AMERICAN TNCs: BROKEN PROMISE OF FREEDOM AND EQUALITY OF OPPORTUNITY

As economic development has become the leading objective of each nation in the world, human care has been gradually faded in order to fulfill that goal. The existence and growth of transnational corporations (TNCs), especially American TNCs has further highlighted that tendency while the USA is often described as destination for freedom and equality. Therefore, this research investigates American TNCs’ respect for freedom and equal opportunity in terms of their labor treatments and expansion strategies when they operate their affiliates abroad. Secondary approach with documentary and contextual analysis of observed phenomenon and case study are intensively used to study about American TNCs’ activities, the coordination between their operation and code of conduct in business through detailed contexts. Results of the study prove the link between the expansions of crossborder capitalism and broken promise for better practice of worker and human rights. In particular, burgeoning penetration of American TNCs has threatened host countries’ territorial sovereignty. Furthermore, under the pressure of cutting cost, American TNCs have exploited cheap labor force, and have implemented irrelevant wage levels, poor employees’ benefits and have offered inadequate training and promotion. They also create unequal competition in the interaction with local firms to maintain their monopoly.

VIETNAM NATIONAL UNIVERSITY, HANOI

UNIVERSITY OF LANGUAGES AND INTERNATIONAL STUDIES

FACULTY OF ENGLISH LANGUAGE TEACHER EDUCATION

VIETNAM NATIONAL UNIVERSITY, HANOI

UNIVERSITY OF LANGUAGES AND INTERNATIONAL STUDIES

FACULTY OF ENGLISH LANGUAGE TEACHER EDUCATION

I hereby state that I, Nguyen Tuan Anh, being a candidate for the degree ofBachelor of Arts (English – International Business) accept the requirements of theCollege relating to the retention and use of Bachelor‘s Graduation Paper deposited in thelibrary

In terms of these conditions, I agree that the origin of my paper deposited in thelibrary should be accessible for the purposes of study and research, in accordance withthe normal conditions established by the librarian for the care, loan or reproduction ofthe paper

Signature

Date

ACKNOWLEDGMENTS

First and foremost, I would like to express my deepest gratitude to Ms Nguyen LeHuong, MA, my supervisor, who has supported me in choosing this topic andsupervised my work carefully Her proper and critical guides as well as valuableencouragements during the research process were the most solid support for thecomplete study Without her enthusiastic instruction, I will not fully complete myresearch as desired.

In addition, I am genuinely grateful to Dr Nguyen Kim Anh, my lecturer inInternational Investment course Thanks to her substantial help, I could gain usefulmaterials for the research

Lastly, I want to sincerely say thanks to my beloved family and friends with theirwarm and prompt encouragements and help to finish my research on the right tract

ABSTRACT

As economic development has become the leading objective of each nation inthe world, human care has been gradually faded in order to fulfill that goal Theexistence and growth of transnational corporations (TNCs), especially AmericanTNCs has further highlighted that tendency while the USA is often described asdestination for freedom and equality Therefore, this research investigates AmericanTNCs’ respect for freedom and equal opportunity in terms of their labor treatmentsand expansion strategies when they operate their affiliates abroad

Secondary approach with documentary and contextual analysis of observedphenomenon and case study are intensively used to study about American TNCs’activities, the co-ordination between their operation and code of conduct in businessthrough detailed contexts

Results of the study prove the link between the expansions of cross-bordercapitalism and broken promise for better practice of worker and human rights Inparticular, burgeoning penetration of American TNCs has threatened host countries’territorial sovereignty Furthermore, under the pressure of cutting cost, AmericanTNCs have exploited cheap labor force, and have implemented irrelevant wage levels,poor employees’ benefits and have offered inadequate training and promotion Theyalso create unequal competition in the interaction with local firms to maintain theirmonopoly

LIST OF TABLES AND FIGURES

LIST OF TABLES PAGE

Abstract ii

List of tables and figures iii

Page Chapter 1: Introduction 1.1.Statement of problem & rationale for the study 1

1.2.Statement of research questions 3

1.3.Research goals and objectives 3

1.4.Scope of the study 4

1.5.Significance of the study 5

1.6.Design of the study 5

Chapter 2: Literature review 2.1 Definition and classification of international investment 7

