A Case Study of Burger King and Labor in the U.K.: Transnational Corporations and Labor
Question
Part B – Extended essay – critical evaluation
of theoretical explanations
·
Critically evaluate the following two explanations for the growth
of Transnational Corporations; Internalisation Theory (Casson and Buckley) and the analysis of Transnational
Monopoly Capitalism (Cowling et al). (Word-guidance 1500).
Part C – Extended essay – assessment of
effects
·
Assess the impact of one Transnational
corporation (from the list below) on the UK using
one of the following
criteria: innovation or labour or trade or political sovereignty (Word-guidance 1500).
|
Transnational
Corporation – Choose one |
Sector |
|
Burger King. |
Fast Food. |
|
American
International Group. |
Commercial
& Industrial Insurance. |
|
Telefonica. |
Communications |
|
Walgreens
Boots Alliance. |
Health and
Wellbeing. |
|
Mitsubishi
Corporation. |
Food &
Drink. |
|
Meta. |
Technology. |
Ø The submitted
work should be properly referenced
throughout. It should include a bibliography, and where appropriate footnotes.
Ø Please ensure
the submitted work has no appendices.
Ø Ensure the
submitted work includes a word count on
the first page - this figure does not include tables, footnotes or the bibliography;
Ø The submitted
work should be produced with a typeface of Arial
font size 12. Please use the
same typeface throughout.
Ø The submitted
work should be set out 1.5 spaced
(including bibliography and endnotes).
Ø All text should
be ranged left and unjustified.
WORD COUNT :
2800 IS ENOUGH !!!!
For Part B, it is essential
that you engage with the key recommended readings set out in Seminars. Papers
by Casson, Buckley , Cowling & Tomlinson and by Sackrey et. al. Chapters 9
& 14 in Letto-Gillies are also particularly useful. This part should be
based on your reading of Letto-Gillies and the papers provided in Supplementary
readings 2 to maximise your marks.
In addressing Part C, you
should begin by consulting Part IV of the letto- Gillies text, which sets out
concepts related to each of the criteria from which you can choose and the
other recommended references listed in the relevant seminar readings.
Remember this is
a single piece of work with three parts. Equally, when writing part C you may
well refer a concept discussed in part B.
FURTHER GUIDANCE
Part B
Part B is more challenging, as you are required to critically
evaluate internalisation theory and transnational monopoly capitalism
theory as explanations for the growth of transnational corporations.
There are a number of ways to approach this but one is to set out
clearly the main tenets of the body of theory (originating with Coase then
Williamson – see Ietto-Gillies chapter 8 for a useful summary) and also based
on Casson and Buckley and then ask yourself, what would the other perspective
say was missing, flawed or inconsistent. You could then reverse the process and
look at the second body of theory based on Marxist roots and developed by Baran
and Sweezy cited in Sackery et al. and Cowling and Tomlinson in the same way;
questioning it from the internalisation perspective.
Remember that critical evaluation implies consideration of the
extent to which a theory explains what it purports to do (completeness). In
this case, the degree to which each theory fully explains the growth/activities
of TNCs. In addition, evaluation should consider the extent to which any
theoretical explanation is free from contradictions (internally consistent).
The 1500 word count for this part is tight for this part and the use
of academic footnotes (NOT Endnotes) is recommended to add value
and manage the word count. (They are not part of the word count)
Footnotes allow material to be included which amplify or
clarify points made in the main body of the essay, but which is not
important enough to count towards the word limit. It also allows the writer to
include a tangential point or aside of interest, which is not directly related
to the question posed.
Note: Whilst most footnotes need referencing they should NOT
be used as a method to cite references for other material in the main text.
Use footnotes judiciously,
as appropriate, referenced using the Harvard method. Do
not over use.
To achieve good marks for this part, it is essential that you
demonstrate engagement with the key recommended readings set out in Seminars 4
and 5. In particular papers by Casson, by Buckley by Sackrey et. al. and
by Cowling & Tomlinson. Also read Chapters 8 & 13 in Ietto-Gillies,
which are also particularly useful. This part should be based on your
reading of Ietto-Gillies and the papers provided in Supplementary readings 2 to
maximise your marks.
Part C
For the final part you need to select one firm from
the TNC’s on offer and evaluate its
impact on the UK economy using one of the four criteria
(innovation OR labour OR trade OR political sovereignty).
