SCIT

4th Semester

Prof. Saravan K

Management of Globalization

Core Course

Transnational Corporations
The dominance of a few firms in multiple
markets affects the economics of the sector.
Transnational businesses shapes trade and
thus affects consumption security and
development in developing countries
The role of transnational corporations (TNCs)
is increasing and questions some previous
assumptions about the degree of
competitiveness of global commodity markets

Some issues - TNCs

Lack of political will to curb abuses of power
by developed countries
Transnational corporations engage in trade,
not countries, not small producers
the horizontal and vertical integration of the
producing system a smaller number of
companies now dominate each business
the political and economic weakness of most
small producers government interventions
are inadequate

Increasing role of TNCs

The economically rational approach of

dominant transnational firms

Policies influenced by the powerful lobbying

of TNCs, not fully determined by producers,
consumers or govt.

TNCs are becoming large because

commodity trading is very risky
Requires sources of long-term capital
Need to maintain capital on terms that can prevent

participation of smaller players

.. Increasing role of TNCs

Horizontal integration refers to consolidation at a

given point in the production process: a relatively
small number of firms effectively control a given
market. Horizontal concentration increases the
market power of the dominant firms, enabling
them to secure excessive profits.

Vertical integration describes an industry where

one company either owns, or controls through
joint ventures, multiple stages in a production
chain. As vertical integration is globalized, the
open market assumptions upon which trade
liberalization is based become less relevant to
actual operations.

Global Compact
As

TNCs gained momentum, the UN

looked into their social and economic
impact on nations, esp. the developing
world
The existence of TNCs examined largely cross-border economic activities were
believed to disadvantage host countries
Conflicting political interests, authority to
implement code delegated to UN? hostile
attitude of the UN toward business ?

Global Compact - Initiative

A new institutional infrastructure for corporate

responsibility, containing many voluntary
initiatives (eg: monitoring single production
facilities, framework for disclosing social and
environmental information to stakeholders)

Some of these initiatives aim at monitoring single

production facilities (e.g., Social Accountability
8000 or the Fair Labor Association), while yet
others provide a framework for disclosing social
and environmental information to stakeholders
(e.g., the Global Reporting Initiative)

Principles of the UN Global Compact

Human Rights

Business should support and respect the protection of

international human rights; and make sure they are not
complicit in human rights abuses.

Labour Rights

Business should uphold the freedom of association and

the effective recognition of the right to collective
bargaining; the elimination of all forms of forced and
compulsory labour; the effective abolition of child
labour; and the elimination of discrimination in respect of
employment and occupation.

Environment

Business should support a precautionary approach to

environmental challenges; undertake initiatives to
promote greater environmental responsibility; and
encourage the development and diffusion of
environmentally friendly technologies.

Anti-corruption

Business should work against all forms of corruption,

including extortion and bribery.

Working Process

Once a business joins the Global Compact, it enters into a

continuous improvement process on its social and
environmental performance.
Global Compact does not contain any monitoring mechanisms,
separate accountability framework
UN does not publicly endorse the corporate responsibility
practices of Global Compact participants. This limits
commercial usage of UN logo.
A compliance procedure allows stakeholders to report any
systematic abuse of the initiatives aims.
Global Compact does not involve legal action related to a
complaint, but will assist in the resolution of the matter.
All business participants are required to submit an annual
Communication on Progress reporting implementation
progress.

Global Compact Governance

Governance is decentralized and emerges through the

interplay of five entities (i.e., Board, Global Compact Office,
Local Networks, Inter-Agency Team, and Donor Group).

Governance is based on multi-stakeholder collaboration.

Global Compact is a business-led initiative, but also includes
other stakeholders such as NGOs, organized labour, and UN
representatives.

Unlike traditional command-and-control type of governance,

the Compact requires participants themselves to endorse any
changes to the way the initiative works. Participants are not
just on the receiving end of governance, but are empowered to
actively shape the design and future functioning of the
Compact. Bottom-up communication is welcome

Need for global Compact

Many countries have entered into a race to the bottom

competing for corporate investments by lowering their
regulations

TNCs have been involved in many of these problems

the cases of sweatshop labour conditions, human rights
violations, cooperation with repressive regimes

The Compact principles reflect existing UN core

conventions, which are aimed at nation-states, into
relevant business principles.

The filling of gaps in governance, increase in number

of NGOs consulting for UN, increase in private
regulation through multi-stakeholder initiatives

Pressures for TNCs

TNC firms face many pressures forcing /

encouraging them to participate. Institutional
pressure publicly listed firms show TNCs mimic
adoption behaviour

The role of investors and financial markets is also

important the decision by publicly listed firms to
join the Global Compact leads to better returns in
financial markets positive impression with
investors

TNCs are constantly subject to NGO pressure and

hence can use the Global Compact as one way to
participate

UNDP Millennium Development

goals

Eight Millennium Development Goals (MDGs) were agreed

upon at the United Nations Millennium Summit in 2000 by 192
countries in order to improve the living conditions of the
world's population. These MDGs are: To

1. Reduce extreme poverty and hunger by half relative to 1990

2. Achieve universal primary education
3. Promote gender equality and empowerment of women
4. Reduce child mortality by two-thirds relative to 1990
5. Improve maternal health, including reducing maternal mortality
by three-quarters relative to 1990
6. Prevent the spread of HIV/AIDS, malaria, and other diseases
7. Ensure environmental sustainability
8. Develop a global partnership for development

UNDP MDGs criticisms

The MDGs represent an international consensus,
not a convergence of understanding about
development, its actionable priorities or modes of
address;
It does not address which arenas and what levels
are most urgent, or would provide the largest
and/or fastest improvement in human well-being;
It does not communicate about complex patterns of
causation or the role of international organisations
and international treaties governing forms of
exchange;
They do not distinguish national and regional
history, infrastructure and governance.

MDG progress

The Millennium Summit 2010 was mandated to review progress

and gaps, take account of lessons learned and best practices, and
identify implementation gaps

According to the Millennium Development Goals Report 2010,

The developing world as a whole remains on track to achieve the
poverty reduction target by 2015. The overall poverty rate is still
expected to fall to 15 per cent by 2015, which translates to around
920 million people living under the international poverty line half
the number in 1990.
MDG achievement worldwide has been helped by the rapid
economic growth of China and India
Many key indicators such as extreme poverty, primary education,
child immunisation have shown notable improvement.
Global financial crisis negative effects on development finance
budgets, reduction in donors IMF loans to developed countries
to tide over crisis

MDGs Indias Progress

In India, considerable progress has been made

in the field of basic universal education, gender
equality in education, and global economic
growth.

However there is slow progress in the

improvement of health indicators related to
mortality, morbidity, and various environmental
factors contributing to poor health conditions.

Goal 1: Eradicate Extreme

Poverty and Hunger

The period between 1981 and 2005 as

India has moved from having 60% of its
people living on less than $1.25 a day to
42%, while the number of people living
below a dollar a day (2005 prices) has also
come down from 42% to 24%.

National estimates the percentage of

population living below the poverty line was
36%for 1993-94. In 2008, this percentage
reduced to 25% (due to the average growth
rate of the economy being more than 7%)

Goal 2: Achieve Universal

Basic Education

The youth literacy rate, that is the

literacy rate of the 15 to 24 year olds,
has shown an appreciable increase from
61.9% (1991) to 82.1% (2007).

The literacy rate of female youth has

increased remarkably from 49.3% in
1991 to 77.1% in 2007, compared to
that of males (73.5% in 1991 to 86.7% in
2007).

End of Lecture