ST.

CLARE COLLEGE OF CALOOCAN

Zabarte Rd, Brgy. 172, Camarin, Caloocan City,
Philippines
BACHELOR OF ARTS IN POLITICAL SCIENCE

THE CONTEMPORARY WORLD

SUBJECT CODE : AB 18
COURSE & SECTION : AB Political Science – 2A
PROFESSOR : Mr. Nilo Jose S. Quintana
GROUP NUMBER :2
GROUP MEMBERS : Arroyo, Nicola Vien S.
Santos, Allyana Marie F. - LEADER
Taladtad, Jewel Lei T.
Victoria, Dannielle Kristen Rei N.
TOPIC OR LESSON : Market Integration
SUB-TOPIC/S : Definition of Market Integration, Types of Market
Integration, Forms of Market Integration, Primary
Sectors of Economy, Role of International Financial
Systems, History of Global Market Integration,
Definition of Global Corporations, Earlier Forms of
Global Corporations, The Contemporary Global
Corporations, Historical Events for Global Corporations,
Difference Between 20th Century and Contemporary
MNCs, Contributions of MNCs, Issues of MNCs, and
Examples of Corporations in the Philippines

INTRODUCTION:

Economy is the social institution that has the biggest impact on society. We usually
think of economy in terms of numbers – number of unemployed, GDP, or how the stock
market is doing today.

While we often talk about it in numerical terms, the economy is composed of people.
The people are the social institution that organizes everything happening in the society;
production, consumption, and trade of goods.

There are many ways in which a product can be made, exchanged and used. Think
about capitalism or socialism. These economic systems – and the economic revolutions that
created them – shape the way people live their lives.
LEARNING OUTCOMES:

● Evaluate the different types and forms of market integration.

● Analyze the context, content, and perspective of different types and forms of
global market integration and its attributes.

LEARNING OBJECTIVES:

 To define what market integration is.

 To identify the different types and forms of market integration.
 To examine and assess critically the value of market integration to our
global economy.

WHAT IS MARKET INTEGRATION?

According to the Cambridge Business English Dictionary, market integration is a

situation in which separate markets for the same product become one single market, for
example when an import tax in one of the market is
removed.

Integration is taken to denote a state of affairs

or a process involving attempts to combine separate
national economies into larger economic regions
(Robson, 1998, p.1)

Market Integration is the fusing of many

markets into one. According to Malcolm Tatum is a
phenomenon in which markets for goods and
services that are in some way related to one another
experience similar patterns of price increase or
decrease. This term can refer to a situation in which
the prices of related goods and services sold in a
specific geographic area begin to move in a similar
pattern. Market integration occurs when prices
among different locations or related goods follow Malcolm Tatum
similar patterns over a long period of time so groups
of prices often move proportionally to each other and when such relation is very clear among
the different markets it is said that markets are integrated. In other words, market integration
is a situation in which the prices of related goods and services are of the same product become
one single market.

It has a number of social benefits it includes increasing

competition in the provision of financial services and
investment opportunities so another is that it facilitates the
smoothing of domestic economic and financial cycles and allows for greater risk
diversification which contributes to better risk management and financial stability.

Market integration basically refers to how easily two or more markets can trade with
each other. Thus, we have the high integration and the low integration. High integration
happens when prices of the products are similar in the markets which means that there are low
barriers to trade. In contrary to that, we have the Low Integration which means high barriers
to trade. In this situation prices fluctuate between the markets so foreign trade helps the
integration of markets because it reduces barriers to trade and increases fluidity between
markets.

For example, Korea produces toys at a cheaper

price than the Philippines. If foreign trade increased
between these two countries that we have the Korea and
the Philippines. Then toys can could be sold to the
Philippines more easily thus, making them more
available and thus, reducing the price so as the foreign
trade increases the price of toys will continue going
down. Until it matches or almost matches Korea's toys
prices which is the lower limit so once the prices are similar for both markets so we have the
Korea and the Philippines then we can consider the market as integrated.

Global Market Integration means that price differences between countries are
eliminated as all markets become as one. For example, in one market a commodity has a
single price such as the price of rice would be the same in Southern and Northern Luzon if
these areas were part of the same market. If the price in Southern Luzon was higher, seller of
rice would move from North to South and prices would equalize. The price of rice in one
place to other might be different, though, and high transport costs and other kind of expenses
might mean that it would be uneconomical for others sellers to move their stocks to other
place if prices were higher there.

TYPES OF MARKET INTEGRATION

There are three (3) types of market

integration which are we the horizontal, the
vertical and the conglomeration.

Horizontal Integration occurs when a

firm or agency gains control of other firms or
agencies performing similar marketing
functions at the same level in the marketing
sequence. A company's primary goal when
pursuing horizontal integration is to acquire a
similar company in the same industry and of course it also includes other objectives such as
expanding the economies or the company's market, increasing market power, increasing
product or service differentiation, and of course to lower competition. For example, if a
department store wants to enter a new market it might decide to merge with a similar one in
another country to begin operations there so the goal will be to generate more revenue
following the merger so in an ideal world the company would make more money than if it
were two separate businesses so that is an example of horizontal integration.

