03 - Economic Development (Role of MNCs)

Hwa Chong Institution (College): History Paper 1 Theme II: Understanding the Global Economy How did the Development of the Global Economy Impact the World? 1 Role of the Private Sector in Post-War Economic Development A multi-national corporation (MNC) is a corporation or enterprise that manages production establishments or delivers services in at least two countries. Most MNCs are industrial corporations which make goods in factories in various countries and distribute them worldwide. They can take the form of financial corporations or service providers. • Such companies have offices and/or factories in different countries and usually have a centralized head office where they coordinate global management. Nearly all major MNCs are American, Japanese or Western European e.g. Nike, Coca-Cola, Wal-Mart, Toshiba, Honda and BMW. Very large MNCs have budgets exceeding those of countries, and can have powerful influence in international relations and local economies. Most MNCs are from developed countries, and play a major role in developing economies. Since 1945, MNCs have grown rapidly. In 1976, 371 MNCs had branches in 20 countries. Presence of MNCs have often contributed to the productivity and production of the host country, as well as aided and expanded its economic growth. Background: The earliest historical origins of multinational corporations can be traced to the major colonising and imperialist ventures from Western Europe, notably England and Holland, which began in the 16th century and proceeded for the next several hundred years. During this period, firms such as the British East India Trading Company were formed to promote the trading activities or territorial acquisitions of their home countries in the Far East, Africa, and the Americas. The multinational corporations as it is known today, however, did not really appear until the 19th century, with the advent of industrial capitalism and its consequences: the development of the factory system; larger, more capital intensive manufacturing processes; better storage techniques; and faster means of transportation. During the 19th and early 20th centuries, the search for resources including minerals, petroleum, and foodstuffs as well as pressure to protect or increase markets drove transnational expansion by companies almost exclusively from the United States and a handful of Western European nations. Sixty per cent of these corporations' investments went to Latin America, Asia, Africa, and the Middle East. Fueled by numerous mergers and acquisitions, monopolistic and oligopolistic concentration of large transnationals in major sectors such as petrochemicals and food also had its roots in these years. The US agribusiness giant United Fruit Company, for example, controlled 90 per cent of US banana imports by 1899, while at the start of the First World War, Royal Dutch/Shell accounted for 20 per cent of Russia's total oil production. Hwa Chong Institution (College): History Pa