2.1.1 Definition 7

2.1.2 Classification of international investment 8

2.2 Definition of TNCs and their forms of investment 8

2.2.1 Definition 8

2.2.2 Forms of TNCs 8

2.3.Establishment of TNCs – the spread of transnational capitalism 9

2.3.1Motivations of companies reaching a certain size to become TNCs 9

2.3.2 Traditional values that drive American TNCs’ growth 11

2.4 A brief history of TNCs & American TNCs’ development 13

2.4.1.From origins to World War II 13

2.4.2.From 1945 – to present 15

2.5 Roles of TNC in global economy and social development 17

2.5.1.Economic and social achievements brought to host country 17

2.5.2 Economic and social achievements brought to the whole world 18

Chapter 3: Methodology 20

Chapter 4: TNCs and national sovereignty 4.1.Territorial penetration 22

4.2.Interferences into local state’s economic system 23

4.2.1.Financial dependence 23

4.2.2 Interference with balance of payment 25

4.3.Political intervention 26

4.4.Integrated cultures 30

Chapter 5: TNCs and Employment issues 5.1 Human resources management issues 33

5.1.1.Labor exploitation 33

5.1.2.Worker’s Trade Union rights 35

5.1.3.Attacks on physical integrity 36

5.2 Wage levels and employee benefits 38

5.2.1.Unequal payment 38

5.2.2.Massive home worker lay-offs 39

5.2.3.Workforce training and promotion opportunity 40

5.3 Working conditions and employees’ health and safety 41

Chapter 6: TNCs and Competition 43

Chapter 7: Conclusions, implications, limitations and suggestions 7.1 Conclusions and implications 45

7.2 Limitations of the study and suggestions for further studies 47

References 48

Appendices 53

CHAPTER 1: INTRODUCTION

1.1 Statement of problem & rationale for the study

It is obvious that all nations and territories over the globe have an excessivedemand for development The “growth-centered” tendencies with the principal focus

on economic objectives have undeniably brought countries great benefits However,the over-concentration on economic achievements for many years has now revealedits back-sides on the society

“Growth-centered economic policies accelerate the breakdown of the earth's regenerative systems, and intensify the competition between rich and poor for the earth's remaining real wealth The result is a three-fold human crisis of increasing poverty, environmental destruction, and social disintegration” (David C Kotern, 1990)

Needless to say, humans are the most vital factor regulating the destiny of ourwhole planet Therefore, people development should be constantly invested in themost comprehensive way, as it will ensure the sustainable existence of our earth.Nonetheless, the force of globalization and external competition has reinforcedeconomic “growth-centered” policies This unbalance has significantly triggered aneglect of care to humans

Nowadays, international investments have strengthened not only the prosperity

of participating countries but the growth of the whole world as well Trans-national

corporations (TNCs) with their FDI outflows have obtained greatest achievements,profits and success in the global market They also brought host countries a greatnumber of jobs, advanced technologies, modern facilities, management skills, etc

The United States, one of the most powerful and wealthy nations in the world,has never forgotten to protect human rights and humanitarianism It is often proud of

its values and beliefs in a democratic society “A land of freedom and opportunity”

(Jane Morse, 2010) Furthermore, America’s “people-concentrated” policies inforeign investment and human resources management, which emphasize values offreedom and equality of opportunity, are often praised to be equal and ideal However,have American TNCs broken their accountability commitments? In other words, is theprinciple of people development really applied despite the high-pressure upon thegrowth-centered polices to recover from the recent economic crisis? Those questionsstimulate the curiosity of the writer As a result, this research paper named “AmericanTNCs: broken promise of freedom and equality of opportunities” was conducted

The researcher expects that readers can gain more profound understanding ofAmerican traditional values that drive TNCs’ cross-border expansion, and then get aclearer overview of American TNCs’ offshore investment activities and policies.Moreover, readers will be able to evaluate American TNCs’ human rights promisesand their role as leader in “people–centered” development With this paper, the writerwishes to make his own contribution to the development of humanistic issues as well

as rights of local workforces in developing countries, especially, Vietnam, which hasreceived great amounts of FDI inflows from American TNCs

1.2 Statement of research questions

In order to interpret American TNCs’ respect for freedom and equality ofopportunity, the researcher will concentrate on two main research questions:

1) What are the fundamental values driving American TNCs’ development and

foreign expansion?