Here in the Philippines, there are also banks and corporate mergers and acquisitions.
For instance, last 2021 our Former President Rodrigo “Digong” Roa Duterte has approved the
merge of the Landbank of the Philippines or the LBP and the UCPB or the Unified Cocoa
Planters Bank. Another one is the merge of SM Investment Corporations and the TO GO
Group Inc. And even some telecommunication providers such as the PLDT and Globe so
these aim to merge to decrease the competition.
 Vertical Integration occurs when a firm performs more than one activity in the
sequence of the marketing process. It happens when a company buys another company that is
involved in the same industries production process so this can be done for a variety of reasons
including strengthening company supply chain, lowering production costs, capturing upstream
or downstream profits, and gaining access to new distribution channels to achieve this one
company buys another that is either ahead or behind it in the supply chain.

One of the most notable and

successful example of vertical
integration is in the entertainment
industry was the Netflix. Netflix was
considered a backward vertical
integration because it was located at
the end of the supply chain before
starting its own content studio by
distributing films and television
shows made by other content creators.
But now, Netflix executives realized
that creating their own original
content would generate more revenue
so the company's original content
offerings expanded uh during or in

2013.
 Conglomeration wherein the corporate group
made up of two or more business entities engaged in
a completely different or similar businesses usually
with a parent company and numerous subsidiaries. It
is defined as a corporate group made up of two or
more business entities engaged in completely
different or similar businesses and usually with a
parent company and numerous subsidiaries. And examples of conglomeration are the
Berkshire Hathaway, Amazon, Alphabet, Facebook, Proctor and Gumball, Unilever, Diageo,
Johnson and Johnson, and Warner Media.

For instance, we have the Facebook and we know that

Facebook is a social network and Facebook is a
conglomerate because it owns a Instagram, Whatsapp, and
Messenger of course so it can be seen as a media company
although the uptell us otherwise so Facebook may not think
that it's a media company. But as a major distributor of news
like uh the world's largest of course since uh Facebook is
available for uh the different countries in the world so uh it
still faces the same responsibilities that a media company
does so one traditional definition of a media company is a company that delivers information
to users and profits by selling ads next to the information so by that definition, we can see that
Facebook is a media company.

FORMS OF MARKET INTEGRATION

There are five (5) forms of market integration: preferential agreement, free trade area,
customs union, common markets and economic union.

Preferential Agreement are formed when countries within a geographical region agree
to lower or eliminate tariff barriers on certain goods imported from other members of the area.
a good example of this one is the RTA or what we refer to as the Regional Trade Agreement.
RTA is a treaty between two or more governments that define the rules of trade for all
signatories.
 Certain industries in the United States such as the automobile and electronics
manufacturers prefer RTAs because they allow them to take advantage of lowering
manufacture costs in other parts of the world while avoiding competition from European and
Japanese producers or Asia so which they would face in a multilateral agreement and that is
an example of a preferential agreement.

Another form is the free trade area. FDAs or the

Free Trade Area are formed when two or more
countries in a region agree to reduce or eliminate trade
barriers on all goods imported from other members. A
good example of this is the NAFTA or the North
Atlantic Free Trade Agreement which includes the
United States, the Canada, Mexico and these three
countries are example of such a free trade zone.

Customs Union entails the elimination of tariff

barriers between members and the acceptance of a
single or unified external tariff against non-members.
For example, the European Union. The most well-
known example of this one and trade between EU
members or member states is tariff free and the same
tariff is paid regardless of which EU country imports a
product so a customs union is distinguished from a free
trade area by the Common External Tariff or CET.

The Common
Markets defining feature is the expansion of free trade
beyond tangible goods to include all economic resources so
this means that all barriers to the free movement of goods
services capital and neighbor are removed. For instance, we
have the Kenyan President Mwai Kibaki who established the
East African Common Market in 2010 to boost the region's
economic growth and development. The creation of a
common market in East Africa was a result of the expansion
of existing common unions or the custom unions which was

established in early 2005.

The East African Common

Pres. Mwai Kibaki

Market that was established

early 2005 by Former Kenyan
President Kibaki comprise of
seven eastern African
 countries which were the Burundi, Democratic Republic of Congo, the Kenya, Rwanda,
South Sudan, Tanzania and the Uganda.

Economic Union which is a term used to describe a

trading block that has a common market among its members
as well as a common trade policy with non-members so
despite members freedom to pursue their own
macroeconomic policies. Again, we have the European
Union as a good example of economic union which came
into force in 1993 following the signing of the treaty on
European Union or formerly known as the Mastricht Treaty.

THREE SECTORS OF ECONOMIC SYSTEM

There are three (3) sectors of our economic system which are the primary sector,
secondary sector and tertiary sector.

Primary Sector consists of farmers,

fishermen and miners wherein their goal is
to extract raw materials from the natural
environments. The primary sector
includes all those activities the end
purpose of which consists in exploiting
natural resources like agriculture, fishing,
forestry, mining, deposits.

