THE RISE OF GLOBAL

Corporation
BY GROUP 5
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LEARNING Objectives
1. Identify the most meaningful challenges encountered
by multinational corporations (MNCs) when pursuing
global markets and efficiencies:
2. Discuss the economies of Multinational Corporation,
3. Explain the historical growth of MNC's.
03
01

4. Assessing the power of Large Corporations; and

04

05
5. Analyzing
06
the social and environmental
responsibilities
07 of large corporations.
INTRODUCTION
INTRODUCTION
 INTRODUCTION
Large corporations are an economic, political,
environmental, and cultural force that is unavoidable in
today's globalized world. Large corporations have an
impact on the lives of billions of people every day, often in
complex and imperceptible ways.
 Consider a consumer in the United States who
purchases a pint of Ben & Jerry's ice cream.

For example, as of 2001 the company has packaged all

pints in unbleached paperboard Eco-Pint containers and its
One Sweet Whirled campaign is dedicated to addressing
the issue of global climate change.
Two factors in particular contributed to this development.
State and federal laws and judicial decisions created a
legal atmosphere that favored incorporation, while
technological developments and organizational
innovations in transportation, communications, and
manufacturing made large business enterprises possible
as well as profitable.
THE ECONOMICS OF MULTINATIONAL
CORPORATIONS
The terms "multinational corporation", "transnational
corporation" and "global corporation" are often used
interchangeably. A multinational corporation is defined
here as firm that owns and operates subsidiaries in more
than one country. While a MNC does not necessarily have
to be a large firm, the world's largest firms are generally
MNCS
 Global Distribution of MNCs

According to the United Nations Conference on Trade and

Development (UNCTAD), there were about 75,000 MNCs
operating worldwide in 2005. These firms are classified
according to the location of the parent company, although
this location is not necessarily where most of its business
is conducted. About 73% of MNCs are headquartered in
developed industrial economies.
Growth of World
Output
GROWTH OF WORLD
OUTPUT

Global growth is the growth in the

production of goods in services over a
given period of time. It is closely tied to
economic growth and rising GDP. It is
often measured as the percentage of
change in real GDP over a time frame.
Growth of World
Output, 2015-2019
Estimated by UN/DESA

Fiscal year basis

Includes goods and services

Based on 2012 benchmark

Ranking the World's
Largest Firms

Several approaches have been proposed

to rank the world's largest corporations.
The most common approaches to rank
firms is by their annual revenues, value
added, employment rate, and total
foreign assets.
RANKING
OF
WORLD’S
LARGEST
FIRM BY
REVENUE
AND
VALUE
ADDED
RANKING OF
WORLD’S
LARGEST
FIRM BY
EMPLOYMEN
T AND
FOREIGN
ASSETS
RISE OF THE
Corporation
Rise of the Corporation
At the turn of the century business
enterprises in the United States operated on
a smallscale, and the dominant figures in
American commerce were merchant
capitalists.
Rise of Corporation
Manufacturing was often carried out by artisans
with limited assistance, while the textile and
shoe industries utilized the putting-out system,
involving home-based workers. The major
industrial concerns, such as iron foundries and
shipyards, typically had fewer than fifty
employees.
RISE OF THE CORPORATION
Between 1815 and 1840 this situation
changed dramatically for two major reasons.
The Industrial Revolution expanded from England
to New England, leading to the rise of the factory
system.
Initially focused on textiles and shoes, the factory
system replaced artisanal and putting-out
systems by 1840.
Corporations began to replace individuals and
limited partnerships due to the capital-intensive
nature of factories.

Legal changes, including simplified incorporation

processes and limited liability, contributed to the
shift towards corporations.