2) To what extent have American TNCs violated their values of freedom andequality of opportunity as their human-rights commitment?

1.3 Research goals or objectives

As stated, the US is usually considered to play the flagship role in protectinghuman rights At the federal level, the U.S Commission on Human Rights is put incharge of, and at the national level, the Montgomery County Office of Human Rights

is dedicated to promoting human rights Even, at the municipal level, the City of Rockville set up its own Human Rights Commission (David J Smith & Rockville,

2010)

However, the pressure of the economic crisis has urged the US to pay specialattention to economic growth in order to recover The researcher, therefore, has greatconcerns about whether human rights are highly respected or not Hence, the primaryaim of this research paper is to analyze the American TNCs’ foreign investmentactivities and policies to see if they violate their values of freedom and equality ofopportunity Accordingly, the American TNCs’ broken promise of human rights will

be clarified

In addition, the researcher provides some implications for host countries to employeffective foreign investment policies towards the American FDI inflows so as toprotect the rights for local workers All of these are expected to support the trend of

“people-centered” policies for sustainable development and a crucial need to raisehuman rights, which attract great attention from nations, regions, groups andorganizations

1.4 Scope of study

The research is aimed at observing how American TNCs fulfill their humanrights commitment for freedom and equal opportunity Hence, comparisons andcontrasts on different viewpoints of American TNCs’ operations and employmentpolicies will be collected to clarify the research topic American TNCs would bemainly investigated in the last five decades when those corporations grew rapidly andconducted unethical activities to serve their cross-border expansion The researchtopic is a very sensitive and debating issue, as economists tend to encourage TNCs’capitalism to target economic goals, while socialists do not, because their aim is toattain development stability In this study, American TNCs’ activities will be morecomprehensively analyzed from the viewpoints of socialists to highlight their respect

or disrespect for human rights

1.5 Significance of the study

With this research, readers will be provided with a more profound overview ofAmerican traditional values as well as TNCs’ concepts, which is useful in both socialand economic related fields Furthermore, readers will become aware of our emergingglobal trend - “sustainable development with high respect for human rights” As aresult, “American TNCs: broken promise of freedom and equality of opportunity”firstly proves to be of great help for both teachers and students ,especially those whospecialize in fields of social studies (including American studies, InternationalRelations and International studies), foreign investment as well as other relatedeconomic studies such as international business and foreign trade Besides, it will be anecessary source of references for others who have intentions of conducting aresearch in the same field or related topics

Being a student of the double-major (English – International Business) program,which is brand-new at ULIS - VNU, the researcher hopes that his study willcontribute to the useful reference resources of double-major teachers and students aswell as the development of this program

Finally, this research paper is helpful for readers to raise their awareness of humanrights protection in Vietnam, especially when Vietnam was elected as a member ofUnited Nation Human Rights Council for 2014-2016 tenure by 184 among 192nations on 12 November 2013

1.6 Design of the study

Chapter 2 offers theoretical backgrounds such as international investment matters,concept of TNCs, and traditional values that drive TNCs to conduct their offshoreinvestments.

Chapter 3 - Methodology

This chapter deals with methods of collecting and analyzing data to carry out theresearch

Chapter 4 - TNCs and national sovereignty

Chapter 4 illustrates faded power of host governments on national border, economicsystem, political issues and cultural aspects when American TNCs’ affiliatesparticipate in local economy

Chapter 5: TNCs and unemployment

This chapter clarifies TNCs’ commitment to workplace health and safety, theirpractices in worker training and promotion opportunities, and their policies ofindustrial relations and democracy

Chapter 6 - TNCs and competition

Chapter 6 focuses on analyzing TNCs’ involvement in unequal competition in localmarket as well as fraud and artificial competition

Chapter 7 – Conclusions, Implications, limitations, and suggestions

CHAPTER 2: LITERATURE REVIEW

Foreign direct investment (FDI) serves as an engine for growth and prosperity Itinvolves both ownership and control of the foreign entity by the TransnationalCorporations (TNCs) (Kavaljit, 2007) Thus, the intensive emergence of TNCsquickly accelerates the total FDI flows in the world