Secondary Sector which gains the raw materials

and transform them into the manufactured goods. The
secondary sector covers all those activities consisting in
varying degrees of processing of raw
materials (manufacturing, construction industries). In
this sector the natural products are changed into several
useful forms through manufacturing for example: making
sugar from sugarcane or making cement from lime stone
and then construction a house. All the industries of this
type are kept in secondary sector.

Tertiary Sector which involves

services rather than goods and it offers
services by doing things rather than making
things. The tertiary sector covers a wide
range of activities from commerce to
administration, transport, financial and real estate activities, business and personal
services, education, health and social work.

ROLES OF INTERNATIONAL FINANCIAL SYSTEMS

The Bretton Wood System arose as a result of a compromise between the rival
ideologies of US Treasury Secretary Harry Dexter White and the British Prime Minister Lord
Keynes so everyone agreed that the inter-war
period had taught them several lessons and
they were determined not to make the same
mistakes again. And the difficulties of
reconstruction following the World War I,
influenced the British and American officials
to begin planning for post-war monetary
reconstruction and they saw the need to
develop rules and understanding to guide the
national policies in the aftermath of the war
in order to facilitate the achievement of
common goals. The two pillars of the
International Financial System or the IMF
and the World Bank were established. The Bretton Woods Agreement was reached at the
summit in USA during 1944 so there are 730 delegates from 44 allied nations it includes
United States, Canada, Western European Countries, Australia, Japan and of course our
country, the Philippines.
The Bretton Woods Agreement created
two Bretton Woods Institutions, the IMF and the
World Bank which was formally introduced in
December 1945 both institutions have withstood
the test of time, globally serving as important
pillars for international capital financing and
trade activities. The purpose of the IMF was to
monitor the exchange rates and identify nations
that needed global monetary support. On the
other hand, the World Bank, or what initially
called as the International Bank for
Reconstruction and Development, was
established to manage funds available for
providing assistance to countries that had been
physically and financially devastated by World
War II.

TRIVIA: As of the end of April 2022, the

Philippine’s government outstanding debt has hit a
new record-high of P12. 763 trillion.
 What is International Monetary Fund and its purpose?

The International Monetary Fund (IMF) is an

organization of 189 countries, working to foster global
monetary cooperation, secure financial stability, facilitate
international trade, promote high employment and
sustainable economic growth, and reduce poverty around the
world. Its fundamental mission is to ensure the stability of
the international monetary system in three ways. First, by
keeping track of the global economy and the economies of
member countries. Second, by lending to countries with balance of payments difficulties. And
lastly, by giving practical help to the members. It also performs several roles and functions
such as Economic Surveillance, Lending, and Capacity Development.

International Monetary Fund policies and activities are guided by its Charter known as
the Articles of Agreement. It is a cooperative institution that 189 countries have voluntarily
joined because they see the advantage of consulting with one another on this forum to
maintain a stable system of buying and selling their currencies. IMF lends money to members
having trouble meeting financial obligations to other members, but only on the condition that
they undertake economic reforms to eliminate these difficulties for their own good and that of
the entire membership. Contrary to widespread perception, the IMF has no effective authority
over the domestic economic policies of its members.

There are several major accomplishments to the credit of the International Monetary
System. For example, it sustained a rapidly increasing volume of trade and investment;
displayed flexibility in adapting to changes in international commerce; proved to be efficient
(even when there were decreasing percentages of reserves to trade); proved to be hardy (it
survived a number of pre-1971 crises, speculative and otherwise, and the down-and-up swings
of several business cycles); allowed for a growing degree or international cooperation and;
established a capacity to accommodate reforms and improvements.

To an extent, the fund served as an international central bank to help countries during
periods of temporary balance of payments difficulties by protecting their rates of exchange.
Because of that, countries did not need to resort to exchange controls and other barriers to
restrict world trade

Purpose of International Monetary Fund

 To promote international monetary cooperation through a permanent institution

that provides the machinery for consultation and collaboration on international
monetary problems.
 To facilitate the expansion and balanced growth of international trade and to
contribute, thereby, to the promotion and maintenance of high levels of
 employment and real income and to the development of the productive resources
of all members as primary objectives of economic policy.
 To promote exchange stability, to maintain orderly exchange arrangements
among members and to avoid competitive exchange depreciation.
 To assist in the establishment of a multilateral system of payments in respect of
current transactions between members and in the elimination of foreign
exchange restrictions which hamper the growth of world trade.
 To give confidence to members by making the general resources of the Fund
temporarily available to them under adequate safeguards, thus providing them
with opportunity to correct maladjustment in their balance of payments without
resorting to measures destructive to national or international prosperity.
 In accordance with the above, to shorten the duration and lessen the degree of
disequilibrium in the international balances of payments of members.

How can IFIs help in Economic Globalization?

