TNCs in the Asia-Pacific Context

by Documentation for Action Groups in Asia (DAGA)

 

I. Introduction

At midnight on Dec. 3, 1984, one American transnational corporation (TNC) producing pesticides in Bhopal, India, emitted deadly methyl isocyanate (MIC) gas killing about 4,000 men, women and children in their sleep. After five years of court battles, the Union Carbide Corp. agreed to pay US$470 million for the rehabilitation of about 17,000 living victims of the disaster. However, it was only in October 1992 that the Supreme Court of India cleared the process by which funds could be released to the victims. It is not known how many will finally get compensation for damages and for how long, but some people are happy to soon receive the official compensation amount of US$8 every month.

In 1989, several Japanese and American TNCs suddenly closed their factories in south Korea leaving thousands of workers without jobs. It took years of struggle by the workers, including picketing the main headquarters of the corpora-. tions in Japan and the United States with the assistance of Japanese and American workers and supporters, before some of the Korean workers could receive back wages and separation pay. The TNCs left because they did not like Korean workers who were unionizing. They relocated to Indonesia, Malaysia and China where labor is cheaper and believed to be docile.

These are only a few of the many examples of TNC behavior which exploit, oppress and victimize workers, communities and the environment in Asia. Apart from hazardous TNCs that produce chemicals for pesticides, there are other TNCs which are not wanted because they produce weapons for mass destruction. Other TNCs are involved in forest-product, fishery and mining processing which can be highly destructive to the environment as well as towards the livelihood and sense of self-determination of millions of ordinary people.

And yet, despite their well-known negative effects, TNCs are growing in number, in size and in power. This is shown by the fact that in 1991 just about every country in Asia passed legislation that welcomed more foreign investment, which virtually all comes from TNCs. Notable among investment-liberalizing countries are China, India, Mongolia, the Philippines, south Korea, Taiwan, Japan, Sri Lanka, Australia, Aotearoa (New Zealand) and Vietnam.

There is no doubt that TNCs are growing more powerful. How powerful can be seen by comparing the sales figures for one TNC with the gross domestic product (GDP) of one Asian country. The Swiss-Swedish corporation Asea Brown Boveri (ABB), for example, which produces industrial machinery in about 150 countries all over the world, sold products worth US$29 billion in just one year - 1991. In the same year, Sri Lanka’s total GDP was US$8 billion. Thus, we can see that one corporation that employs 214,000 workers worldwide outproduces more than threefold a country with 17 million people.

The United Nations conservatively estimates that there are more than 35,000 parent TNCs all over the world with about 150,000 foreign affiliates.1 The majority of parent TNCs (88%) are based in the so-called developed countries of the North. Five Northern countries accounted for half of all parent TNCs, i.e., the United States, Japan, Germany, the United Kingdom and France.

About 12% of parent TNCs are based in developing countries in the South. Of Southern TNCs, Asia accounts for 61% of parent TNCs, including those of south Korea (668), China (553), Hong Kong (500), Taiwan (405), India (176), Malaysia (153) and Pakistan (57). Half of all affiliates of TNCs are located in the South.

It is easy to see that TNCs can be differentiated by size of assets and sales. The majority of TNCs are small and medium-sized companies. Only about 500 (1.4% of the total) are giant industrial TNCs with minimum sales of US$2.5 billion in 1990. During that year, the total value of the products they sold were worth US$5.06 trillion; they employed a combined work force of 25 million transnational workers; and they controlled international production and trade.

How large are the largest TNCs? The 30 largest transnational banks (TNBs) in Japan, for example, had total assets of US$5.6 trillion in 1990 - more than the whole gross national product (GNP) of the United States in 1990, which was US$5.4 trillion.

II. The Role of Foreign Direct Investment in Global Integration

TNCs today are playing a lager role in the world economy than they have in the past because internally they have learned more than any other entity to embody the mode of international production within themselves, namely: investment, trade in goods and services, technology transfer and financial flows. The following points illustrate their power and influence:

  • TNCs are the main source of foreign investment and financial flows and have the best access to funds;

  • TNCs account for a large portion of transactions in world trade through intra-firm trade;

  • TNCs are the main initiators of the transfer of technology on an intra-firm basis and rationale;

  • TNCs transmit a variety of economic impulses, such as production technology and labor skills;

  • TNCs’ knowledge and expertise in investment, trade and technology make them sought after among developing countries who hope to become world competitors.

III. TNC Organization and Strategy

It is estimated that about 200 to 300 TNCs go bankrupt every year. Some are big; some are small. Some of the big failures recently are the Bank of Credit and Commerce International (BCCI) and the Maxwell Communications Corp. in 1991. There are many reasons for failure, but one reason is usually true: the inability to compete.

TNCs in Asia have been exceptionally competitive, even though there are doubtless also many failures. By and large, however, they have been able to adapt to changing competitive conditions with the help of the State, which has usually played a very strong role in the development of Asian TNCs. We can note as examples those TNCs from the Newly Industrialized Countries (NICs) - south Korea, Taiwan, Singapore and Hong Kong.