This chapter brings readers an overview of matters in international investment andconcepts of TNCs including definitions, forms, roles, establishment and developmenthistory as well as motivation and traditional values that drive TNCs to expand theircapitalism by investing abroad This chapter plays an important role to the wholethesis as the theoretical background to analyze American TNCs’ activities andpolicies with regard to their respect for freedom and equality of opportunity

2.1 Definition and classification of international investment

2.1.1 Definition

“Investment is the use of an amount of assets such as capital, technology, and so

on in a specific economic activity to create one or several products for society in order to gain profit In addition, international investment is defined as a cross-border transfer by investors of tangible or intangible assets in terms of capital, technology, management skills etc to run business so as to earn high profit on global scale.” (Phung, 2001: p.7)

The definition reflects the most distinctive characteristic of TNCs in term of border capitalism In order to spread this economic power, TNCs conduct theirinvestment abroad by transferring assets such as capital, technology etc Accordingly,two most major features distinguishing TNCs’ international investment with otherfinancial activities include “profit” and “risk”

cross-2.1.2 Classification of international investment

International investment is conventionally divided into 2 main groups: ForeignDomestic Investment (FDI) and Foreign Portfolio Investment (FPI): FDI is a realinvestment in factories, capital goods, land and inventories Hence, both capital andmanagement are involved for medium and long-terms Meanwhile, FPI requires thedevelopment of stock and bond markets in other countries because it includespurchases and sales of securities (bonds and stocks) FPI exists when investors own anamount of securities that is not big enough to make any direct management or

influence on the bonds or stocks issuing (Kavaljit Singh, 2007: p15-16)

2.2 Definition of TNCs and their forms of investment

2.2.1 Definition

John Dunning (1992) defines a transnational corporation as “an enterprise that engages in FDI and owns or controls value-adding activities in more than one country”

In such a way, TNCs undertake cross-border investment activities or FDI Thustheir operating assets are not restricted within only one country Their products aremanufactured outside of their country and engage in international consumption

2.2.2 Forms of TNCs

Forms of TNCs’ subsidiaries in host countries are classified based on three maincriteria including investment goals (Vertical investment and Horizontal investment),investment strategy-base (Greenfield investment and Merger & Acquisition) andownership-base (100% foreign owner center and joint venture) (Phung, 2001:p15-21)

(See Appendix 3).

TNCs conduct their different forms of foreign investment with their own specificgoals TNCs sometimes choose vertical investment to make use of host countries’abundant natural resources or horizontal investment to avoid high tariff or joint

venture to reduce risks If these goals solely focus on profits, they will closely link to

their respect to freedom and equality of opportunity (See Appendix 3).

2.3 Establishment of TNCs – the spread of transnational capitalism

2.3.1 Motivations of companies reaching a certain size to become TNCs

On the whole, before setting up affiliates outside home country, Americanbusiness enterprises maintain a medium and small model of operation with modestcapitalism Therefore, their markets are still narrow, offering fewer chances of access

to international distribution market However, they become TNCs undertaking FDIactivities when their capital accumulation grows quickly

From the viewpoint of microeconomics, TNCs’ FDI expansion embarks onnumerous reasons such as seeking a more favorable environment, diversifyingconsumption from external market, host countries’ commitment of significantresources for new products and processes and protecting their market share

(Dunning,1988) (See Appendix 1)

With regards to macroeconomics-based theories, the chief reason for TNCsundertaking FDI is to maximize profits on a global scale by means of effectiveinvestment The home country, which owns redundant funds, often has less efficiency

of using capital than a host country with insufficient funds Therefore, the gapbetween the efficiency of using capital stimulates the FDI inflows and outflows

Nation I Nation II

Figure 1: Mac Dougall-Kemp Model (Phung, 2001: p.46-47)

+ Before capital mobility: GDP of Country I: FGAO; GDP of Country II: JMAO’ + After capital mobility: (capitals equivalent to AB moving from Country I to

Country II)

