Embedded Files
Helpful prior knowledge and learning objectives
Helpful prior knowledge and learning objectives
Helpful prior learning:
Section 1.1.1 The economy and you, which explains what an economy is and how it is relevant to students’ lives
Section 1.1.2 The embedded economy, which explains the relationship between the economy and society and Earth’s systems
Section 1.3.9 Power in the economy, which explains where power comes from and how it shapes economic relationships
Section 7.1.1 Global exchange as a system, which describes global exchange as a system with parts, relationships, functions and emergence
Section 7.1.2 History of global exchanges, which describes how global exchange systems have evolved over time, shaped by changes in technology, power, and environmental factors
Section 7.1.3 What moves across borders? which describes what flows across borders and explains how visible global flows are linked to less visible social and ecological effects
Section S.1 What are systems?, which explains what a system is, the importance of systems boundaries, the difference between open and closed systems, and the importance of systems thinking
Section S.2 Systems thinking patterns, which outlines the core components of systems thinking: distinctions (thing/other), systems (part/whole), relationships (action/reaction), and perspectives (point/view)
Section S.5 Causal loops, feedback and tipping points, which explains the feedback loops that can stabilise or destabilise systems
Section S.7 Network models, which explains how nodes and links form networks, and how a network's structure affects the speed of information flow and the power of the people or places within it.
Learning objectives:
explain the significance of multinational corporations and global supply chains for how economic activity is organised across countries
In March 2020, as the Covid-19 pandemic closed shops across Europe and the United States, several large clothing companies cancelled orders with factories in Asia. Primark alone cancelled well over a billion British pounds worth of orders, including clothes that factories had already finished making. Other companies, including Gap, Kohl's and H&M, cancelled or paused their orders too.
For factory owners in countries such as Bangladesh and Myanmar, this meant sudden losses. For garment workers, it often meant unpaid wages or lost jobs. The workers most affected had no say in the decision, but they felt its effects straight away.
The story did not end there. Labour rights groups and journalists reported what had happened, and public pressure grew. Weeks later, Primark reversed its decision. It promised £370 million to pay suppliers for the cancelled orders. Other companies made similar promises.
This shows how a decision made in one country can affect workers and businesses in another, sometimes thousands of kilometres away. The businesses involved in producing a good or service and getting it to customers form what economists call a global supply chain. A relatively small number of very large companies, known as multinational corporations (MNCs), have strong power over the parts of these chains they deal with directly. These companies decide what gets made, where, and by whom. Their decisions can shape jobs, incomes, and working conditions for millions of people who never interact with them directly.
Figure 1. Garment factory workers in Bangladesh, vulnerable to decisions of multinational corporations far away.
(Credit: ILO, CC BY-NC-ND 2.0)
What are multinational corporations (MNCs)?
What are multinational corporations (MNCs)?
An MNC is a firm that owns or controls business activities in more than one country. These activities include manufacturing, research, mining, sales, distribution and many other types of work. A firm does not need to be large to be multinational. But almost all of the world's biggest firms are MNCs.
MNCs are also very large in monetary terms. In 2024, the world's 500 largest companies earned a combined $41.7 trillion in sales revenue, more than a third of everything produced in the entire world that year. This shows how much economic weight a small number of firms can hold.
There are more than 80,000 MNCs operating around the world. Most of them are small or medium-sized. The very largest MNCs are different. One way to rank the world's biggest firms is by revenue, meaning how much money they take in from sales each year. Using this measure, more than half of the world's 500 largest companies are headquartered in the United States or mainland China alone (Figure 2). A firm's headquarters is the country where it is legally based and where its top decision-makers work. This is not the same as where the firm actually operates. Many MNCs run factories, offices or stores in dozens of countries, even though their headquarters is in just one.
Figure 2. Location of the world's largest companies by revenue (2025).
Note: Fortune's own reporting groups Taiwan with mainland China, Hong Kong and Macau under ‘Greater China.’ This visualisation reports China and Taiwan as separate locations.
(Credit: Fortune)
MNCs operate in many sectors, including banking, technology, energy, retail, construction and consumer goods. Some produce physical goods or extract raw materials. Others provide financial services, digital platforms, media or logistics. Even when an MNC sells a physical product, such as running shoes, a large part of its work is design, branding, software, marketing and data, not manufacturing.
Figure 3. Some multinational corporations by sector and revenue size.