These NICs started by increasing the share of the manufacturing sector and exporting labor-intensive, light manufactured goods that built on their comparative advantage in cheap, low-skilled labor.

As wages rose and domestic savings accumulated, there was structural upgrading of the economy through capital-intensive activities, such as in chemicals and machinery. An example of a country that has reached this second stage is south Korea which has become competitive in cars, producer and consumer services, business equipment and consumer electronics.

As a result of the regional integration of investment and trade in both Europe and North America through the European Economic Area (European Economic Community [EEC] plus European Free Trade Area EEFTA]) and the North American Free Trade Area (NAFTA), it is now possible to think of Japan (quietly) in partnership with the Asian NICs and China developing its own trade bloc in Asia.

Whether by tacit agreement or by economic force, Japan has acted as the leader in the industrial development process in Asia in the last four decades. It was the NICs (notably Taiwan and south Korea) that be came the initial junior partners of Japan. The NICs serve as the second tier of economic leadership in Asia followed finally by the third tier, which includes Malaysia, Thailand, Indonesia, the Philippines and Guangdong Province in southeastern China.2

Japan and the Asian NICs by 1992 provided the largest source of investment flows in all Asian countries and were struggling to ease out both the United States and Europe in their old colonies or spheres of influence in Asia. In 1990, investment outflows from south Korea and Taiwan exceeded inflows, making the two countries net exporters of capital.

Figures for the period 1985-1989 reveal that Japan and the NICs achieved a dominating investor position in south Korea, Thailand, Taiwan, China, Malaysia, Nepal, Sri Lanka, Fiji and Maurifius and were contesting dominance with the United States in Hong Kong and Singapore and with the European Community (EC) in Indonesia.

China has also become a major foreign investor in Asia and overseas. By 1990, it had 1,700 affiliates in 100 countries with a total investment of US$4.5 billion, mostly in trading firms. Asia’s other populous and geographical giant - India - has become a prominent participant in foreign investment as well. During the period 1987-1990, India became a growing host to NIC investments.

A. Regional Core Networks

Protectionism and new technology have effectively made the old export strategy obsolete. A few Japanese TNCs observed this new development and devised a new, "just-in-time" system of production that is now called the "regional core network strategy."

Japanese TNCs are building regionally integrated, independently sustainable networks of overseas investments and production and distribution bases. These networks serve multiple strategic objectives: to ensure access to each of the three "triad" regions (Europe, North America and Japan); to insulate Japan from protectionist threats from the United States and Europe; and to develop advantages in trade by enhancing its capability to trade within the region and concomitantly to reduce Japan’s trade surplus with its two other rival triad regions - the United States and Europe.3

B. The Case of NEC

In 1990, Nippon Electric Co. (NEC) was the 40th largest corporation listed in the July 1991 issue of Fortune with sales of US$24.4 billion and assets of US$23 billion. It produces TV sets, video and electronic products and has 25 manufacturing affiliates in 14 countries, 44 sales and service affiliates in 23 countries and 24 liaison offices in 22 countries all over the world.

In North and South America, nine NEC manufacturing affiliates produce parts for their requirements in the Americas and export these parts primarily within the region. This has reduced transport costs, insulating NEC from protectionist threats and reducing Japan-based exports to the United States.

A similar strategy is used in Europe with NEC having three manufacturing affiliates (United Kingdom, France and Germany), 14 sales and service affiliates and six liaison offices, mainly in Eastern Europe facilitating trade and investment.

Asia is the base of NEC where it has the most facilities: 12 manufacturing affiliates in Taiwan, Hong Kong, south Korea, the Philippines, Thailand, Malaysia, Indonesia, Australia and Aotearoa (New Zealand). It also has 12 sales and liaison offices in China, India, Pakistan, Nepal and Vietnam.

The regional core network strategy has worked in Japan’s favor. It has made production more efficient (with country specialization and regional economies of scale) and, more importantly, has provided Japan with an escape route from its growing trade friction with Europe and the United States.

IV. Issues for Third World Peoples and Workers

A. Asianization of Capital

For a long time, workers and people’s movements in Asia understood their struggles against TNCs as a continuation of the struggle against Western colonialism and imperialism. While the West continues to exert significant influence in the global economy, it is Japan that is now the most economically dominant country in the world. In addition to Japan, there are the NICs who are gaining dominance in more and more Asian countries because they play a model role for Japanese and Western capital and technology.

The example of Nike Shoes, an "American" corporation that is considered the world’s largest supplier of athletic footwear (the total sales of Nike in 1991-1992 were about US$3.4 billion, and its net profit stood at US$329 million), illustrates the Asianization of capital and the regional redivision of labor.4

Nike Shoes is funded by the sixth largest trading company in Asia, Nissho Iwai, with assets of US$24 billion in 19915. This Japanese company finances the purchases of Nike shoes from Asian contractors and owns special, redeemable, preferred stocks in Nike. This allows Nissho Iwai to vote on major Nike corporate decisions.

The production of Nike shoes and garments is almost wholly located in Asia. The main organizers of the production of Nike shoes are south Korean TNCs (Samyang Tongsang, Bu Yeung Chemical and Taekwang) and Taiwanese TNCs (Bao Cheng, Feng Tay and Adi Corp.).

