Multinational corporations and global value chains

International political economy has become an ever-increasingly important topic in the world today. The rise of multinational corporations and global value chains has created a complex system that has a direct impact on the world’s economy, politics, and culture. Through continued research and analysis of this phenomenon, we can gain a better understanding of the implications of multinational corporations and global value chains and their effects on the global economy. By looking at the structure, strategies, and operations of multinational corporations and global value chains, we can begin to get a better understanding of their influence on the international political economy. These insights can help us to better comprehend the interconnectivity of international markets and the potential impacts of multinational corporations and global value chains on the global economy.

Defining Multinational corporation, Foreign direct investment & Global value chain

Multinational corporation

An MNC, or multinational corporation, is a company that operates in multiple countries and has a global reach. These companies often significantly impact the global economy due to their size and reach. MNCs may own and manage production facilities in several different countries or have a more decentralized structure with various subsidiaries operating independently in different locations. MNCs can be involved in various industries, including manufacturing, technology, finance, and more. There are many examples of MNCs, such as General Electric, Coca-Cola, and Nestle.

According to Oatley, an MNC is a company that has ownership and manages production facilities in two or more countries. there are approximately 63459 parent firms that together own a total of 689520 foreign affiliates. These parent firms and their foreign affiliates account for about 25 per cent of the world's economic production and employ some 66 million people worldwide.

Foreign direct investment

Foreign direct investment (FDI) is a type of investment made by a company or individual in a foreign country. It typically involves establishing a new business or acquiring an existing business in a foreign country. FDI can take many forms, including establishing a new factory or plant, acquiring a current company, or expanding an existing business into a new country. FDI is often made by multinational corporations, which are companies that operate in multiple countries. Individual investors or governments can also make it. FDI can significantly impact the host country's economy, as it can bring new investment, jobs, and technology to the local market.

According to Oatley, foreign direct investment (FDI) is a form of cross-border investment in which a resident or corporation based in one country owns a productive asset located in a second country. Multinational corporations make such investments. FDI can involve the construction of a new or the purchase or an existing plant or factory

Global value chain

A global value chain (GVC) is a network of economic activities that involve the production and distribution of goods and services across different countries. It consists of the coordination of different stages of production, from raw materials to the final product, through a series of activities that different firms may carry out in other locations. These activities include sourcing raw materials, manufacturing, assembly, marketing, and distribution. The term "global value chain" describes the increasingly interconnected nature of the global economy and the complex networks of economic activity that span multiple countries.

A value chain can refer to the series of activities involved in creating a product or service, which can be contained within a single geographic location or even a single firm. However, a global value chain involves coordinating these activities across multiple countries and firms. It is a way of organizing economic activity that allows firms to specialize in certain stages of production and take advantage of differences in the cost and availability of inputs and labour across different countries. The GVC initiative aims to study these complex networks of economic activity and understand how they contribute to the global economy.

Liberal view vs Alter-globalization view

Liberal view

Multinational corporations (MNCs) can play a role in a liberal economic order by investing capital in countries where it is scarce and by transferring technology and management expertise from one country to another. This can promote the efficient allocation of resources in the global economy by allowing countries to specialize in producing goods and services in which they have a comparative advantage. MNCs can also help to stimulate economic growth in the host countries where they operate by creating jobs and increasing demand for local goods and services. However, MNCs can also negatively impact host countries by exploiting local resources, contributing to environmental degradation, and undermining local businesses.

Alter-globalization view

The alter-globalization perspective views multinational corporations (MNCs) as instruments of capitalist domination, arguing that they often exert significant control over critical sectors of the economies of their host countries. This can enable MNCs to make decisions about using resources with little regard for the host country's needs and its people. MNCs may also seek to weaken labour and environmental standards to increase profits, which can negatively impact workers and the natural environment in the host countries where they operate. Critics of MNCs argue that they can contribute to economic inequality and social unrest in host countries by concentrating wealth and power in the hands of a few. Therefore, it is essential for governments and other stakeholders to consider the potential benefits and costs of MNCs carefully and to take steps to ensure that they operate responsibly and sustainably.

Multinational corporations

Historical evolution

Multinational corporations (MNCs) have a long history dating back to at least the late 19th century when some European companies began establishing operations in other parts of the world. The evolution of MNCs has been shaped by various factors, including technological advances, changes in the global political and economic environment, and the actions of governments and other stakeholders.

During the late 19th and early 20th centuries, MNCs were primarily focused on extracting raw materials and establishing production facilities in developing countries. However, many MNCs also played a role in European powers' colonization of various parts of the world.