New capitals = NRAO  Return on

capitals gains NRGC

New capitals = TRAO’  Returns on capitals loses MHTR

New Jobs = FEN  Jobs lose NEGC New Jobs = JET  Jobs lose MHTE

GDP of the whole world: gain ERG+MER = MEG

Table 1: (Phung ,2001: p.46-47) Undeniably, the existence of TNCs and FDI firstly brings the home country more rates of return on capitals while bringing host countries more jobs to increase local incomes Secondly, the GDP of the whole world will also increase resulting from the GDP growth of each nation in the international market

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Jere Behrman, on the other hand, demonstrates 4 different objectives of FDIwhich stimulate TNCs to penetrate foreign investment environment including:resource seeking FDI, market seeking FDI, efficiency seeking FDI , strategic asset

and capitabilities seeking FDI (Phung, 2001: p.63) (See Appendix 2)

2.3.2 Traditional values that drive American TNCs’ growth

Cultural factor plays an important role in doing international business in generaland international investment in particular Each investor brings his or her owntraditional beliefs and values when undertaking foreign investment in host countries

Therefore, foreign culture awareness and integration should be raised Some

traditional values driving American TNCs’ growth can be listed below

The first value to be mentioned is mobility For Americans, mobility has been seen

as a practical solution to a problem If you want a new life, a good way is to moveand make a fresh start This embracement of mobility is deeply rooted in the fact that

American has always been a country of immigrants (Crandall, Maryanne Kearny &

Edward Kearny, 2004)

Following the American tradition of mobility, TNCs may primarily initiate border mobility in order to achieve their specific organizational goals: more favorableenvironment, seeking for abundant natural resources and gaining more profits

cross-The second traditional value that has driven TNCs’ growth is progress, the desire

to move forward by making use of any opportunities that come into sight The desire

of success and progress clearly encourages American TNCs to employ host countries’workforce and natural resources for growth They have grabbed the opportunitiesbrought about by globalization to make other countries’ natural and human resourceswork for their own benefits (Crandall, Maryanne Kearny & Edward Kearny, 2004).The third value that stimulates cross-border capitalism of TNCs is self-reliance.Self-reliance reflects individual’s independence and self-control over any

circumstances Americans express respect to successful persons whose greatachievements are gained from his/her enormous efforts (Crandall, Maryanne Kearny

& Edward N Kearny, 2004)

That spirit of independence and self-control prompts American TNCs to survivewithout asking for much government support Owing to the fact that domestic market

is dense of identical products, American TNCs spread their capitalism abroad to bemore powerful by widening their distribution network Moreover, they enter foreignmarket with the hope of seeking new favorable inputs without depending on domesticsuppliers

Fourthly, competition is one of the most influencing values that motivateAmerican TNCs to widen their power abroad Life is always a race and a person

cannot stop competing to survive and succeed (Bradley Lands, 2011).

As stated, the domestic market is full of strong rivals, so each corporation mustcompete to survive However, domestic supporting industry has limited capacity,proving that all corporations cannot be well supplied with abundant input (rawmaterials, spare parts, etc.) internally Thus, American TNCs conduct internationalinvestments to mobilize external sources serving their ambition for growth &prosperity

Finally, pragmatism (material wealth), hard work and achievement play an

important role in driving American TNCs to boost FDI: “Pragmatism (material

wealth) refers to the pursuit of wealth and comfort” (Robin Williams, 1970) Despite

being considered as a tradition or habit in numerous countries, hard work proves to be

a spirit in the US The Americans often bear in mind competitive spirit motivating

them to work harder to get progress. Besides, Americans always recognize one’ssuccess in comparison with his or her power, status, wealth and property.Achievement, therefore, is defined as an appropriate measure of one’s success “The

great American Dream of fame and fortune comes to those who work hard and never give up (L Robert Kohls, 1984)”.

