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Direct investment of transnational companies in Vietnam - 2


Chapter 1‌‌

THE PROBLEM OF DIRECT INVESTMENT OF TRANNSNATIONAL CORPORATIONS (TNCs) IN DEVELOPING COUNTRIES

1.1. Transnational corporations.

1.1.1. Concept

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A transnational corporation is a form of international business organization in a market economy whose scope of operations exceeds the borders of a single country.

According to UNCTAD definition, a transnational corporation (TNC) is a system consisting of a parent company that controls all of its assets in the home country. Subsidiaries are companies that operate abroad under the management of the parent company and are often referred to as foreign branches. There are three types of subsidiaries of TNCs:

Direct investment of transnational companies in Vietnam - 2

+ A branch is a subsidiary operating abroad with 100% of its assets owned by the parent company.

+ Dependent subsidiary: the parent company owns more than 50% of the total assets of this company and they have the right to appoint or dismiss members of the organizational and management apparatus of this subsidiary.

+ Affiliated subsidiary: although the parent company owns more than 10% of the company's assets, it does not have enough ownership to have the same authority as a dependent subsidiary.

1.1.2. Characteristics of multinational corporations

- In terms of scale: NTCs have a very large financial scale. Among the 500 largest companies in the world, the US has 162 companies, Japan has 126 companies, countries such as Germany have 41 companies, France 42, UK 34, Netherlands 8, Switzerland 14, Italy 13, Russia 1. The company ranked number 1 in the world in terms of foreign assets in the UNCTAD list in 2003 is General Electric (USA) with a total of


foreign assets are 258,900 million USD, total revenue is 134,187 million USD, number of workers is 305,000 thousand people. The company ranked 2nd is Vodafone Group Plc (UK), followed by 3 companies Ford Motor, General Motors (USA), British Petroleum Company of UK. Ranked 7th is Royal Dutch - Shell Group (UK - Netherlands) with total foreign assets of

112,587 million USD (total assets of 168,091 million USD), profit of 8,887.1 million USD, total revenue of 201,728 million USD and number of workers of 119,000 people. TNCs have a wide scope of operations, not only limited to one country, but also expanding globally through branching out to foreign countries in large numbers, doing business in many industries, many fields, product strategies and investment directions are always changing to suit the development of the group and the business environment, but each industry has a main direction, key investment areas with typical products of TNCs such as focusing on industries with high scientific content (processing industry, services, ...) and developed capitalist countries. They have modern technical means with massive research and development centers, whose budget expenditure is equal to the research and development budget of a large country. For example, Philips Electric (Netherlands) is one of the world's leading electronics companies with 263 branches located in more than 70 countries, including the mother country, there are 378 branches. Heineken (Netherlands) is a beer company that has bought breweries in Italy and Hungary. Renaul SA (France) has moved into the engine industry with 136 (out of 207) branches abroad in Germany, Spain, Poland, etc. Total Petroleum Corporation (France) with 602 branches is present in more than 80 countries around the world and oil and gas centers such as the Middle East, the North Sea, and Latin America. Of these, there are 150 production facilities in 35 countries, Total has shares in 17 oil refineries outside France and the Netherlands, Germany, the US and Africa. Each year Total

Exploration or production drilling in 20 countries over an area of ​​720,000 m2 . Gas produced by Total is mainly exploited in Indonesia, Thailand, Myanmar, Argentina and the North Sea.


- Foreign branching characteristics - a basic characteristic of transnational companies, is that the subsidiaries, grandchildren and joint ventures abroad are under the control of the parent company. Nowadays, the branches of transnational companies are less traditional, they are essentially transnational companies in which the parent company assigns specialization to the branches. To carry out foreign branching, TNCs also carry out some basic forms, such as establishing 100% owned enterprises and joint ventures,... for the 100% owned form, this is the form that TNCs used the earliest with transnationals buying enterprises in the host country - usually inefficient enterprises and at risk of bankruptcy, or investing in building new enterprises. This is also a fairly common method in today's era, when countries pursue open-door policies and create many tax incentives to attract FDI, serving the goal of industrialization of the country. As for the form of joint venture, it is also a popular form that TNCs use today to branch out and expand internationally. Joint venture enterprises can be formed in many different ways, such as buying shares of a new enterprise, building or establishing branch enterprises in which TNCs hold controlling shares according to the participation regime.