This will require some empirical research but theoretical insights
from the literature are also important. Whilst some initial investment,
direct/indirect employment and trade/export numbers may be available, in other
areas detailed data may not be readily accessible. However, other sources
including reputable media reports might also be useful to indicate the validity
or otherwise of theoretical concepts from the module. Academic footnotes
can also be useful in this part.
In addressing Part C, you should begin by consulting Part IV of
the letto-Gillies text, which sets out concepts related to each of the criteria
from which you can choose.
The various concepts for this part also feature in the various
readings (including the four papers used for Part B) and depending on the
criterion chosen include:
Innovation: Product
innovation; process innovation; degree of embeddedness; absorptive capacity;
spillover effects (Ietto-Gillies, Part IV particularly Chapter 17)
or
Labour: direct
and indirect employment effects; wages/rewards; employee welfare; longevity of
employment; strategic behaviour (in the case of NIDL) (Ietto-Gillies, Part IV
particularly Chapter 18)
or
Trade: Intra-frim trade; inter-firm
trade; resource-based production; market- orientated production; rationalised
or integrated production, effects on Balance of Payments (Ietto-Gillies,
Part IV particularly Chapter 19)
or
Political sovereignty: TNC versus state size;
dominance versus mutual benefits; terms of market access; rules of conduct
within jurisdiction; distribution issues (profits, tax yields and transfer
pricing), effects on Balance of payments. (Ietto-Gillies Chapter 14 is useful
but also the Sackery and Cowling/Tomlinson papers)
Selecting a combination of firm and criterion for Part C
This is the first decision to make and it is important to give it
some careful thought. The firms have been selected so that any one can be
written about using any of the criteria, however you may feel that some pairs
may be provide a better combination than others. For example, each of the
firms makes claims about ‘innovation’ so the choice is open to pick any.
Similarly, each firm has potentially interesting labour issues about which to
write. For trade and effect on balance of payments, volume and value,
consider Telefonica, Walgreen Boots Alliance and Meta whilst not oriented to
international trade as its core activity, does still deal with its own
subsidiaries and uses transfer pricing to acquire (import) the rights to its
own intellectual property. Any mispricing of transfer payments will also affect
the values of imports and or exports.
Remember also that the firms used different modes of entry into
the UK and those initial capital inflows and later repatriated profits affect
the UK Balance of Payments. The political sovereignty criterion also is applicable
to all as some have had issues around tax payments reported widely in the media
and others seek to pressure government for assistance and concessions in the
light of Bexit for example. However in terms of control and bargaining power,
all large firms arguably seek to influence government decisions and policy
either by lobbying or through making clear their credible threat to re-locate
activity to other countries.
Further general points to note
To further add to the sense of a single, cohesive piece of work it
is entirely likely that in parts two and three, reference might be made to a
particular trend or feature mentioned in the first part and that in part three,
concepts or arguments mentioned in part two might be used to provide further
support for the evaluation offered.
Academic footnotes can be used to add additional detail and help
to manage the word count. If you are unsure about how to use footnotes,
read the paper ‘The Global Context’ by Brendan Sheehan available on the module
website and see how Brendan uses this device effectively.
Use academic sources appropriate to final year undergraduate work. These do not include such sites as Tutor2U, UKEssays, Wikipedia, Investopedia, EconomicsOnline etc.
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Solution
A Case Study of Burger
King and Labor in the U.K.: Transnational Corporations and Labor
Part
B: Critical Evaluations of Theories
This part will involve the theoretical
approaches to understanding how transnational corporations (TNCs) grow based on
the various economic perspectives. In particular, two theoretical positions
will be explored. The first one will include the internalization theory that
uses a combination of different economic perspectives such as international
business theory, institutional economics, and neoclassical approaches to
explain how TNCs grow and internalize due to transactional
imperfections. The second theory for explaining the growth of TNCs is the transnational
monopoly capitalism, which focuses on the strategies that firms use to increase
their power, influence and control of the market, and sometimes even the
government regulations. These two theoretical approaches will be discussed in
detail concerning how firms grow internationally.