 They focus on long-term investment projects, institution-building, and on social,

environmental, and poverty issues
 strengthen economic governance
 safeguard the stability and integrity of the international financial system as a
global public good
 encouraging true national ownership of reforms by streamlining the conditions
attached to IMF supported programs.
 recognizes and values the role of civil society organizations
 ensuring the stability of the international financial system
 helping individual countries take advantage of the investment opportunities
offered by international capital markets, while reducing their vulnerability to
adverse shocks or changes in investor sentiment.
- Trade liberalization
- Reducing debt burdens
- Setting the stage for the 2030 development agenda

What is the World Bank and its purpose?

The World Bank is an international financial

institution that provides loans and grants to the
governments of poorer countries for the purpose of
pursuing capital projects. It comprises two institutions
which is the International Bank for Reconstruction and
Development (IBRD), and the International
Development Association (IDA).

World Back was comprised of two institutions.

First, we have the International Bank for Reconstruction
and Development (IBRD) which lends to governments of middle-income and creditworthy
low-income countries. And, The International Development Association (IDA) which
provides interest-free loans called credits and grants to governments of the poorest countries.

International Bank for Reconstruction and

Development (IBRD). The IBRD was set up in 1945
along with the IMF to aid in rebuilding the world
economy and it was owned by the governments of 151
countries and its capital is subscribed by those
governments. It provides funds to borrowers by
borrowing funds in the world capital markets, from the
proceeds of loan repayments as well as retained
earnings. At its funding, the bank’s major objective was
to serve as an international financing facility to function in reconstruction and development.
IBRD lends money to a government for the purpose of developing that country’s economic
infrastructure such as roads and power generating facilities. Also, funds are lent only to
members of the IMF, usually when private capital is unavailable at reasonable terms.
Generally, bank loans are made to cover only import needs in foreign convertible currencies
and must be repaid in those currencies at long-term rates. The government assisted in
formulating and implementing an effective and comprehensive strategy for the development
of new industrial free zones and the expansion of existing ones. Also, IBRD lays special
operational emphasis on environmental and women’s issues.

International Development Association (IDA). The

IDA was formed in 1960 as a part of the World Bank Group
to provide financial support to LDCs and has 137 member
countries, although all members of the IBRD are free to join
the IDA. IDA’s funds come from subscriptions from its
developed members and from the earnings of the IBRD.
Credit terms usually are extended to 40 to 50 years with no
interest. Repayment begins after a ten-year grace period and
can be paid in the local currency, as long as it is convertible.
Although the IDA’s resources are separate from the IBRD,
it has no separate staff. Loans are made for similar projects as those carried out by IBRD, but
at easier and more favorable credit terms. The present emphasis seems to be on helping the
masses of poor people in the developing countries become more productive and take an active
part in the development process. Greater emphasis is being placed on improving urban living
conditions and increasing productivity of small industries.

International Finance Corporation (IFC). The IFC

was established in 1956. There are 133 countries that are
members of the IFC and it is legally and financially
separate from the IBRD. Its main responsibilities are: (i) To
provide risk capital in the form of equity and long-term
loans for productive private enterprises in association with
private investors and management; (ii) To encourage the
development of local capital markets by carrying out
standby and underwriting arrangements; and (iii) To
stimulate the international flow of capital by providing financial and technical assistance to
privately controlled finance companies. Loans are made to private firms in the developing
member countries and are usually for a period of seven to twelve years. The key feature of the
IFC is that its loans are made to private enterprises and its investments are made in
conjunction with private business. In addition to funds contributed by IFC, funds are also
contributed to the same projects by local and foreign investors.

What does the World Bank do?

The World Bank is the world’s largest source of development assistance, providing
nearly $30 billion in loans, annually, to its client countries. The main focus is on helping the
poorest people and the poorest countries hut for all its clients, the Bank emphasizes the need
for:
 investing in people, particularly through basic health and education;
 protecting the environment;
 supporting and encouraging private business development;
 strengthening the ability of the governments to deliver quality services
efficiently and transparently;
 promoting reforms to create a stable macroeconomic environment conducive to
investment and long-term planning;
 focusing on social development, inclusion, governance and
 Institution building as key elements of poverty reduction

The Bank is also helping countries to strengthen and sustain the fundamental conditions
that help to attract and retain private investment. They are investing in human resources,
infrastructure and environmental protection which enhance the attractiveness and productivity
of private investment

The World Bank has two (2) “ambitious” goals that it hopes to perform by 2030. First,
was to end extreme poverty by decreasing the percentage of people living on less than $1.90 a
day to no more than 3%. And promote shared prosperity by fostering the income growth of
the bottom 40% for every country.

HISTORY OF GLOBAL MARKET INTEGRATION

History of global market integration, people only produce for their families prior to the
rise of the modern economy in today's economy different sectors collaborate to produce
distribute and exchange goods and services.

Agricultural Revolution is the first

significant economic shift. This was the era
when people discovered how to domesticate
plants and animals so farming enabled
societies to create surpluses which led to
significant people development such as
permanent settlements trade networks and
population growth.
 The Industrial Revolution was second
significant shift and steam engines
manufacturing and production were all
introduced during this time period so there were
challenges of course capitalism and socialism
existed during this period. Capitalism is a
system in which all natural resources and means
of production are privately owned with profit
maximization and competition serving as the
primary drivers of efficiency so this has somehow led to inequalities in the economy. On the
other hand, socialism pertains to collective ownership. Property is owned by the government
in socialism and is distributed to all citizens not just for those who can afford it.