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Figure 1.1: Representation of branching characteristics of TNCs

- Regarding organizational and management structure: TNCs are forms of association of many companies operating in the same industry, or different industries under the general regulation of a parent company for the system of branches in many countries. In reality, TNCs in the world often apply the following basic management models:

+ The “pyramid” model, about the management system that concentrates power vertically and online.

+ The “network” (multi-center) model, about the management system that disperses power to branch departments.

+ The “mixed” (dualistic) model, about the management institution that combines centralization and decentralization of power.

However, each group of countries applies a specific model depending on their level of development, culture, customs, agents, etc.

+ For the group of American - European TNCs: due to the long-term influence of the market economic system, these countries always take the model of "free competition" as the basic content of the operating regime of TNCs. European - American TNCs are mainly characterized by ownership rights separated from business rights. Shareholders are the owners who do not directly participate in production and business, but influence the decisions of the company through the board of directors elected by the General Meeting of Shareholders. The board of directors hires a professional director to run the company's business. The company director is an employee of the company, responsible for all business activities of the company. The internal organizational relationship of European - American state-owned enterprise corporations is generally simple. The basic bridge of the connection between member enterprises is the capital relationship (capital, assets) and that is the basis for the corporation to have unified management.

+ For Japan: the business management mechanism of Japanese TNCs originates from traditional culture, has Japanese characteristics, and absorbs


positive factors in the business management mechanism of modern Western companies. Japan is a hierarchical society built on a vertical structure, and there is also a clear distinction between TNCs. The relationship between TNCs directly affects the social status of businessmen and employees in the group. With the goal of developing a network of Japanese companies around the world, Japanese TNCs always allow their satellite companies to have a significant degree of freedom. In Japan, companies and corporations apply the "lifetime employment system". The relationship between employees and the company is fixed, businesses do not arbitrarily fire workers, and the payment and promotion of workers are based on age, education and continuous seniority. That is why everyone must strive for the survival and development of the company.

1.1.3. Types of transnational corporations

Economists have relied on various criteria to determine the form of existence of TNCs. For example:

- Based on the operation process and field of operation of TNCs:

+ Primitive transnational companies: are the first type that existed during the period of free competition capitalism. These companies often operated in the agricultural and mining sectors with the purpose of exploiting raw materials and exploiting hired labor in the colonies to serve the process of capital accumulation for industrialization. The Dutch and British East India Companies of the 17th and 18th centuries are typical examples of this type of TNCs.

+ Transnational trading companies: include companies whose branches abroad are the main branches that import and export goods. In addition, production can also be carried out locally at these branches when market penetration becomes difficult. However, local production is often limited, only producing a part of the product according to the parent company's model, or only assembling some components to export locally.

+ Transnational manufacturing company: With this type, the production process of a product is divided into certain stages and each


A branch enterprise will undertake the production of a part or some product details, or the assembly of the final product. The product parts are circulated between branches, within the company, and finally to a branch, where the product is assembled and branded by the parent country or the host country. Typical TNCs of this type are: Sony, IBM, Toyota, Honda, ...

+ Financial and technical transnational companies: are companies with financial and technical strength, operating in industries with high scientific content and providing technical and financial support to foreign branch companies. Through this channel, the parent company controls and coordinates the activities of the branch companies. Typical of this type: Exxon, Mc Donal Douglas, Mobil Oil, ...