State court decisions like Vose v. Grant (1818)

and Spear v. Grant (1819) established the
principle of limited liability..
Rise of the corporation

Between 1840 and 1860, corporations emerged

as the preferred method for financing and
organizing businesses. American merchant
capitalists, facing challenges from subsidized
British firms, shifted their capital from trade to
manufacturing, drawn by the limited-liability
benefits and substantial profits of factories.
 EXPLAINING THE HISTORICAL GROWTH OF
MULTINATIONAL CORPORATIONS

Modern large corporations are private entities under the

control of corporate officers and ultimately, shareholders
who own direct stakes in the firm. the profits of a
corporation are distributed to its shareholders in proportion
to the number of shares they own. Most economists assert
that the primary objective of corporations is to make a
profit for their shareholders, with other objectives being
subordinate.
 Corporate
History in the
United States
Corporate History in the United States
In early America, states chartered corporations as public
entities, accountable to the public good. Until the Civil War,
corporate charters could be revoked for not serving public
interests, with limited lifespans. The shift to defining
corporations as private entities occurred after the Civil
War, granting them legal rights akin to individuals in 1886.
Accountability became limited to operating within the
confines of the law.
Corporations' power significantly increased by the
late 19th century.

State laws limiting corporation size were

circumvented through the creation of "trusts"
feigning independence, exemplified by John D.
Rockefeller's Standard Oil.

In 1889, New Jersey passed the first law allowing one

Corporation to own equity in others, initiating a period of
states competing to attract corporations by lifting restrictions.
States like New Jersey, New York, and Delaware
battled to entice large corporations, with New
Jersey being the most permissive.
By 1900, 95% of the nation's large corporations
had shifted their headquarters to New Jersey.

A populist movement emerged against growing

corporate power, leading to anti-trust laws and
the break-up of large corporations like Standard
Oil.
In the 20th century, anti-trust regulations were
enforced post-Great Depression, emphasizing
corporations serving the public good. Keynesian
economics and strong labor unions checked
corporate power until the 1970s.

In the 1970s, conservative leaders like Reagan

and Thatcher relaxed anti-trust laws, reduced
corporate tax rates, and embraced deregulation,
fostering the growth of large corporations.
Free-market capitalism solidified globally after the
fall of the Soviet Union. American corporations
expanded into former Communist countries,
benefiting from a "Washington consensus"
favoring free trade and privatization.

Modern corporations, unlike those in the 19th

century, operate globally, impacting people
worldwide and benefiting from international
agreements and preferential treatment by
nations.
 TRADITIONAL
EXPLANATIONS OF THE
GROWTH OF
Large Coporations
 TRADITIONAL EXPLANATIONS OF THE GROWTH OF
LARGE COPORATIONS

The two traditional economic explanations for the

growth of firms have been economies of scale and
economies of scope.

Economies of Scale
-result from lower per-unit production costs with increased quantity, often
achieved through division of labor and mechanized production in modern
multinational corporations.
TRADITIONAL EXPLANATIONS OF THE GROWTH OF
LARGE COPORATIONS

The two traditional economic explanations for the

growth of firms have been economies of scale and
economies of scope.

Economies of Scope
-occur when a firm lowers per-unit costs by expanding its product
variety, either by adding similar products or diversifying into unrelated
ones.
 TRADITIONAL EXPLANATIONS OF THE GROWTH OF
LARGE COPORATIONS

Division of Labor
-through specialization is one reason per-unit costs decrease as production
increases

Adam Smith
-he described in the 18th century how a pin factory can increase its output
significantly if each worker repeatedly performs a specific task in the production
process rather than having each worker independently make complete pins from
the scratch.
THE INTERNATIONAL
MOBILITY OF
Multinational Corporation
THE INTERNATIONAL MOBILITY OF MULTINATIONAL
CORPORATIONS
The most notable competitive advantage of MNCs
in recent years is likely international mobility.

International Mobility- the ability of a firm to transfer resources

across national borders

In the decades following World War II the “internationalization” of

corporations, primarily American, took place through the
establishment of foreign affiliates intended to serve the markets in
which they were located.
Savings from low-cost foreign production are
increasingly achieved through contracts with external
suppliers, a trend commonly referred to as
outsourcing.

Relying on subcontractors offers MNCs several advantages.