(Credit: Fortune)
MNCs matter because they link production and consumption across borders. Some MNCs own factories and offices in several countries. Others coordinate networks of suppliers instead. Either way, a single firm can design a product in one country, source materials in another, assemble the product somewhere else, and sell it around the world.
One common way a firm becomes multinational is through foreign direct investment (FDI). This means investing in business operations in another country. For example, a firm might build a new factory abroad, or buy an existing company and take control of it.
Some newer firms are global from the start. They begin selling to international markets very soon after they are created. This is often possible because of digital communication, global logistics and outsourced production, even while the firm is still relatively small.
Why do multinational corporations operate across borders?
Why do multinational corporations operate across borders?
Several factors help explain why firms expand internationally rather than producing everything in one place.
Economies of scale: Producing large quantities can reduce the cost of production per unit. Large firms are able to invest in specialised machinery, research and development, and global marketing. These investments are often too expensive for smaller firms. Companies that dominate markets such as sports footwear spend heavily on design, branding, and performance technologies. Producing at a large scale allows these costs to be spread across millions of products.
Access to resources: Countries differ in their natural resources, skilled labour, infrastructure, and technologies. Firms may locate different stages of production where the required resources are easiest to obtain.
Access to markets: Rising incomes in different regions create new consumer markets, giving firms an incentive to operate in multiple countries.
Cost, flexibility, and risk: Firms can lower production costs by locating production in places with lower wages or weaker labour and environmental regulations. This is one reason many companies contract production to external suppliers in other countries rather than building their own factories. Working with suppliers this way also lets firms adjust production quickly when demand for their product changes. Because most consumer goods companies own few factories themselves, environmental and labour impacts of production often occur within supplier firms rather than within the multinational's own operations. This can lower the legal, environmental and reputational risk that the multinational company faces.
International mobility and coordination: Since the mid-twentieth century, changes in transport, communications, financial networks and trade rules have made it easier for firms to organise production across long distances. Container shipping, digital design tools, and real-time logistics systems allow a single firm to coordinate hundreds of suppliers across several regions.
How do global supply chains work?
How do global supply chains work?
A supply chain is the system through which a product or service moves from production to the customer (Figure 4). It links many stages of work, and different firms often carry out these stages. Take a simple cotton t-shirt. Its supply chain might include cotton farming, spinning the cotton into yarn, weaving and dyeing the fabric, cutting and sewing the t-shirt, packaging it, storing it in a warehouse, distributing it to shops, and finally selling it to a customer.
Economists describe these stages in the supply chain as upstream and downstream, the same way a river flows from its source down to the sea. Upstream supply chain stages happen earlier, closer to the raw material and its production. Downstream supply chain stages happen later, closer to the customer. For our t-shirt, growing the cotton, spinning and weaving the fabric, and cutting and sewing the final t-shirt are all upstream activities. Distributing the t-shirt, marketing it, and selling it to customers are downstream activities. Each stage adds value to the product. A t-shirt is worth more once it is sewn than when it is just woven fabric, and worth more again once it reaches a shop shelf.
Economists often organise the suppliers in a supply chain into tiers. Tier-one suppliers work directly with the firm selling the final product, in our case, the garment factory that cuts and sews the t-shirt. These factories may rely on tier-two suppliers and tier-three suppliers further upstream, such as fabric mills and cotton farms. This creates long and complex chains that can be difficult to see and trace.
Figure 4. Global supply chains link upstream and downstream stages across multiple firms and countries, often coordinated by a lead firm.
(Credit: adapted from Wieland)
Many supply chains now stretch across national borders. Firms in different countries carry out different stages. This is what makes a supply chain global. When a firm carries out part of its production process in another country, economists describe this as offshoring. This can happen in two main ways. A firm may own and operate its own facilities abroad, or it may contract another firm to carry out specific tasks, such as assembling electronic components or sewing clothing. Economists call this second option outsourcing. When outsourcing takes place across borders, a firm is both offshoring and outsourcing.
In many global supply chains, one firm plays a coordinating role. Economists often refer to this firm as the lead firm, and it is often a multinational corporation. For our t-shirt, the lead firm is usually the clothing brand whose name appears on the label. How much of the supply chain a lead firm controls varies by industry and by company. So does where in the chain that control sits. Some lead firms own factories directly. Many others own very little of the physical chain. Instead, they design the product, control the brand, set standards, and decide which suppliers to use.
Global supply chains also depend on a wide range of supporting services. These include shipping companies, port operators, logistics firms, software providers, insurers, and financial services. Although these activities are less visible than the final product, they are essential for coordinating production across distance and time.