As labor costs increase in both Korea and Taiwan, these NIC TNCs are now farming out the contract work to and investing in factories in China, Thailand, Indonesia and probably soon in Vietnam who, in turn, produce Nike shoes.

This illustrates that an "American" product, like Nike shoes, is really more Asian than American in the sense that it is funded by Nissho Iwai, contracted by south Korean and Taiwanese companies and produced in Korean and Taiwanese-invested factories in China, Thailand, Indonesia and Vietnam.

B. Regional Redivision of Labor

The second issue is the regional redivision of labor. Nike Inc. (U.S.) employs only 7,800 employees of whom 610 are employed as managers and supervisors in various firms in Asia. The bulk of employees in the United States are involved mainly in the marketing and designing of the shoes. There is practically no Nike shoe production in the United States.

Employees of south Korean and Taiwan ese TNCs are mainly involved in contracting production work in Korea and Taiwan as well as in other Asian countries. The bulk of the work of actually producing Nike shoes is done by 75,000 contract workers in south Korea, Taiwan, China, Indonesia and Thailand. As wages in both Korea and Taiwan increase (in south Korea a shoe factory worker receives US$833 per month), the Korean and Taiwanese TNCs are shifting production to China (shoe workers’ wages are about US$100 per month) or to Indonesia (shoe workers’ wages are even lower at US$45 per month).

This illustrates the effective redivision of labor in Asia with which all trade unions (Japanese, south Korean, Taiwanese, Chinese, Indonesian and Thai) must come to terms.

C. Growth: For Whom? How Much? How Fast?

The footwear industry was instrumental in making south Korea a NIC beginning in the 1960s. In the 1980s, the footwear industry (mainly Nike and Reebok) accounted for as much as 5% of total exports annually from Korea. The industry employed 164,000 workers at its peak in 1967 and helped improve skills in leather processing, specialty chemicals and packaging. Based on its exports in 1988, President Roh Tae Woo awarded Samyang Tongsang citations for contributing US$100 million in foreign exchange to the Korean economy.

The peak of footwear exports was reached in 1990, however, when the export value rose to US$4.3 billion. This dropped to US$3.8 billion in 1991. As factories shift to China and Indonesia, south Korean exports will further decline.

The decline in the footwear export industry reflects the general decline of the Korean export sector. Korean corporations are trying to remain competitive despite higher labor costs but are losing the battle to countries like China and Indonesia. The race for high growth rates and "NICdom" must be reassessed by the workers themselves, those who paid the highest price for this "achievement" through their blood and sweat.

As the manager of Samyang Tongsang admitted in an interview: "We cannot survive like this. ...We came from being a developing country to a developed one too quickly."6 A Korean worker might add, What did we achieve in producing so many cheap shoes, and what for?

D. Regionalizing the People’s Response

If The last issue relating to TNCs is: high growth rates per se are unacceptable as a rationale for accepting foreign investments, if workers must suffer comparatively lower wages and suppression of their union rights in exchange for investments, if workers are supposed to stop the shifting of factories to cheap- labor countries, then what should be the new rationale for production in general and foreign-invested production in particular?

Do workers not have a right to determine what should be produced, how to produce it, how much to produce and for what purpose? How can they intervene and determine their wages in the factory? How can they be a part of a larger movement of workers who are responsible not only for their own wages but for those of others in other parts of the country and in other parts of the world?

Recently some south Korean workers were informed that some Indonesian workers had struck against Sung Hwa Dunia, a Korean shoe factory in Indonesia, to gain a US$.24 increase in their daily wages. The Korean workers were surprised, first of all, that a Korean shoe company was in Indonesia. They were further surprised that Indonesian workers were receiving US$45 per month while they were earning US$833 a month, an evident injustice. But if they were not aware of this, how could they prevent the Korean company from moving to Indonesia? And now that they know, how can Korean and Indonesian workers prevent the further shifting of these companies to still cheaper countries. In other words, how can they control TNCs and not let TNCs control them? Unless workers are able to address these issues together across national boundaries, TNCs will always be able to rule them at will.

Notes

  1. World Investment Report 1992: Transnational Corporations as Engines of Growth (New York: The Center on Transnational Corporations of the Transnational Corporations and Management Division of the United Nations Department of Economic and Social Development, June 1992) p. 11.

  2. Ibid., p. 256.

  3. Building Workers’ Unity in the New ‘Super States,’ (Hong Kong: Documentation for Action Groups in Asia [DAGA], August 1992) p. 89.

  4. "Spring in Their Step," Far Eastern Economic Review, Nov. 5, 1992. p.56.

  5. "The Asiaweek 1,000: The Region’s Biggest Companies," Asiaweek, Dec. 18, 1992, p. 53.

  6. "Pain in Pusan," Far Eastern Economic Review, Nov. 5, 1992, p. 59.


(Ed. note: This article was presented at the People’s Plan for the 21st Century [PP21] Workers Forum, November-December 1992, Bangkok, Thailand. A section of the article about trends in foreign direct investment [FDI] has been deleted.)