Another one, is the Information Revolution so

beyond the industrial revolution the current economic
social and technological trends are referred to as the
information revolution so its distinguishing feature is
the increasing economic, social, and technological role
of information. Information revolution according to
some scholar was not the result of information related
activities they existed in some form or another in all
human societies and eventually evolved into
institutions.

Brief History of Global Market Integration in the 20th Century

The international economic integration achieved during the nineteenth century was
largely unraveled in the twentieth by two world war and the Great Depression. World War 1
brought the liberal economic order of the late 19th century to an abrupt end; 1914 clearly
marked a dramatic and discontinuous break in the past. Import shares fell only marginally in
Britain during the war. In France, the import share rose from 20% before the war to 36.7 %
during it; again, exports fell sharply. Export ratios rose in neutral economies such as in
Sweden, Japan, and North America., where grain production expanded sharply during the war
years to meet Allied demand.

The absence of European manufactured exports on world markets stimulated the

expansion of industrial capacity, above all in the United States and Japan, but also in
countries such as India, Australia, and Latin America. The end of war did not imply an end to
protection. Different tariff acts and restrictions are made. The Great Depression was of course
a major reason for the adoption of severe protection, and not just in the periphery. Beginning
in 1932, there were several signs that at least some countries were trying to moderate, if not
reverse, the increase in protectionism of the previous year or two. Post war economic
reintegration was supported by several factors, both technological and political.

WHAT ARE GLOBAL CORPORATIONS?

A corporation is an artificial being created by operation of law, having the right of

succession and the powers, attributes and properties expressly authorized by law or incident to
its existence (Batas Pambansa Blg. 68 The Corporation Code of The Philippines, Section 2 –
Corporation defined).

According to Investopedia, a corporation is a legal entity that is separate and distinct

from its owners. Corporations enjoy most of the rights and responsibilities that an individual
possesses; that is, a corporation has the right to enter into contracts, loan and borrow money,
sue and be sued, hire employees, own assets and pay taxes.

Based on Entrepreneur Asia Pacific Small Business Encyclopedia, corporation is a form

of business operation that declares the business as a separate, legal entity guided by a group of
officers known as the board of directors.

EARLIEST FORMS OF GLOBAL CORPORATIONS (RELIGIOUS &

MERCANTILE SECTORS)

Roman Catholic Church as the religion

of Roman Empire during the 4th Century AD.
It sought monopoly of spiritual power against
both paganism and other religious faiths in
those territories that came under its influence.
 Muscovy Company, also called Russia Company, body of English merchants trading
with Russia. The company was formed in 1555 by the navigator and explorer Sebastian Cabot
and various London merchants and was granted a monopoly of Anglo-Russian trade. It was
the first English joint-stock company in which the capital remained regularly in use instead of
being repaid after every voyage.

The British East India Company, founded

in 1600, and The Dutch East India Company,
founded in 1602, are often called the first
multinational corporations. Headquartered in
England and the Netherlands, respectively, these
firms were set up to trade goods such as cotton and
spices over a large portion of South and Southeast
Asia, then called the East Indies. The Dutch East
India Company very quickly became the wealthiest
and largest mercantile organization the world had
ever seen; by 1669 it had 150 merchant ships, 40
warships, 50,000 employees and a private army of
10,000 soldiers, and paid dividends of 40 per cent per annum.

Dutch West-Indische Compagnie byname of West

India Company, a Dutch trading company, founded in
1621 mainly to carry on economic warfare against Spain
and Portugal by striking at their colonies in the West Indies
and South America and on the west coast of Africa. The
Dutch West India Company was much less successful than
the Dutch East India Company, its counterpart in Southeast
Asia.

Industrial Revolution 1700’s. From the

introduction of the first viable Steam Engine by
Thomas Newcomen at Dudley Castle coal mine
in 1712, the invention of steam engine was
crucial to the industrialization of modern
civilization. For almost 200 years it was the
outstanding source of power for industry and
transport systems in the West.

The Civil War in the United States began in 1861,

after decades of simmering tensions between northern and
southern states over slavery, states’ rights and westward
expansion. Growing abolitionist sentiment in the North
after the 1830s and northern opposition to slavery’s
extension into the new western territories led many
southerners to fear that the existence of slavery in
America—and thus the backbone of their economy—was
in danger.
 World War II (1934-
1935) During the war a number
of major multinational
corporations engaged in the
production of strategic
materials, such as oil and
synthetic rubber, were accused
in congressional hearings and on
the floor of Congress of having
conspired with the enemy before
the war. In particular, the oil and
petrochemical industries were
charged with exchanging trade
secrets in chemicals with the
chemical giant I. G. Farben and
other German firms deemed
instruments of Nazi policy in return for trade secrets in oil refining. Civil and criminal actions
were even brought against a number of these companies, the most notable being against
Exxon, which in 1929 had signed an agreement with Farben recognizing its "preferred
position" in chemicals in return for Farben's recognition of Exxon's "preferred position" in oil
and natural gas. The two giant corporations also pledged close cooperation in their respective
enterprises. Standard Oil (Exxon) – based in Irving Texas, USA sold their patent of coal
hydrogenation processes to the Germans (I.G. Farben) so that the Germans could produce fuel
from their own coal and the Germans gave them the patents how to manufacture synthetic
rubber.