First, with short-term contracts and no large capital investments firms
can quickly shift to contracts in other countries if even lower costs are
possible. Second, corporations can avoid some responsibility for
instituting fair labor practices and meeting environmental standards
by claiming these are at least jointly the duty of the subcontractors.
ASSESSING THE POWER OF LARGE CORPORATIONS

The most difficult problem in assessing the

economic and political power of large
corporations, and determining whether this
power is increasing, is that a commonly-
accepted metric measuring corporate power
does not exist.
 Industry
Concentration
Ratios
INDUSTRY CONCENTRATION RATIOS

Industry concentration ratios calculate the

receipts of the largest firms in an industry as
a percentage of total industry receipts. The
most common concentration ratios are based
on the largest four, eight, twenty, and fifty
firms in an industry
Industry concentration ratios
from the United States for
2002 indicate that some
industries are oligopolistic
while others are not (Table
2). Concentration ratios are
quite high in industries such
as tobacco, petrochemicals,
and cellular communications.
Industries such as insurance
and real estate are less
concentrated.
Corporate
Economic
Statistics
CORPORATE ECONOMIC STATISTICS

A second approach for assessing the power of

large corporations is to measure economic
variables such as revenues and profits,
tracking these over time in relation to broader
economic data. As mentioned previously,
while global GDP increased by a factor of 3.89
between 1983 and 2005, the revenues of the
world's 50 largest firms increased by a factor
of 3.92 during this same period.
CORPORATE ECONOMIC STATISTICS

While no reliable data are available on total

global capital assets, data from the U.S.
Bureau of Economic Analysis indicates that
total fixed non-residential assets in the United
States increased by only 77% during this
same period. These data suggest, but do not
prove, a dramatic increase during the 1980s
and 1990s in the concentration of productive
assets in the hands of the world's largest
corporations.
 THE DECLINING POWER OF
LABOR UNIONS
Corporate power can be assessed by looking at the
strength of countervailing forces seeking to limit the
influence of corporations.
The most powerful countervailing force to corporate power has
historically been labor unions. A decline in union power may signify the
ability of corporations to weaken their “opponents".
During the period 1980-1994 union membership declined in 13 of 19
OECD countries.Averaged across these 19 countries, union membership
in the workforce declined from 46% to 40% during this period.
CORPORATE TAX AND SUBSIDY DATA
The final approach to
assessing corporate power
estimates their ability to
reduce their tax burden.
Corporations can lobby for
changes in tax laws or
influence the level of tax code
enforcement by government
agencies.
Most surprising, many corporations pay negative taxes,
actually receiving tax rebates despite making large
profits. In 2003, forty-six large U.S. corporations received
tax rebates while still making huge profits, including
Pfizer, Boeing, and AT&T. Average tax rates are
particularly low in the military, telecommunications, and
petroleum industries
The Political
Influence of
Corporations
 THE POLITICAL INFLUENCE OF CORPORATIONS
Corporations can influence governments through political donations
and direct lobbying.

According to Center for Responsive Politics (CRP) federal lobbying

expenses since 2006 were about 2.6 billion dollars, up 16% from
two years earlier and up 62% since 2000.35.

With about 4,000 registered lobbyists, this means there are more
than seven lobbyists for every member of Congress.
THE POLITICAL INFLUENCE OF CORPORATIONS
Large corporations are also avid contributors to political
campaigns.Top corporate donors in the 2004 election cycle,
according to the CRP, included Goldman Sachs, Microsoft, Time
Warner, and Morgan Stanley.

Political contributions and lobbying can be effective in influencing

public policy.
 The Power of
International Mobility
THE POWER OF INTERNATIONAL MOBILITY
The more mobile a multinational corporation becomes, the
more able it is to relocate production or seek new
contractors as a result of changes in national regulations
concerning workplace standards, minimum wages, and
environmental quality.

Nations, concerned about losing employer and tax

revenues, may be less apt to stricter regulations and may
even repeal existing regulations.
 THE POWER OF INTERNATIONAL MOBILITY

A critic of MNCs has said that multinationals: “are in effect,

conducting a peripatetic global jobs competition, awarding
shares of production to those who make the highest bid—
that is, the greatest concessions by the public domain.”
 THE POWER OF INTERNATIONAL MOBILITY
The mobility of MNCs allows them to shift production and profit
across national borders in an attempt to reduce their tax burden.
This creates an environment where nations compete against
each other by offering MNCs low tax rate on profit and
investment.

While benefiting from competition by nations, MNCs have also

obtained powerful concessions in recent international trade
agreements.
 The Social and
Environmental
Responsibilities of
Large Corporations
 The Social and Environmental
Responsibilities of Large Corporations

Large MNCs generally operate in oligopolistic markets.