Pragmatism, hard work and achievement involve the expansion of AmericanTNCs outside the country border The dream of getting richer and more successful ishighly appreciated in the US For Americans, the most objective measure of success ismaterial wealth and achievement Therefore, capitalism is reinforced by AmericanTNCs’ FDI outflows in potential invested regions, especially, developing or emergingcountries with abundant natural resources

2.4 A brief history of TNCs & American TNCs’ development

2.4.1 From origins to World War II

The first businesses to make international investment include colonializing andimperialist ventures from Western European countries like England and Holland.State support was provided to the colonial trading system in as early as the 16th

century (Kavaljit Singh, 2007: 15)

During the 19th century, British-based firms in the colonies of the British Empirestarted to make considerable foreign investments, and the advent of industrialcapitalism gave birth to the first TNCs The search for natural resources during the

19th and 20th century further motivated foreign operations by the US and Western

Europe-based firms (Kavaljit Singh, 2007: 16)

In the period of pre-1914, foreign investment became a trend with intensivecapitals The capital of the UK made up more than a half of the total capital inflow inthe world, being “the largest creditor nation” However, Europe became a net debtor

in 1920s because of World War I reconstruction cost, which left the net creditor status

of Europe in the hand of the USA (Kavaljit Singh, 2007: P.20-21)

The following chart collects the percentage of FDI from American TNCs relative

to its GDP from 1923 to1998 It’s noticeable that FDI of American TNCs is quite

intensive and dynamic with the highest point of 2% of GDP during the period from1923-1928 despite obtaining a slight downward trend from 1928 to 1930 However,

FDI keeps increasing since the 1930s (Figure 2 below)

During the period from the origin to World War II, developed countries, mostly inCentral and Eastern Europe were destinations of American TNCs’ capital inflows,known as “South – North” trend Therefore, developed countries received most of theglobal FDI inflows at that time

In order to clarify that trend, product life-cycle theory by Raymond Vernon

illustrates that local people in developed countries are first provided with newproducts because those nations have big capital sources and break-throughtechnology After that, new products are exported to countries whose needs, tastes and

incomes are alike Therefore, almost all of new products appear in advanced nations.

In order to reduce the cost of production, copy product is produced abroad(developing countries with abundant natural resources), and then supplied in the homecountry to capture growth in home market (Phung, 2001:p.56) That theoryemphasizes that developed countries become destinations of FDI from AmericanTNCs because of their technological advances to receive technology transfers In

addition, same market size, equivalent purchase power, and liberalization policy arealso encouraging factors to American TNCs

2.4.2 From 1945 – to present

After World War II, the US became a major creditor with very rapid developmentand the “sole” nation having outward FDI soar From 1948 to the end of 1960s, the

US had to face with strong European and international economic restrictions In order

to handle that stiff situation, “Marshall Plan” and liberalization of national and international trade and investment were adopted, so the US was facilitated to access

to foreign markets Also, the US’ outward FDI was stimulated by its domestic taxsystem (Kavaljit Singh, 2007: p.27)

The period of 1970s witnessed stronger monopoly enhancement of TNCs and theirincreasingly important role in international trade than before and TNCs controlled 70-80% of world trade (Kavaljit Singh, 2007: p.27)

Since the mid-1980s, TNCs quickly emerged as core entity of FDI In five years

from 1988 and 1993, worldwide FDI stocked almost doubled from US$1.1 to US$ 2.1trillion, which was a reflection of TNCs’ increased productive capacity outside their

home countries (Kavaljit Singh, 2007: p.29)

By the beginning of the 21st century, the economic power of TNCs was reinforced

intensively In 2000, FDI of TNCs hit the peak of more than $1.4 trillion but

decreased to $655 billion in 2003 However, FDI flows recovered in 2004 andreached $955 billion in 2005 (Source: World Bank data)

In terms of outward FDI from American TNCs, US accounted for 85% of newFDI flows from 1948 to 1965 FDI became the major component of foreigninvestment in this period US became the principal source nation However, by the1980s, Global FDI flow increased to over 500 billion USD, two-third located inEurope and North America In this period, we witnessed the rise of Japanese outward

FDI to US, Europe, and East Asia Although FDI outflow of American TNCs stillmade up the high percentages of the world, its speed tended to decrease giving theway for the strong growth of Japanese and European FDI outflow illustrated in thefollowing chart:

Table 2: FDI outflows (period average, per percent of total)