By the 1930s, the new Nazi

government needed recruited
International Business
Machines (IBM) for their
revolutionary punched-card
system. Tabulating machines
made tracking lines of Jewish
descent possible. By the time the
Holocaust began in earnest in
1941, the Nazis tattooed
concentration camp prisoners with
identification numbers so that
administrators could track that
prisoner’s punch card
throughout the system. IBM’s
machines were perfect for this,
and for tracking the train traffic
coming into the concentration
camps. Indeed, the Nazis soon
placed tabulating machines made by IBM’s German subsidiary, Dehomag, in every train
depot and every concentration camp.
THE CONTEMPORARY GLOBAL CORPORATIONS

A global corporation is generally referred to as a multinational corporation (MNC),

transnational corporation (TNC), international company.

An enterprise that engages in activities which add value (manufacturing, extraction,

services, marketing, etc.) in more than one country (United Nations Centre on
Transnational Corporations, 1991).

MNCs place multiple production facilities in multiple countries under the control of
a single corporate structure (Oatley, International Political Economy 5th Edition).

A Multinational Corporation (MNC) is a company that operates in more than one

country. Generally, multinational corporations consist of separate companies (called
subsidiaries) in different countries, all of which answer to a central office located in the firm’s
home country (Riggs, Everyday Finance: Economics, Personal Money Management, and
Entrepreneurship)

THE HISTORICAL EVENTS FOR THE GLOBAL CORPORATIONS

1973 Oil Crisis The crisis began when the

Organization of the Petroleum Exporting
Countries (OPEC), an alliance of oil-producing
Arab nations, cut off oil supplies to the United States
in retaliation for U.S. support of Israel (which was at
war with neighboring Arab countries). Predictably,
gas prices in the United States soared, and people had
to wait in long lines to get gas for their cars. Many
U.S. citizens believed that the oil industry, which
wielded an unusual amount of power over the
countries in which it operated, had engineered this
sequence of events to drive up profits. These suspicions seemed confirmed by the fact that
profits for all of the major oil companies increased sharply in 1974: Exxon’s profits grew
28.6 %, Gulf’s 33 %, and Mobil’s 23.3 %. These profits came at the same time that the U.S.
economy was experiencing its most severe crisis since the Great Depression of the 1930s.

World Trade Organization (WTO) is an

international organization established on January 1, 1995
under the Marrakesh Agreement after the Uruguay
Round (1986–94) of multilateral trade negotiations.
WTO’s role is to supervise and liberalize world trade. The
WTO is the successor to the General Agreement on
Tariffs and Trade (GATT), which was created in 1947
in the expectation that it would soon be replaced by a
specialized agency of the United Nations (UN) to be called the International Trade
Organization (ITO). Although the ITO never materialized, the GATT proved remarkably
successful in liberalizing world trade over the next five decades. By the late 1980s there were
calls for a stronger multilateral organization to monitor trade and resolve trade disputes.

Seattle WTO protests of 1999, in full

Seattle World Trade Organization protests of
1999, also called Battle of Seattle, a series
of marches, direct actions, and protests
carried out from November 28 through
December 3, 1999, that disrupted the
World Trade Organization (WTO)
Ministerial Conference in Seattle,
Washington. Comprising a broad and
diffuse coalition of the American
Federation of Labor–Congress of
Industrial Organizations (AFL-CIO) and
other labor unions, student groups,
nongovernmental organizations (NGOs),
media activists, international farm and industrial workers, anarchists, and others, the Seattle
WTO protests are often viewed as the inauguration of the anti-globalization movement.

9/11 Attack, on the morning of September 11, 2001,

19 terrorists hijacked four planes at Boston's Logan airport.
They chose planes headed for the West Coast because they
would be loaded with fuel. They planned to cripple the U.S.
economy by destroying three centers of power: Wall Street,
the Pentagon, and the White House. The 9/11 attacks had
both immediate and long-term economic impacts, some of
which continue to this day. The attacks caused The Dow
(The Dow Jones Averages are stock market indices that
represent the U.S. economy in three sectors: industry,
transportation and utilities) to drop more than 600 points and
the 2001 recession to deepen. It also led to the War on
Terror, one of the most prominent government spending
programs in U.S. history.