Internalization Theory
Foundations
The development of the theory is
majorly based on the elements of transactional market failures that lead to the
firm’s growth. Most of these transactional costs are analyzed based on the firm’s
risk management. For a firm to grow internationally, the advantages of
internalization are therefore applied to the international context. Most of the
emphasis is on how the firms enhance production in the other countries and deal
with licensing to operate in such areas. There are two main issues discussed
where the less committed areas include the franchising and development of
subsidiaries. However, there are also full intensive commitment approaches
where the firms engage local suppliers, develop production plants in the host
nations, and establish operations from that country, enhancing the TNC’s
growth. Based on the knowledge from before and after world war III, most the corporations
benefited from the intermediate products internalized before the war. The
knowledge-based products after the world war increased the direct foreign
production and globalization of the firms.
The early foundations of the theory
could be traced back to the works of Coase (1937) and Williamson (1975). One of
the foundations of the internalization theory was the organization of
production. In the traditional neoclassical approach, the focus was on the firm’s
cost types and revenues, and there was no evaluation of how those costs
impacted the resource organization. Therefore, the contributions of Coase
(1937) through the seminal paper in the year enhanced the economic attention to
how the price mechanism in the market influences the allocation of resources in
the firm and is dependent on the entrepreneur as the coordinator. Therefore,
consumption also influences how a firm organizes its production, which bridges
the gap in explaining how transnational companies organize production
activities. In the seminal paper, Coase (1937, p.333) argued that the price movements
outside the firm, which are based on the transactional exchanges in the market,
impact the firm’s internal production organization by the entrepreneur, who is
the coordinator and director of production such as the way resources are
allocated by the price means.
Therefore, there has to be a balance
between the costs of carrying out the transactions and the costs of organization
and allocating resources internally and the importance of such costs being equal
to the outside environment in comparison to that of competing firms organizing
in the same way (Coase, 1937, p. 341). In this regard, the growth is explained
in terms of the firm’s growth based on the costs and benefits analysis of the
internal transactions that influence how resources are allocated internally as
compared to the cost and benefit analysis of the external transaction costs and
the resources allocated through the market. For a TNC to grow, the market
imperfections of the transactional type have to exist. Coase (19370 indicated
that there are two types of market imperfections which include structural and
transactional. The structural imperfections refer to the way the market and
industry in which the firm operates are structured, such as the market shares
and powers other firms command. The second type of transactional imperfections
entails the knowledge and asymmetry of information, especially between the
sellers and buyers, including the costs arising from transactions such as legal
costs of the contract stipulation.
Developments
One of the scholars that tried to
advance the theory of internalization to Coase’s contributions was Oliver
Williamson (1975). Williamson (1981, p. 1537) indicated the main premise of his
approach to be the way modern corporations were looking for ways to economize
the transactional costs through a series of innovations in the internal
structure of the organizations. Williamson advanced the analysis of Coase by
introducing concepts that detailed reasons and analysis of the benefits of
internalizations which included bounded rationality, opportunistic behavior, and
asset specificity. The bounded rationality included that people and
institutions that refer to the corporations operate under the imperfect information
due to constraints in the limits to the information they possess. This means
that the cognitive imperfections arising from the knowledge owned by a firm or
individual determine how a firm grows and benefits from the internalization
advantages. In this case, the level and quality of the information are expected
to be higher when the organization of production and operations are carried out
within the firm than when externalized. Therefore this approach advocated for
the firms to push for the investment in getting more asymmetric information
within the firm’s operations to have leverage in an imperfect market.
The second advancement by Williamson is
opportunistic behavior, which entails how external parties, employees, and
managers may want to seek self-interest due to the asymmetry of information
they have obtained. This is even likely to create more challenges to an organization’s
growth if the small economic agents exist and operate independently. However,
internal transactions protect most corporations from opportunistic behavior
since the level of information is higher when operations are internalized. The
last concept advanced by Williamson to develop the internalization theory includes
asset specificity, which includes that firms should buy assets and accumulate
skills that complement each other to increase returns than when used
separately. In this case, it is important to increase the productivity of the consents
by ensuring that people with the right skills use them for the purposes they
were designed and acquired for, especially when used internally compared to
other businesses. Williamson believed that this could result in higher
efficiency and growth of the TNCs.
