Problem

Restrictive market divisions by transnational corporations

Nature:
The most significant restrictive practice of transnational corporations is their territorial production and market allocation arrangements. In many cases such arrangements form the central feature of the global plan for the corporation's operations as a whole, whereas in other cases, such arrangements have simply evolved as a result of a series of not necessarily connected decisions by the parent company concerning manufacturing and sales operations in various countries. In the latter case, the principal export activities of the corporations are often retained by the parent company. Additional restrictive business practices are frequently used to maintain and reinforce such territorial production and market allocation arrangements, and include controls by transnational corporations on the use made of patents, trade marks and copyrights.

Common features of cartel arrangements are market sharing, namely, the assignment of particular markets to certain members; quotas for each member for particular markets; and agreed prices for sales. Multinational enterprises, pursuing long-run global strategies of profit and growth maximization as well as risk minimization, may individually restrict the range of products to be produced or the markets to be served by their component units in particular countries. The means used include decisions respecting prices, investments and international commodity trade and other forms of action, and patent and trademark licensing restrictions are often employed. Such restrictions can have deleterious effects on the economy of the country where the unit is located. Its industry may be prevented from producing goods for home consumption or export, which it is capable of producing competitively. Where production for home consumption is involved, the country may have to import products which could be made domestically at lower cost. It may furthermore be prevented from importing products from the lowest cost sources, with consequent adverse effects upon domestic price levels and productive efficiency. On the other hand, since multinational enterprises may wish to create subsidiaries solely to exploit foreign markets and may be unwilling to create intra-enterprise competition within their existing markets, a ban on the control of subsidiaries might deter their creation and thus decrease foreign investment.

Multinational firms sometimes consolidate their economic power and draw advantages from it not only individually but also by means of agreements or concerted actions with other enterprises, particularly in oligopolies where most multinationals are to be found. Such agreements are facilitated by the possibility in many countries of legalizing certain types of cartels: for example, rebate, rationalization, import and specialization cartels in which the subsidiaries of multinational firms may participate and which may and in fact sometimes do, serve as the nucleus for an international system of restrictive agreements. This may in particular be the case for national and international export cartels.

Problem Type:
E: Emanations of other problems
Related UN Sustainable Development Goals:
GOAL 8: Decent Work and Economic Growth
Date of last update
01.01.2000 – 00:00 CET