- Depending on the complexity of production and form of organization

company

According to Michael Z.Bruc and H.Liremmer, transnational companies can be divided into

The country is divided into types of companies A, B, C, D. In which, type A company only produces a single type of product; type B company produces groups of products domestically and organizes their consumption abroad according to the division of geographical areas, with the aim of promoting and creating favorable conditions for the export of goods; type C company also produces groups of products but production abroad is under the direct control of the parent company; type D company is formed from the further development of types A, B, C companies.

Although there are many different criteria for classifying TNCs. However, according to many researchers, the current popular classification is based on the level of development, which is expressed by the change in the form of capital ownership of TNCs.

+ Cartel: a type of association between monopolistic companies in the same industry, which can be associated with each other by signing an agreement to establish a consumer market, determine the price of goods, and the quantity of products sold with the aim of limiting competition, thereby dividing specific benefits with


OPEC, for example, is an international Cartel, whose members often agree on the amount of oil to be supplied, as well as the price at which it will be sold in the world. However, these companies are still legally independent companies in production and trade. In Hong Kong, banks have colluded to form a Cartel, setting low interest rates for deposits but high interest rates for bank loans, thanks to which the banks in the Cartel have made huge profits: over 645 million USD earned in 1991 (equal to 0.8% of Hong Kong's GDP).

+ Syndicate: is also a type of association between capitalist enterprises, the parties sign an agreement related to the quantity of common goods consumed, to the purchase of raw materials, in order to buy raw materials at low prices, and sell products at high prices. In this type, the enterprises are still independent in production and law, but are no longer independent in trade. It is worth noting that many Syndicates are developed by Cartels.

+ Trust: a type of company formed by horizontal association, a higher development in terms of organization, in which many enterprises producing the same type of goods or enterprises in adjacent industries with close relationships merge into an organization (economic). Enterprises once merged into this economic organization are no longer independent in all aspects of production, trade and law. There are two basic types of Trust, which are special joint stock companies (controlling the company through holding controlling shares of the company) and companies merging enterprises, which is the complete merger of enterprises with each other, through merger or merger. The management of production and business is completely undertaken by the Board of Directors. For example, General Motors (USA) was originally a powerful international Trust, one of the 15 largest multinational companies in the world in 1987, with sales of 101.8 billion USD, with 876 thousand employees. By 1988 its sales reached 121.085 billion USD, in 1992 it was 132 billion USD, in 2002 it was 186.76 billion USD and by 2003 its sales decreased slightly to 185.5 billion USD, with 294 thousand employees. Main industry


Automobile production accounts for 80-90% of the company's total products. It has established a branch system of 297 factories in the US, Canada, Western Europe, Australia, Latin America and some Asian countries [48]. All branches are under the management of the company's Board of Directors headquartered in Detroit (USA). With further development, up to now, this company has acquired many different industries such as household electrical appliances, motors, gas turbines, electric locomotives, washing machines, vacuum cleaners and some other items, so it has been considered an international Concern. Many countries have banned the form of Trust, in the US, the court will force the dissolution of Trusts when they are capable of monopolizing the economy due to their large market share.

+ Concern: the Concern type of organization is one of the popular forms of modern TNCs. Concern appears mainly through horizontal linkages between at least 2 large companies operating independently, with legal status in a manufacturing industry or between industries with close economic and technical relations. The relationship between enterprises in Concern is established on the basis of unified interests through cooperative relationships in the use of inventions, joint participation in research in scientific programs, projects and application of production technology; joint production and business cooperation and the use of a financial and credit system. Concern is reflected in the independent legal status of member companies. However, the sustainable relationship of Concern is established in the close connection between key leaders with each other and with members of the Government based on economic interests. The outstanding feature of a multinational company of the Concern type is the unity between ownership capital and control. The form of control is established from the parent company to the subsidiaries and grandchildren by the management regime in the board of directors. The parent company holds a number of controlling shares in the subsidiary companies. At the top of multinational companies of the Concern type is a Board of Directors, which usually includes the largest shareholders. Under the Board of Directors is the Board of Directors (managers) under the Board of Directors, whose tasks are to directly direct production and various businesses. Nowadays, with the development

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