In the period from 1945 to present, although FDI inflows into developed countryare still giant, American TNCs tend to spread their capitalism to developing countries(South – South trend) in East Asia and Pacific region Especially, flows to Central andWest Asia, China, and India have been recently expanded largely because of higheroil investment Nowadays, the USA no longer had abundant natural resources owing

to highly concentrated industrialization Therefore, destinations of FDI flows fromAmerican TNCs have now been developing countries or newly industrial countrieswith pristine and rich natural resources such as Latin American countries (Mexico andBrazil), Algeria, Angola, Libya, Mauritania, Nigeria, and South Africa concentrated

in the oil, gas, and mining sectors Moreover, the development of technology and

communication, more favorable policies with aims of attracting FDIs, cheap labor aswell as a more liberal environment are important factors leading to investing decisions

of American TNCs This trend of American TNCs’ FDI is illustrated in the chartbelow:

Table 3: United States: geographical distribution of outward FDI flows, 2000-2011

($US, in billions)

Economy 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 All countries total 143 125 135 129 295 15 224 394 308 267 304 397 North America 17 17 15 17 24 14 -2 22 12 10 28 40 Europe 78 66 80 88 137 -29 148 240 178 159 187 224 Latin America 23 26 15 4 32 0.07 36 55 63 61 45 85 Africa 0.71 2 -0.58 3 2 3 5 5 4 9 9 5 Middle East 1 1 3 1 3 4 6 4 4 5 -0.28 0.85 Asia & Pacific 23 13 23 17 97 24 32 68 47 23 36 41

Source: United States Department of Commerce, Bureau of Economic Analysis, FDI database, available at www.bea.gov/international

2.5 Roles of TNC in global economy and social development

2.5.1 Economic and social achievements brought to host countries

Firstly, FDI from foreign investors in general & American TNCs in particularhave relative effects on capital formation The more FDI flows into a host country, thebigger capital formation the host country gains Suppose that money flow forinvestment into a host country is accelerated by American TNCs (foreign investors), itdirectly boosts the capital funds of the host country In addition, the investors alsodirectly crowd other foreign firms (their input suppliers or business partners) in thehost country Furthermore, foreign investors directly affect capital formation bymobilizing domestic savings through domestic private and government savings as aloan for investment Therefore, the effects on balance of payment of the host countryare also obvious

Secondly, technology improvement is one of the biggest advantages FDI brings tohost country Accordingly, the pace of the host country’s industrialization will bereinforced by modern and productive technology transfer Besides, host countries gainbenefits from TNCs’ investment in R &D, giving domestic market opportunitiesaccess to international market Besides, spillover effects turn up when local firmsbenefit from the presence of TNCs without paying the full price includingdemonstration effects (copying TNCs), training of employees who may leave theTNCs for jobs in local firms, forward and backward industrial linkage, and toughcompetition prompting local firms to work harder Production linkages are seen as themost important factor for this process, while these linkages can be backward (foreignaffiliates acquire goods and services from domestic firms), forward (foreign affiliatessell goods and services to domestic firms), and horizontal (covers competitiveactivities between domestic firms and foreign affiliates)

Thirdly, FDI draw positive impacts on international trade such as facilitatingdomestic sectors to access to the international market network, gathering information

of international market, increasing localization ratio embodied in exports by FIEs Fourthly, HR development is highly assured through the FDI activities of TNCs.Hence, TNCs create job directly and indirectly, train and educate labor forces,improve healthcare and quality of life, and provide opportunities to get higher realwages

(Phung ,2001 & Kavaljit, 2007)

2.5.2 Economic and social achievements brought to the whole world

World investment reports from 1995 point out that international production byTNCs increasingly influences the size and nature of cross-border transactions, whilethis process shapes the nature of the world economy TNCs have become centralorganizers of economic activities and major actors in shaping the internationaldivision of labor TNCs’ growth in number and size represents a qualitative shift in

the world economy (from a national economy to a global economy that ischaracterized by the dominance of investment flows by TNCs, whose mobilitybypasses national boundaries)

Bonschier and Chase Dunm (1983) emphasized that TNCs are the first institutionsthat have tried to centrally plan production on global scale and that the revolutionaryaspect of TNCs is not their size, but their vision, in which the whole world is seen as aterrain for their operations

With a liberal perspective, drawn from neoclassical economics, TNCs can spreadtechnology, bring capital, promote managerial skills, and provide a conduit fordeveloping countries’ products Together, these assets can accelerate global growthrates, and may prove beneficial for individual countries in increasing their globalcompetitiveness (Kavaljit, 2007)