THE DIFFERENCE BETWEEN 20th CENTURY AND CONTEMPORARY

MULTINATIONAL CORPORATIONS

The MNCs of the post WW2 period are different from those of earlier periods in being
more focused on manufacturing and services than on extraction of raw materials and
commodities (Dicken, 2015) and more likely to be financed by a combination of foreign
direct investment (FDI) and local capital rather than international portfolio investments
(Gilpin 1975). In addition, contemporary MNCs are the predominant owners of proprietary
technology. MNCs account for at least 50 percent of R&D spending worldwide (Keller 2009;
Zeile 2014). In the United States and elsewhere, most patents are awarded to MNCs (Florida
2005; OECD 2008). In the last two decades of the twentieth century, competing MNCs from a
growing number of economies have created geographically dispersed “value chains” to take
advantage of lower R&D, production, and distribution costs made possible by lower barriers
to trade and investment flows (Borrus and Zysman 1997; Ernst and Kim 2002; Gereffi 1996;
Gereffi et al 2005; Sturgeon 2002; Sturgeon 2007; Sturgeon and Gereffi 2009).

Activities of Multinational Corporations

 International companies are importers and exporters, typically without investment

outside of their home country;
 Multinational companies have investment in other countries, but do not have
coordinated product offerings in each country. They are more focused on adapting
their products and services to each individual local market.
 Transnational companies are more complex organizations which have invested in
foreign operations, have a central corporate facility but give decision-making, research
and develop (R&D) and marketing powers to each individual foreign market.

Tactics of Multinational Corporations

 Foreign Direct Investment occurs when a firm based in once country builds a new
plant or a factory or purchases existing one in a second country a national corporation
thus becomes an MNC by making a foreign direct investment. As consequence, the
world's stock of FDI, the total amount of foreign investment in operation has grown
from 692.5 billion dollars in 1980 to 16.2 trillion dollars in 2008 (United Nations
Conference on Trade and Development 2009,251) 2,300 percent increase in less that
30 years.
 Types of FDI: Horizontal and Vertical Integration.
1. Horizontal Integration occurs when firms creates multiple production of
facilities each of which produces the same good or goods. Firms integrate
horizontally when a cost advantage is gained by placing a number of plants
under common administrative control. Intangible asset can be based on
patented process or design. These assets are difficult to sell to other firms at a
price that accurately reflect their true value that's why firms horizontally
integrate.
2. Vertical integration refers to instances in which firms internalize their
transaction for intermediate goods. An intermediate good is an output of one
production process that serves as an input into another production process.
Specific asset is an investment that is dedicated to a particular long-term
economic relationship. By internalizing transactions involving specific assets,
therefore, vertical integration enables welfare-improving investments.
 According to the Philippine Constitution of 1987 ARTICLE XII – NATIONAL
ECONOMY AND PATRIMONY Section 11 The participation of foreign investors in
the governing body of any public utility enterprise shall be limited to their
proportionate share in its capital, and all the executive and managing officers of such
corporation or association must be citizens of the Philippines. And the law only allows
40% foreign ownership. This economic policy affects the FDI in the Philippines.
THE CONTRIBUTIONS OF MULTINATIONAL CORPORATIONS

The possible benefits of a multinational investing in a country may include:

 Improving the balance of payments - inward investment will usually help a

country's balance of payments situation. The investment itself will be a direct
flow of capital into the country and the investment is also likely to result in
import substitution and export promotion. Export promotion comes due to the
multinational using their production facility as a basis for exporting, while
import substitution means that products previously imported may now be bought
domestically.
 Providing employment - FDI will usually result in employment benefits for the
host country as most employees will be locally recruited. These benefits may be
relatively greater given that governments will usually try to attract firms to areas
where there is relatively high unemployment or a good labor supply.
 Source of tax revenue - profits of multinationals will be subject to local taxes in
most cases, which will provide a valuable source of revenue for the domestic
government.
 Technology transfer - multinationals will bring with them technology and
production methods that are probably new to the host country and a lot can
therefore be learnt from these techniques. Workers will be trained to use the new
technology and production techniques and domestic firms will see the benefits
of the new technology. This process is known as technology transfer.
 Increasing choice - if the multinational manufactures for domestic markets as
well as for export, then the local population will gain form a wider choice of
goods and services and at a price possibly lower than imported substitutes.
 National reputation - the presence of one multinational may improve the
reputation of the host country and other large corporations may follow suite and
locate as well.

ISSUES OF MULTINATIONAL CORPORATIONS

 Environmental impact - multinationals will want to produce in ways that are as

efficient and as cheap as possible and this may not always be the best environmental
practice. They will often lobby governments hard to try to ensure that they can benefit
from regulations being as lax as possible and given their economic importance to the
host country, this lobbying will often be quite effective.
 Uncertainty - multinational firms are increasingly 'footloose'. This means that they can
move and change at very short notice and often will. This creates uncertainty for the
host country.
 Increased competition - the impact the local industries can be severe, because the
presence of newly arrived multinationals increases the competition in the economy and
because multinationals should be able to produce at a lower cost.
  Influence and political pressure - multinational investment can be very important to a
country and this will often give them a disproportionate influence over government and
other organizations in the host country. Given their economic importance, governments
will often agree to changes that may not be beneficial for the long-term welfare of their
people.
 Transfer pricing - multinationals will always aim to reduce their tax liability to a
minimum. One way of doing this is through transfer pricing. The aim of this is to
reduce their tax liability in countries with high tax rates and increase them in the
countries with low tax rates. They can do this by transferring components and part-
finished goods between their operations in different countries at differing prices. Where
the tax liability is high, they transfer the goods at a relatively high price to make the
costs appear higher. This is then recouped in the lower tax country by transferring the
goods at a relatively lower price. This will reduce their overall tax bill.
 Low-skilled employment - the jobs created in the local environment may be low-
skilled with the multinational employing expatriate workers for the more senior and
skilled roles.
 Health and safety - multinationals have been accused of cutting corners on health and
safety in countries where regulation and laws are not as rigorous.
 Export of Profits - large multinational are likely to repatriate profits back to their
'home country', leaving little financial benefits for the host country.
 Cultural and social impact - large numbers of foreign businesses can dilute local
customs and traditional cultures. For example, the sociologist George Ritzer coined the
term McDonaldization to describe the process by which more and more sectors of
American society as well as of the rest of the world take on the characteristics of a fast-
food restaurant, such as increasing standardization and the movement away from
traditional business approaches.

