alternatively, the turn could be towards more
reduction of foreign investment barriers, hence a growth into the number of TNCs. There are many
factors, notably, the relations between TNCs and states, international agreements and the actions of
the NGOs.
The vivid spread of TNCs has given them growing influence in the global economy as well as it illustrates
the uneven nature of capital accumulation on an international scale. The sheer size of TNCs brought
about the debate on their efficiency and accountability. The efficiency thread pertains to strategic
decisions for the business configuration. Unsurprisingly, the accountability aspect has attracted not only
governments but other institutions such as labour unions and other NGOs in both home and host
countries. In home countries, some of them have been learning to use the TNCs as levers for the
achievement of new goals such as preventing environmental pollution, promoting religious freedom
and discouraging the use of child labour. While in the latter, they could be in danger if they would
participate in such activities.
A.T. Kearney (2008) posits that world’s savings is no longer dominated by the West but by emerging
economies – China, India and recently MINT countries. This will change the map of the world economies
and witness the rise of a new era, Globalisation 3.0, one in which A.T. Kearney (2008) points out that
“Beijing model of state ownership, state-led industry strategy, currency controls and authoritarian
politics is the alternative to the Washington Consensus”.
Lastly, the biggest common contributor to globalisation surge is attributed to the key role that TNCs
have been playing over the last few decades as the engines of global economic growth. On the bright
side, they brought the interconnectedness of world economies but, on the dark side, there are the
disadvantages of the societies with less mobility paying more of the cost of globalisation.

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8. Acronyms
CSR Corporate Social Responsibility
EU European Union
FSAs Firm Special Advantages
FDI Foreign Direct Investment
IMF International Monetary Fund
LDC Less Developed Countries
MINT Mexico, Indonesia, Nigeria, Turkey
NAFTA North American Free Trade Agreement
NGO Non-Governmental Organization
WTO World Trade Organization

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9. Bibliography
A.T. Kearney (2008) Globalization 3.0: Prospects for a new world order [Accessed 25 March, 2014]
https://www.atkearney.com/documents/10192/6afc822b-ca0a-4b70-a029-651f5d646dd4
Balasubramanyam, V. N. (1994) The Transnational Corporation, Business History, 36(2), 83-89
Bartlett, C. & Ghoshal, S. (2012) Managing Across Borders, 2nd
Ed, Cornerstone Digital
BBC (2014) IMF head Christine Lagarde warns of deflation risks [Accessed 25 March, 2014]
http://www.bbc.co.uk/news/business-25752936
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10. Appendixes
Appendix I
(Jones, 2005)

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Appendix II
(Bartlett & Ghoshal, 2012)

21 | P a g e
Appendix III
(Yeung et al, 2011)

22 | P a g e
Appendix IV
(Reid, 2014)

23 | P a g e
Appendix V
balan

24 | P a g e
Appendix VI
Starbucks dismisses talk of investment threat
By Elizabeth Rigby and Robert Cookson
Starbucks said on Sunday it had no plans to suspend millions of pounds in investment
in Britain amid tensions between the government and the coffee chain over its tax
arrangements.
The US-based coffee chain said it did “not recognise” reports that it had threatened to
pull £100m of investment from the UK in a meeting on Friday with the prime minister.
“We had a very constructive meeting which was long scheduled. We do not discuss the
details of our government meetings but can say that we do not recognise how it has been
reported,” the coffee chain said in a statement.
“Starbucks agrees with the prime minister that all businesses should pay their fair
share. In the UK, we employ 9,000 people, contribute £300m a year to the economy
and are forgoing tax deductions that will make the exchequer at least £20m better off,”
it added.
Mr Cameron exacerbated tensions between the government and coffee chain last week
when he said at the World Economic Forum in Davos in Switzerland that tax avoiders
had to “wake up and smell the coffee”.
The remarks prompted a “frank exchange of views” between Kris Engskov, Starbucks’
managing director, and Mr Cameron on Friday, with the former expressing frustration
that the chain was being targeted despite voluntarily offering to pay additional tax of at
least £20m. Many other multinational companies, such as Amazon and Facebook, also
pay little tax in the UK.
Grant Shapps, Conservative party chairman, sought to damp down tensions on Sunday.
“I don’t think we would ever single out a single company but I do think companies in
this country need to pay their way,” he told Sky News’ Murnaghan programme.
“I think they need to do what’s right as far as that is concerned and I think most people
watching this would agree: companies should pay their fair share of taxation. That
applies to that company and anyone else you care to mention. It certainly applies to
millions of smaller businesses in this country.”
Downing Street refused to comment. “It was a private meeting.”
(Rigby & Cookson, 2013)

25 | P a g e
Appendix VII
(Dennis, 2007)

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