Oligopolies do not tend to be efficient from either an
economic or social perspective.

By virtue of their sheer magnitude, the activities of

MNCs can have large spillover effects on society.
 The Social and Environmental
Responsibilities of Large Corporations

The conception of corporations as merely economic

entities is being replaced by a view that places
corporations in broader economic, social and
environmental context -----often called the “triple
bottom line.”
 The Social and Environmental
Responsibilities of Large Corporations

The triple bottom line is a business

concept that states firms should
commit to measuring their social
and environmental impact—in
addition to their financial
performance—rather than solely
focusing on generating profit, or the
standard “bottom line.”
 Benefits of Large
Corporations
Large corporations seek out low-cost production
opportunities provides a benefit to consumers in the form of
lower prices.

Large corporations offer some advantages to their

employees, who are more likely than workers in small firms to
receive fringe benefits such as health care and pensions.
 Benefits of Large
Corporations
Large corporations implicitly recognize their
interconnection with society in their donations to non-
profit organizations. For example, Wal-Mart donated a
total of $270 million in 2006 to thousands of
organizations.
CORPORATE
Scandal
 CORPORATE SCANDAL

The regulation of corporate business practices received

increase attention in response to a wave of corporate
scandal. The primary issue has been the exaggeration of
profit, and stock prices using unethical or illegal
accounting practices
CORPORATE SCANDAL

ACCOUNTING SCANDAL linked to widespread use of

stock options as a means of executive compensation in
the late 20th century. Accounting methods often
permitted executives to keep losses and liabilities off the
books.
 CORPORATE SCANDAL
The case of WorldCom, the
telecommunications firm whose
stock price fell from over $60 a
share to just pennies as it
became evident that the
company's profits had been
overstated by nearly $4 billion.
SOCIAL AND ENVIRONMENTAL IMPACTS
OF A LARGE CORPORATIONS
Economic activities often impact those who are not involved in the
activity.

For example, a corporation manufacturing automobiles generates

pollution and the cost of this pollution is borne by nearby residents.
SOCIAL AND ENVIRONMENTAL IMPACTS
OF A LARGE CORPORATIONS
External costs or benefits
arising from economic
activities are referred to
as externalities.
SOCIAL AND ENVIRONMENTAL IMPACTS OF A
LARGE CORPORATIONS
"Given the close relation between minimizing costs and maximizing
profits, it is natural to assume that an organization that seeks profits and
has significant political power will feel some motivation to use that power
to externalize costs, where possible. This motivation may be held in check
by ethical considerations, by regulation, or by a fear of backlash from
groups that might harm the organization;
for example, consumer groups, or others who could mobilize effective
public opinion."
SOCIAL AND ENVIRONMENTAL IMPACTS OF A
LARGE CORPORATIONS

Large firms also use their power to shift some of the costs of doing
business onto the public sector. Example, a large firm may convince a
municipality to build a new road near a production or distribution facility.
The benefits the firm receives from the road may be disproportional to
the costs it pays through taxes effectively the public provides a subtle
subsidy to the firm

$2.6 trillion for 1994 in the United States

Voluntary
Efforts at
Corporate Reform
 Voluntary Efforts at
Corporate Reform
Corporations are required by law to publish annual financial reports.
Recognizing their broader responsibilities conceptualized in the triple
bottom line, nearly all large MNCs also publish reports detailing their
impacts on societies and the environment.

For example, Shell publishes annual data on its effortsto reduce

emissions of greenhouse gases and Unilever describes their efforts
to purchase raw materials from local suppliers in developing
countries.
Voluntary Efforts at Corporate Reform
A problem with these publications is a lack of standardization and
independent verification. A notable effort to increase the transparency and
consistency of corporations' environmental and social performance is the
Global Reporting Initiative(GRI).