EXAMPLES OF CORPORATIONS IN THE PHILIPPINES

Universal Canning
Incorporated was one of the
largest and most dynamic
marine industrial
conglomerates in the
Philippines. Universal
Canning, Inc. has tapped new
markets for canned sardines,
specifically the European
Union, and likewise expanded
its product line to include
dried and frozen fish, firmly
establishing its growing
reputation as the premier seafood processing company in the country. Since its inception, UCI
has gradually emerged as the most dominant player in the local canned sardine industry. It's
FAMILY’S brand sardines is regarded as the fastest growing sardines brand in the country
and has been awarded ‘Most Outstanding Sardines Brand’ by multiple respectable agencies
nationwide.

 engaged in deep sea fishing, ice production and cold storage, seafood canning,
fishmeal production, ship repair, dry dock and maintenance.

The resources collectively afford an independent and fully integrated process of

providing fresh fish to the market or the cannery, bringing into reality the concept of “straight
from the sea to the can.”

 Family’s brand, master sardines, Atami brand, Mikado


Vertical Integration
 Zamboanga Universal Fishing Corp., the largest deep-sea fishing
company in Mindanao: Catches the fish;
 Universal Shipyard: Maintains the fishing fleet;
 Universal Ice Plant and Cold Storage: Provides the means of ensuring
the fish catch stays fresh before processing
 Southern Philippines Fishmeal Corp: Processes cannery waste materials
(heads, tails, entrails) into fishmeal and fish oil.

Universal Robina Corporation

engaged in a wide range of food-related
businesses, including the manufacture and
distribution of branded consumer foods.
URC is the leading branded snackfoods and
beverage company in the Philippines. URC –
the first “Philippine Pan ASEAN
Multinational” – has proven itself to be a
trailblazer in manufacturing with a strong
and loyal consumer base. URC’s products are already being exported to mainstream markets
in the US, Europe, Japan, Korea the Middle East and frontier markets in West Africa, like
Ghana and Nigeria.

 built three
strong
regional
brands
over the years;
 “Jack ‘n Jill” for snack foods, “C2” for ready to drink tea, and “Great Taste” for
coffee

URC’s key to success is to build very strong branding through a robust product
innovation pipeline, consumer-centric marketing and world class manufacturing and supply
chain management.

 Vertical Integration
 In the early 1970s, they entered the commodities business through the
formation of Continental Milling Corporation, for flour milling and
production. The late 1980s brought the acquisition of three sugar mills
and refineries, under URC Sugar. These two businesses provided stable
cash flows, and allowed for further vertical integration in the supply
chain, to help URC weather any volatility in the cyclical commodities
markets. In line with this strategy, the late 1990s saw the entry of URC
into the plastics business, through URC Packaging.

Jollibee was the largest fast-food

chain in the Philippines, operating a
nationwide network of over 750 stores. A
dominant market leader in the Philippines,
Jollibee enjoys the lion’s share of the local
market that is more than all the other
multinational brands combined. The
company has also embarked on an
aggressive international expansion plan in
the USA, Vietnam, Hong Kong, Saudi
Arabia, Qatar and Brunei, firmly
establishing itself as a growing international
QSR player.
  Jollibee Foods Corporation’s (“JFC” or the “Company”) core business is the
development, operation and franchising of its quick-service restaurant brands.

The tried and tested

formula of delivering great-tasting food, adherence to world class operating standards and the
universal appeal of the family values the brand represents that are driving the expansion of
Jollibee both locally and in the overseas market.

CONCLUSION:

World economies have been brought closer by globalization. It is reflected the phrase –
“When America sneezes, the whole world catches a cold.” It is important to remember though
that it is not only the economy of the United States but also other economies in the world that
have significant impact on the global market and finance. The strength of a more powerful
economy brings greater effect on other countries. In the same manner, crises on weaker
economies have less effect than other countries. Although, countries are heavily affected by
the gains and crises in the world economy, organizations that they consist also contribute to
these events.

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THE
CONTEMP
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WORLD
THE
CONTEMPOR
ARY WORLD
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INTEGRATIO
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MARKET
INTEGRATION