After World War II, MNCs began to play a more significant role in the global economy as barriers to international trade and investment began to decline. This period also saw the rise of the United States as a dominant economic power, with many American MNCs establishing operations around the world.

In the late 20th and early 21st centuries, MNCs continued to expand their operations globally, often taking advantage of advances in transportation, communication, and information technology to facilitate the flow of goods, services, and capital worldwide. However, the activities of MNCs have also been the subject of controversy and criticism, with some arguing that they contribute to economic inequality and environmental degradation and undermine the sovereignty of host countries.

The first global economy period (1880-1929)

During the first global economy period between 1880 and 1929, multinational corporations (MNCs) played a significant role in the global economy. Many MNCs were focused on extracting raw materials and establishing production facilities in developing countries, often with the support of colonial powers. MNCs also played a role in the globalization of financial markets as they sought to raise capital from international investors to fund their operations.

The rise of MNCs during this period was facilitated by advances in transportation, communication, and other technologies, which made it easier for companies to operate across national borders. MNCs also benefited from declining barriers to international trade and investment and favorable legal and regulatory frameworks in many countries.

However, the activities of MNCs during this period were subject to controversy. MNCs were often accused of exploiting local resources and labour, contributing to environmental degradation, and undermining the sovereignty of host countries. These issues would continue to be a source of tension and debate in the following decades.

Beginning of new global economy

During the period between 1930 and 1979, multinational corporations (MNCs) continued to play a significant role in the global economy. This period saw the rise of the United States as a dominant economic power, with many American MNCs establishing operations worldwide. However, MNCs also faced several challenges and controversies during this period, including accusations of exploiting local resources and labour, contributing to environmental degradation, and undermining the sovereignty of host countries.

The global economic environment changed significantly during this period, with the onset of the Great Depression in the 1930s and the aftermath of World War II in the 1940s and 1950s. These events led to adopting of various policies and regulations designed to promote international trade and investment, including the creation of international organizations such as the International Monetary Fund (IMF) and the World Bank.

The 1970s were marked by economic instability, rising tensions between the industrialized and developing worlds, and growing concerns about the environmental impacts of economic activity. These developments would shape the evolution of MNCs and the global economy in the following decades.

New global economy (from 1979)

Multinational corporations (MNCs) have played a significant role in the global economy since the 1980s. This period has been marked by the increasing integration of the world economy, with the expansion of international trade and investment and the growing interdependence of national economies. MNCs have been major drivers of this trend, taking advantage of advances in transportation, communication, and information technology to facilitate the flow of goods, services, and capital worldwide.

However, the activities of MNCs have also been the subject of controversy and criticism. Some have argued that MNCs contribute to economic inequality and environmental degradation and undermine the sovereignty of host countries. As a result, governments and other stakeholders have sought to regulate the activities of MNCs and ensure that they operate responsibly and sustainably.

The global economic environment has undergone significant changes since the 1980s, including the collapse of the Soviet Union and the emergence of China as a major economic power. These developments have had important implications for MNCs and the global economy.

From hub-and-spokes to global value chains

The term "hub-and-spokes" is often used to describe a pattern of economic interdependence in which a central hub country controls access to a group of smaller, peripheral countries, also known as "spokes." This type of economic arrangement is often associated with multinational corporations (MNCs), which may use their economic power to influence the policies and practices of host countries.

In a hub-and-spokes system, the hub country may serve as a hub for producing, distributing, and financing goods and services. In contrast, the spokes countries may specialize in producing raw materials or intermediate goods. The hub country may also exert influence over the policies and practices of the spokes countries through trade agreements, investment, and other means.

Critics of the hub-and-spokes model argue that it can contribute to economic inequality and may undermine the sovereignty of the spoke countries. Some have called for more balanced and equitable economic relationships between countries rather than the concentration of economic power in a few hub countries.

A significant portion of global FDI around 1914 was focused on natural resources and services, such as financing, insuring, transporting commodities, and foodstuffs. This is because various factors, including the availability of natural resources, the level of economic development in host countries, and the demand for particular goods and services, have historically driven FDI.

In the early 20th century, many multinational corporations (MNCs) were focused on extracting raw materials and establishing production facilities in developing countries. Advances in transportation, communication, and other technologies and declining barriers to international trade and investment facilitated this. However, MNCs also played a role in other sectors of the economy, such as manufacturing, and the distribution of FDI across different sectors would have varied depending on the specific circumstances of each country.