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MN3301 Presentation

Does the growing importance of transnational corporations undermine the importance of locality and national advantage as the key determinants of competitiveness’?
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Martin Minvielle

on 23 February 2011

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Transcript of MN3301 Presentation

Does the of

the importance of and
as the of ? growing importance
transnational corporations undermine locality national advantage key determinants competitiveness Martin Minvielle Alexis Du Peloux Melissa Fernandez David Fry Marc Legrand Hans Franklin Kaushik Kumar What is a TNC? Significance of TNC? Its co-ordination and control of various stages of individual productions and chains within and between different countries
Its potential ability to take advantage of geographical differences in the distribution of factors of production and in state policies
Its geographical flexibility - an ability to switch its resources and operations between locations at an international, or even global scale Growing importance of TNCs Regional Distribution of the Affiliates of the Largest 100 TNCs The 100 Largest Non-Financial TNCs Global Trends Locality and National Advantage as Key
Determinants of Competitiveness A geographic concentration of inter-connected companies and institutions working in a common industry in influencing competitiveness 3 ways increase the productivity of the companies in the cluster
drive the direction and pace of innovation
stimulate the formation of new businesses within the cluster Paradox: Harvard Business Review Nov-Dec 1998

"In theory, location should no longer be a source of competitive advantage: Open global markets, rapid transportation, and high-speed communications should allow any company to source any thing from any place at any time" 1 - Porter's Cluster for Locality 2 - Porter's Diamond Model for National Advantage Locality & National Advantage are important anymore NOT Capitalistic World Economy
Internationalisation of Circuits of Capital 1 - Marx's 'Laws of Motion' of Capitalism and Circuits of Capital 2 - Reich's Global Web, 1992 Unskilled laborers in low-wage countries
Easier to export the factories rather than import the workers 3 - Ohmae's Borderless World, 1989 See Think & Globally
Speed of Information
Insiderisation 4 - TNC Development, a Sequential Process Locality & National Advantage are STILL important 1 - Rugman: Significance of the Triad Rugman - Corporate and regional HQ have specific locations within the "Triad nations'
Rugman Key Theory: Globalisation is a myth
R&D, decision making operations still largely in the home base
Location of decision making process reiterates in the importance of locality in TNCs competititve strategy Rugman and Verbeke: Statistical Support Of the with data on geographic sales, as many as of their their of the Triad.
(Only 9 firms in the set were global, with less than 50% of sales in their home region and over 20% of sales in each region of the Triad) 380 firms 320 have an average of 80% sales in home region R&D is also predominantly within the global triad.
Less than located more than of their technological activity
Greater than performed of technological activity 10% 50% outside their home. 40% below 1% abroad. 2 - Globalisation remains a myth 'The world's largest 100 TNCs are mainly Triad-based regional players, not global ones.' 3 - 'Glocal' Significance J.P. Morgan - 'the key to global performance is understanding local differences
Unilever - 'multi-local multinational'
HSBC - 'local insight global outlook'
Sony - 'glocalisation' Globalisation + Localisation = Glocalisation
TNCs must be able to respond to the local market sophistication in order to sustain competitiveness. Strategically, all TNCs must therefore resolve the basic tension between globalising and localising pressures. 4 - Raymond Vernon PLC Comparative examples within the Oil, Automobile and Food industries 5 - How are Oil suppliers transnational ? OPEC members oil exports by destination, 2009 “Other than the United States, no single country accounted for 10 percent or more of the company’s total sales and other operating revenues in 2009, 2008 and 2007.” Annual Statement 2009 Non current assets - property, plant and equipment 6 - The Automobile industry 7 - The Food industry By late 1990's Nestlé had 500 factories in 76 countries and sold its products in 193 Similarly only 3% of its 280,000 employees were located in Switzerland. Focuses on trying to optimize ingredients and processing technology to local conditions and then using a brand name that resonates locally. Customization rather globalization is the key to the company’s strategy. Sells its products in more than 155 countries Employs 103 000 people in 70 countries Organization structure is less decentralized Challenges in selling worldwide : Transport costs : Heavy products Import Taxes and quotas in Brazil and Mexico Toyota's painting/color lab in Nice, FRANCE Toyota's exterior and interior design lab in California, USA All major conceptualization, technology development within electronics, engines, safety and testing are all in JAPAN Foreign R&D percentages 38% 27% 8-Comparing industries Oil industry high foreign asset % Automobile and Food industry lower foreign asset % due to high R&D in home base American firms : Kraft and Chevron have lower foreign sales and employement due to important domestic market The Food, Oil and to a certain extent the automobile industry are vital to any developed or developing country : all foreign sales > 50 % Nestlé at a glance Nestlé location of R&D How to estimate TNC Importance? FDI (75% world inflows)
Transnational index
- ratio Foreign Asset to Total asset
- ratio of Foreign Sales to Total Sales
- ratio of Foreign Employment to Total Employment To Conclude
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