Causes of changes in globalisation: movement of multinational companies (MNCs)

International Trade and Globalisation

Globalisation and Trade Restrictions

Globalisation refers to the increasing integration of world economies through the movement of goods, services, capital, people and ideas. While trade restrictions such as tariffs, quotas and non‑tariff barriers can slow this process, the activities of multinational companies (MNCs) have become a major driver of recent changes in the level of globalisation.

Learning Objective

Understand the causes of changes in globalisation, with particular focus on the movement of multinational companies (MNCs).

What is a Multinational Company (MNC)?

• An enterprise that owns or controls production facilities in more than one country.
• Operates under a single corporate headquarters but adapts its operations to local markets.
• Examples: Toyota, Unilever, Apple, Nestlé.

Why Do MNCs Move Across Borders?

1. Market‑Seeking Motives

   • Access to new consumer markets to increase sales and profits.
   • Exploiting growing middle‑class demand in emerging economies.

2. Resource‑Seeking Motives

   • Locating natural resources (oil, minerals, agricultural products) at lower cost.
   • Access to cheaper or more skilled labour.

3. Efficiency‑Seeking Motives

   • Exploiting economies of scale and scope.
   • Strategic placement of production to minimise transport costs.

4. Strategic‑Seeking Motives

   • Acquiring technology, patents or brand reputation.
   • Reducing exposure to political or economic risk in a single market.

Push and Pull Factors Influencing MNC Relocation

Impact of MNC Movement on Globalisation

• Increases foreign direct investment (FDI), linking economies through capital flows.
• Facilitates technology transfer and diffusion of managerial expertise.
• Creates global supply chains, reducing the relative cost of trade.
• Can lead to convergence of standards, practices and consumer preferences.

Potential Benefits for Host Countries

• Job creation and skill development.
• Higher tax revenues and foreign exchange earnings.
• Improved infrastructure driven by corporate investment.
• Access to advanced technology and management techniques.

Potential Challenges for Host Countries

• Risk of profit repatriation reducing long‑term domestic gains.
• Possible crowding out of local firms.
• Environmental and social concerns if regulations are weak.
• Dependence on multinational decisions that may shift quickly.

Recent Trends in MNC Activity (2020‑2024)

Suggested Diagram

Key Points to Remember

1. MNCs move primarily to access new markets, cheaper resources and improve efficiency.
2. Both push (home‑country) and pull (host‑country) factors shape their location decisions.
3. The expansion of MNCs deepens global integration, but also creates economic and social challenges that governments must manage.