Peter Buckley and Mark Casson (1976)
further advanced this economic model, especially from McManus’s analysis. In
this case, McManus (1972, p. 72) indicated that it was important to ensure that
the control function of firms should be internally centralized to increase
income in various markets globally and optimize the profitable and productive
activities in various regions. In this case, McManus argues that the costs of
market transaction operations are the foundations for why most TNCs create
subsidiaries in the foreign market that operate under the centralized control
of the firms. Buckley and Casson (1976, p.33) developed these ideas by
indicating that firms tend to focus on optimizing profits in imperfect markets
and that the internalization of these markets beyond the national borders in
which a country operates leads to the growth of multinational enterprises
(MNEs). Further, the authors indicated that there are instances where firms
tend to consolidate ownership and centralize control linking various markets
when intermediate products become imperfect, and bypassing them bypasses the
challenge of creating internal markets. In this case, the two most important
internalization areas include the markets of the products that are intermediate,
characterizing the period before WWI, and the search for knowledge markets that
happened in the period after WWII. Some of the sources of the market
imperfections identified by Buckley and Casson include long time lags between
initiation and completion of production, discriminatory pricing, inequality in
the buyer and seller position as it regards the knowledge of products, and
government interventions in international markets such as restriction in the
movement of capital goods, the Valorem tariffs, and discrepancies in taxation
rates among others.
Criticism
One of the main criticisms was
directed especially to the advancements by Buckley and Casson. One of the
criticisms was by Kogut and Zander (1993), who argued that Buckley and Casson
offered misleading conclusions on the knowledge as a product that can be packed
and transferred at a cost. The authors believed knowledge was tacit and not
easily codified; hence, it was hard to package and transfer to other
institutions or firms, including social environments. In this case, firms are
viewed as social institutions and communities that use their knowledge to
innovate and create economically rewarded services and products. The efficiency
of creating these outcomes determines the ability to transfer such knowledge.
Besides, most of the developments do not explain how TNCs grow internationally
through the internalization theory. In this case, authors such as David Teece
(1986) criticize the theory of internalization as lacking the ability to
predict TNC growth. In this case, the theory only gives opportunities for where
companies can internalize and get leverage in the international market.
However, it does not offer ways in which the firms and TNCs can achieve global
expansion, making the theory incomplete, lacking justification, and lacking the
ability to grow.
Transnational
Monopoly Capitalism
Foundations
The theory originates from the works
of Hobson when evaluating the imperialism in the West countries and analysis of
the under-consumption in the society (Letto-Gillies, 2019). In this case,
Hobson compared how the nations were interested in business interests such as
collecting raw materials and gaining further control and political power. This includes
the ability to influence other governments and regions where they were
establishing colonies. In the same way, TNCs take the expansion into the
foreign markets to increase their control and dominance by expanding their
profitability and influence in the nations (Hobson 1902). This elaborates the
Marxian viewpoints in that TNCs tend to expand into the global market to
increase their profitability by lowering production costs. In return, the high
revenues are used by the TNCs to have more power and ownership through market
share, which is critical in market manipulation and establishment of the
capitalist monopolies in the global markets. In the article by Sackrey et al.
(2013), the authors indicate that capitalism enhances the stagnation of
oligopolistic markets that balance the prince mechanisms and wages in the
market. Instead, it allows monopolistic behaviors to dominate the market where
all firms aim at maximizing profit. Establishing major monopolistic
corporations edges out competition by eliminating price wars leading to
economic surplus and disparity between various individuals and firms.
Developments
There was further development of the
monopoly capitalism theory to explain the modern-day growth of the TNCs. The advancements
were majorly by Cowling and Sudgen (1987), who argued that the growth of the
TNCs was major due to the control concept (Letto-Gillies, 2019). In this case,
most large firms operated as one entity that was large enough to manipulate the
market by managing cooperation and rivalry. As a result, the TNCs inspired by
the growth aimed to develop a substantial market power that could be used for
creating monopolies that created influence over governments. This was, to the
extent of, disallowing the Pareto efficiency.
Regarding
the labor market and its impact on consumers, the TNCs have also demonstrated
the ability and power to manipulate labor outcomes internationally (Cowling and
Sudgen, 1998). Further, a study by Cowling and Tomlinson (2005) indicated that
most TNCs use a divide and rule approach to disperse labor and reduce their power
in organizing and demanding more from the organization. The second way the TNCs
increase their power and controls is by influencing regulatory frameworks. This
includes how the TNCs can influence the design and shape of the regulation
implementation in a concept known as the regulatory capture (Cowling and
Tomlinson, 2005). This allows the companies to maximize their profits and
weaken consumer protective regulations. The third way is controlling innovation
which can be stifled. The large TNCs tend to maintain the market by making strategic
purchases and acquisitions of certain companies in the market, which could lead
to stifling of innovation and controlling the market direction to benefit the
TNCs and maintain a monopoly in the global market.