The GRI, founded in 1997, seeks to:

"Develop and disseminate globally applicable sustainability reporting
guidelines for voluntary use by organizations reporting on the economic,
environmental, and social dimensions of their activities, products, and
services."
Voluntary Efforts at Corporate Reform

The GRI has published reporting guidelines for firms wishing to

participate in the project. So far, about 1,000 500 corporations
have adopted these guidelines in preparing reports, including
AT&T, Ford Motor Company, Nike, Nissan, and Shell. These
guidelines explicitly incorporate the triple bottom line concept of
financial, environmental, and social issues.
Voluntary Efforts at Corporate Reform

Eco labeling
Eco labeling either indicate the overall environmental impacts of a product,
or else identify those products that pass certification criteria. Eco-labeling is
now common in such industries as major home appliances, forestry
products, and organic foods. For example, Home Depot seeks to purchase
wood that has been certified by the Forest Stewardship Council as meeting a
list of ten environmental and social criteria.
 INSTITUTIONAL REFORM OF LARGE
CORPORATIONS

Institutional reform of large corporations is necessary

because voluntary measures are unlikely to fully align
corporate behavior with social and environmental goals.
Corporate decision makers often prioritize shareholder
demands over the impacts of their decisions on other
stakeholders.
 Stakeholder Actions
The unfavorable media attention arising from consumer boycotts
can lead to reduced sales and profits. A Business Week (2000)
article notes: "Citizen attacks on corporations have been
surprisingly effective, and many executives have seen how
stonewalling and defensiveness have boomeranged. In some
cases, the criticism intensifles, with the potential to damage brand
images and sales, undermine companies' standing with regulators
and politicians, and, ultimately, whack a company's stock price."
 Stakeholder Actions

The nascent protest movement commonly referred to as

“global democracy” and epitomized by the Seattle protests
at the World Trade Organization’s ministerial conference in
1999, emphasizes the goal that all stakeholders be fairly
represented in international trade negotiations.
CORPORATE
REFORM AT
THE
National level
CORPORATE REFORM AT THE NATIONAL
LEVEL

Corporate taxation can be viewed as a way to collect fees

from corporations to finance public services and as
compensation for external costs imposed on society
 CORPORATE REFORM AT THE NATIONAL
LEVEL
Some proposed reforms that could be enacted in the U.S. include:
Enforcement of antitrust laws is an obvious means to limit the
power of large corporations that obtain monopoly power
Campaign finance reform could limit the power of corporations in
the political arena. The McCain-Feingold reform bill passed by the
U.S. Congress in March 2002 was designed to end unlimited soft
money contributions to political parties.
 CORPORATE REFORM AT THE NATIONAL
LEVEL
National regulations can stipulate that stakeholders need to be formally
integrated into the decision making process of corporations.

In Germany, as well as other European countries, works councils are elected to:
"institutionalize worker rights to information and consultation on the organization
of production and, in some cases, codetermination of decision making, in addition
to institutionalizing worker input, works councils enforce state regulation of the
workplace in such areas as occupational health and safety. They are seen as
being able to extend their reach beyond the unionized sector while supplementing
the work that unions already do."
 CORPORATE REFORM AT THE NATIONAL
LEVEL
Other proposals for corporate restructuring:

Modest proposals would require a community representative or other external

voice on the board of corporations.

More ambitious proposals would transfer varying degrees of ownership to the

community or seek to reestablish large corporations as entities that are
specifically chartered to provide for the overall welfare of society.
CORPORATE
REFORM AT
THE
International level
CORPORATE REFORM AT THE INTERNATIONAL LEVEL
As corporations increasingly operate in a global market that transcends
national boundaries, the possibility of using their mobility to avoid national
regulations increases. Thus the regulations of MNCs are often best
approached at the international level through treaties, international
institutions, and the coordination of national policies.

For all practical purposes international institutions to enact and enforce

corporate regulations are currently non-existent and unlikely to arise in the
near future.
CORPORATE REFORM AT THE INTERNATIONAL LEVEL

Currently, international trade agreements are likely to provide the most

effective means to regulate MNCs. The key to international trade agreements
that reduce corporate externalities is that all stakeholders be represented.

Unfortunately, international trade policy is currently conducted under

circumstances that are deficient on both counts.
Thank you
for listening
MEET OUR TEAM!
Eurica C. Banca
Leader

Rielem Kit C. Cabasa Catherine Gomez

Rachelle Anne S. Dizon Sharmaine Leona

Llyra Miles Despi Lance San Jose