Multinational Corporations in a Global Economy
IR 120 - 201136597 - Catharina Knobloch
As MNCs are getting increasingly important as actors in political bargaining, the purpose of this essay is to provide a (more or less) detailed overview over the sources and limits of the power of multinational corporations (MNCs).
In the first section, I am going to lead into this topic by giving some definitions. In addition to that, I am also going to explain the role of MNCs in the international governance based on the typology of regime types. Then I am going to examine the most important sources and forms of business power, before taking into account the limits and the …show more content…
Sources of Power
It is undisputed that MNCs are powerful political actors in the globalising world. Their growing importance in world system puts limits on state control over domestic economy. Nevertheless, the sources of this power are not always obvious because of the intransparent structure of global politics. I want to concentrate on three of the most unchallenged sources/forms of business power for this reason. Firstly, one source of MNC power is their size. They can benefit from substantial economies of scale/scope, so they do not face too much competition. As a result, they operate in oligopolistic markets. For this reason one could assume that states or international organisations should intervene because a market that is dominated by an MNC is not Pareto efficient and therefore social welfare costs might arise as a consequence. Furthermore, the entry of MNCs in a foreign market can lead to a higher efficiency in the host market, because the domestic firms in that market have to react to increase their competitiveness of their operations. In the end an overall efficiency is improved and the host country will certainly benefit from the entry of the MNC. Therefore the great powers (home of most of the multinationals) are in favour of seeing the MNCs being very powerful and so the multinationals have a strong lobby as well. Another important source of MNC power is that they achieve competitive advantage and grow on the basis of their capabilities and reach