Criticism
The main criticism is that despite
developing much support on how the TNCs behave to promote control of power and
advancement of their interests, there is too much evaluation of the political
influences, especially on regulatory frameworks and how they develop and use
the control power for their growth internationally. However, despite being
monopolies, the growth of the TNCs and monopolies have substantially also
contributed to the growth of local economies through employment provision and the
development of infrastructure. To an extent, some of the knowledge is
transferred to the employees in the local regions where other companies and
small enterprises become innovative and compete pretty in specific market
solutions. Therefore, the proponents of the monopoly capitalism approach to explaining
the TNC’s growth across transnational borders underestimate this aspect.
Part
C: Burger King and Labor Impact in the U.K.
In this part, the main aim is to
explore how the Burger King Company entered the U.K. market, its expansion over
the years and how it has impacted the labor sector in the country. The company
is one of the most profitable fast-food companies across the global market,
which many branches in major cities globally. In the U.K., the company is one of
the major fast-food companies that have expanded. This has led to direct, and
indirect employment effects, improved living standards through fair
compensation and wages, and promoted other factors such as job stability and
employee and employee welfare.
Burger King entered the U.K. market in
1974. However, its early operations were difficult to expand until its acquisition
by the Grand Metropolitan in 1989. This was further followed by purchasing the
Wimpy Hamburger chain and converting the outlets to Burger King Fascia. Another
major boost in 1996 was the conversion of the Little Chef branches in the major
roadside of U.K. cities to Burger King by Granada. By 1994, Burger King had
established more than 250 restaurants across Britain. By 1997, the company had
opened up to 465 outlets and owned about 15% of the British burger market share
by 1999. In 2017, the company was acquired by Bridgeton and Caspian Group and
increased the outlets to 530 in the U.K. alone b 2021. This has boosted its
outlook with intentions to list in the London Stock Exchange market, where the
value is estimated to be 600 million Euros. Based on these statistics, Burger
King is a major employer across Europe as fast food restaurants are the main
food source, especially in cities. Therefore, it has impacted the labor market
in the U.K. intensively.
Firstly, the company has impacted the U.K.
labor force both directly and indirectly. Regarding direct employment, the
outlets require physical staff, both technical and not technical, and the
managers and supervisors of the outlets and franchise. The 530 outlets have
employed about 16500 staff from the U.K. alone working in various capacities. However,
considering the recent pandemic of Covid 19, there have been difficulties
re-opening some of the closed outlets due to losses. This can permanently close
down about 10% of its outlets, which means about 800 to 1600 employees would
lose their jobs. Considering these employees depend on the company for salaries
and wages to sustain their families and themselves, such closures and
expansions have quite promoted the ability of the employees to increase their
savings, purchase power, and improved living standards that promote the U.K. economy.
Besides, the company has also promoted indirect employment. This is through the
engagement with local suppliers, which has provided consistent client relationships
and sustained such supply business for the raw materials used by the burger
king. As a result, the supplying companies also employ more individuals to meet
the demand of the Burger King Restaurant outlets across the U.K., which
enhances even more income. Some of the people benefiting are those using the
company through franchise arrangement, hence creating extra income as
entrepreneurs and providing more employment opportunities to other people in
the U.K.
Considering it is one of the large
employers in the U.K., Burger King has been a leader in providing competitive
compensation packages to its employees, contributing to the improvement of the
living standards. The workers can save more and spend more, including on
leisure activities. The dependents can also benefit from the improved living standards
due to decent wages. Besides, it has also become a corporate leader in
championing employee welfare with incentives such as paid leaves and
maternity/paternity leaves. This includes having good safety and health of
workers policies that ensure that each employee is not exposed to unnecessary
risks in the workplace. This is critical as it increases the motivation of the
workers and commitment to the organizational success as well. Lastly, some of
the employees benefit from job stability as some are offered permanent
employment status that secures their job security over a long period. In this
case, people can plan better, including how to plan for housing and mortgage,
purchasing means of transport, and other investment plans aimed at improving
their livelihood in the end.
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