Mr Renato Ruggiero, WTO Director-General, at the UNCTAD Seminar onforeign direct investment and the multilateral trading system in Geneva on 12February 1996, emphasized how foreign direct investment facilitates an internationaldivision of labor to take advantage of international trade opportunities by increasingthe mobility of factors of production: FDI taken by TNCs’ capital transferring iseffectively operated to gain profits on the global scale It excavates potentials ofdeveloping and transition economies and provides a new market for high-gradearticles which generate high income jobs

CHAPTER 3: METHODOLOGY

This paper is a secondary research using the document analysis approach.Therefore, existing studies and reliable information sources are gathered, summarizedand synthesized in order to arrive at a precise, sufficient and rich narrative description

of the research topic Hence, it is suitable for cultivating new topics or undisclosedissues of an observed phenomenon by conducting text analysis, theme description,finding inferences, etc Unlike quantitative research that targets on statisticalinformation, group comparison, variables, trends or predictions, secondary approachextends the scope of study and suggests some possible hypotheses for furtherinvestigation

However, the quality of secondary research highly relies on the precision andconsistency of gathered information which is often subjective and biased In addition,researchers may face problem of current data availability as some research reportsbecome out of date

In order to handle preceding disadvantages, a careful research procedure toensure the quality of the collected data was strictly followed Data were aggregatedbased on the harmony of both social and economic viewpoints to avoid biasedinformation Useful questions, thereafter, were given to evaluate the quality ofgathered data such as “what is the original purpose of data collection? Is theinformation relevant or out of date? Is the document covering a broad topic area or is

it too narrow? Does the author provide reliable references for data and informationreported?” etc After that, any disagreement between databases would be considered,and irrelevant information would be shortlisted based on the research questions

Also the researcher looked for useful information and facts about Americanbeliefs and values as well as TNCs’ development and activities from official channelsincluding the American government and its departments’ reports, technical reports ofeconomic research projects, scholarly journals, the mass media (newspaper,

magazines, etc), and relevant course books and lectures of American studies, economics, Macro-economics, International investment, International Business,International trade, etc

Micro-As a matter of fact, methods for secondary research are various Such methodsmust be objective and guarantee unbiased assessments based on precision To achievethis, it is necessary to draw together methods for analyzing data based on the mostimpartial viewpoints between economists and socialists

After using such methods to collect the most relevant data, I divided the founddata into segment of information, omitting irrelevant data in the process andidentifying areas that need further research With a more focused database, I now canattempt at generalizing themes and interpreting the issues that arise

CHAPTER 4: TNCS & NATIONAL SOVEREIGNTY

According to America’s constitutional law, national sovereignty is defined asabsolute authority of government over its affairs within its territory A nation or statehas the right to make decisions of its internal issues without interference from others.Therefore, the power to rule a country and adopt legislation is the most distinctivefacet of sovereignty (Jennings and Watts 1992: 122)

In order to interpret the impacts of American TNCs’ investment activities onthe national sovereignty of a host country, I chiefly clarify the faded power of the hostgovernment on national border, economic system, political issues and cultural aspectswhen American TNCs’ affiliates participate in the local economy

4.1 Territorial penetration

An independent country has supreme rights and power within its geographicborder The national sovereignty of a nation is visually recognized by its boundary(Ernst, 1957) However, the speedy growth and cross-border mobility of TNCs’subsidiaries have made a great interference into the territory of host countries(Hedley, 1999) As mentioned above, the USA owns the most intensive capitalvolume for international investment in the world (IMF, 2005) Thus, American TNCshave obviously made great impacts on the sovereignty of invested countries on theglobal scale

First of all, the existence of TNCs involves a wider external network of producingand distributing, which strengthens cooperating relations between countries As aresult, an intangible border stretch is formed and the inter-dependence among alliancestates substantially increases In the context of global cooperation, the weaker oftenhas to accept less favorable terms in negotiation and transaction than the stronger withoverwhelming power Host countries often make those concessions as they needforeign capital inflows in order to enhance their economic growth Consequently, hostcountries’ policies and legislations are influenced by TNCs’ capitalism TNCs, in that