Peter Dicken 2015 The Uneasy Relationship Between Transnational

The Uneasy Relationship Between Transnational Corporations and States: Dynamics of Conflict and Collaboration Global Shift Chapter 7

Review • Concepts to Review – TNCs and GPNs – Role of states in globalization – Embeddedness • Key Words – TNC/state relationships; locational flexibility; taxation and regulation of TNCs; integration and fragmentation; host-country tactics

TNCs and States • States and firms need each other • Fragmentation of GPNs has become common – states tend to be fearful about stability of TNC branches, leakage of tax revenues, and TNCs having to move out of the country • It seems logical that TNCs would want the removal of all regulatory barriers; however, regulatory structures are an opportunity, stimulating competitive bidding • Relationship between states and TNCs is dynamic • Locational mobility

TNCs and Home/Host Countries • Home countries – – Some states view TNCs as extensions of state foreign policy TNCs look to home-country governments to provide protection abroad TNCs incorporate parts of national economies Home-country trade policies can open up access to markets in foreign countries • Host countries – Have the power to limit or dismantle TNC manufacturing and trade networks with regulations and restrictions – Ultimate sanction: to exclude or appropriate a particular investment – After the initial investment has been made, balance of bargaining power shifts from TNCs to host country • though this is limited in areas where technological change is frequent and/or global integration of operations is common

TNCs and Institutions • Taxation – Lower taxes for TNCs are often an incentive for location – Problematic issue: how a TNC’s internal transactions are taxed – The ability to set internal prices enables TNCs to adjust transfer prices; it can be hard for governments to document the actual extent of this – The greater the differences in corporate taxes, duties, tariffs, exchange rates, the greater the incentive for TNCs to manipulate internal transfer prices • Regulation – No comparable body to the WTO for regulating TNCs – History of attempts to introduce international framework relating to FDI/TNCs – Main problem is the conflict of interest between TNCs, states, labour groups and CSOs

Embedding TNCs • TNCs wish to maximize locational flexibility to take advantage of differences between countries • Primary aim of a host state is to try to embed a TNC as strongly as possible • Two types of embeddedness – Active embeddedness is when a TNC seeks out an asset and voluntarily incorporates it into its operations – Obligated embeddedness occurs when there is a localized asset which is important to a TNC and access to it is controlled by the state • The scarcer the resource, the greater the bargaining power of its controller and vice versa