The role of multinationals in the global economy
What a multinational is
- A multinational business produces or sells in more than one country, usually with operations — not just customers — in several of them.
- The scale is what makes them a distinct external factor. The largest multinationals have revenues greater than the entire economies of many countries, so their decisions move markets, wages and prices.
- New Zealand businesses meet them from both sides: as competitors, as customers (large offshore retailers), as suppliers, and occasionally as acquirers.
What they do in the global economy
- Move production to where it is cheapest or best. Manufacturing in one country, design in another, headquarters in a third.
- Move capital. Foreign direct investment — building or buying operations in other countries — is largely multinational activity.
- Move technology and practice. New methods, equipment and management systems spread through their subsidiaries and suppliers.
- Create global supply chains. A single product may cross borders several times before it is finished, which is why a disruption anywhere affects businesses everywhere.
- Set standards. A large retailer's supplier requirements effectively become the standard for everyone who wants shelf space.
- Shape consumer expectations. Global brands make consumers in different countries want similar things, which both opens and closes opportunities for local producers.
What this means for a New Zealand business
- Competition it cannot outspend. A multinational entering the New Zealand market can outspend a local business on marketing and undercut it on price using scale it cannot match.
- Buying power. A New Zealand exporter selling to a large multinational retailer faces a buyer that can dictate price, terms and standards, and can replace it.
- Opportunity. Being in a multinational's supply chain provides volume and stability no domestic market can — at the cost of dependence.
- Standards as market access. Meeting a multinational's supplier requirements is expensive, but it also certifies the business to everyone else.
- Acquisition. Successful New Zealand businesses are frequently bought by multinationals, which brings capital and market reach and takes ownership and decisions offshore.
Strategic responses available to a smaller business
- Differentiate rather than compete on price. Provenance, quality, specialisation, service — the things scale does not buy.
- Serve niches too small for a multinational to bother with.
- Become a supplier or licensee rather than a competitor.
- Partner — joint ventures give access to distribution the business could not build.
- Diversify customers so no single large buyer can dictate terms.
- Move up the value chain — selling a finished branded product rather than a commodity input, so the business captures more of the final price.