Why are multinational corporations and supply chains important for the outcomes of global exchange?
Why are multinational corporations and supply chains important for the outcomes of global exchange?
Global supply chains connect people and places across the world. Products sold in Europe may rely on rubber tapping in Southeast Asia, synthetic materials from East Asia, and design teams in North America. Decisions made by firms and consumers in one country can shape jobs, incomes, and local conditions in others.
Multinational corporations often hold significant power within these connections. They can use that power to support the wellbeing of workers and the health of ecosystems, or to undermine it. In practice, global economic exchange coordinated by MNCs has often tended toward the second outcome. One reason for this is distance. The people who decide how a supply chain is organised are often far from the places where its impacts are felt. This distance can make it easier to extract value from people and ecosystems than to sustain them.
This pattern shows up in several ways. First, it shows up in the lives of the people who work within these chains. Millions of people depend on global supply chains for their livelihoods, including agricultural labourers, factory workers, technicians, designers, and logistics staff. Some workers have secure jobs, fair pay, and safe conditions. Others do not. Pay, job security, and working conditions vary widely between regions and industries, often reflecting how much power workers hold relative to the firms that employ them.
Figure 5. Millions of people depend on global supply chains for their livelihoods, including factory workers like this.
(Credit: Me studio, licensed from Adobe Stock)
Second, it shows up in how natural resources are used. Large flows of energy, water, land, and raw materials move through supply chains every day. Because the people who make decisions about a supply chain are often distant from the places where resources are extracted, it can be easy to overlook the environmental cost of those decisions. This distance can make it easier to keep extracting without confronting the consequences.
Third, it shows up in how much value different stages of a supply chain capture. Economists call this value capture, how much of the final price a customer pays ends up with each stage of the chain. In many supply chains, stages such as design, branding, and retail capture a large share of the value, while stages such as raw material extraction and manufacturing often capture much less, even though workers at these earlier stages add real value to the product. Section 7.3.1 (coming soon) examines how this pattern connects to long-standing economic inequalities between countries and regions.
Fourth, it shows up in the rules that govern global trade. Trade agreements, investment rules, labour laws, and tax systems shape how firms operate across borders and how supply chains are organised. Because many multinational corporations are large and economically important, they often have significant influence over how these rules are designed, interpreted, and enforced within their industries (Section 5.2.3 and Section 5.2.4). Firms can use this influence to support regenerative outcomes, or to maximise their own profits at the expense of workers, communities, and ecosystems. When large multinational firms become too powerful, this can undermine the ability of countries and their citizens to make policies that protect people and the planet from extractive business practices.
Figure 6. Aerial photograph of Escondida copper mine in Chile, owned by several multinational corporations including Rio Tinto (UK/Australia) and BHP (Australia).
(Credit: NASA via Wikimedia Commons, Public Domain)
7.1.4 Activity
7.1.4 Activity
Concept: Systems, power
Skills: Thinking skills (transfer, critical thinking)
Time: varies, depending on option
Type: Individual, pairs, or small group
Option 1: Fairphone, a supply chain example
Time: 30-35 minutes
Most smartphone brands do not own the mines, factories, or refineries that make their phones. Fairphone, a Dutch company, is trying to change how much a lead firm actually knows and controls about its own supply chain.
A smartphone contains around 300 components made from roughly 30 different minerals. Tracing all of them back to their original mine is extremely difficult, and most brands do not try. Fairphone has traced its tin and tantalum back to specific mines in the Democratic Republic of Congo since 2013. It was also the first smartphone company to use Fairtrade certified gold, meaning the gold comes from small-scale mines that meet Fairtrade's rules on safety and pay, and receive a guaranteed price plus extra money for their community.
For minerals that are much harder to trace, such as cobalt and copper, Fairphone uses a different approach called mineral credits. Once mined, small amounts of these minerals from many different mines usually get mixed together before processing, so it becomes almost impossible to say which mine a specific piece of cobalt in a specific phone came from. Instead of trying to trace the physical mineral, Fairphone pays money directly to specific, verified mine sites, an amount based on how much of that mineral Fairphone actually uses. This money funds real improvements at those mines, such as safety equipment, even though the mineral itself cannot be traced all the way from that mine into a particular phone.
Fairphone also adds a small amount of money, just over $1, to the price of every phone it sells. This money funds a living wage bonus, paid directly to factory workers to close the gap between the legal minimum wage and a living wage. Fairphone extends this bonus to all workers at a factory who need it, not only the workers on its own production line, because most factories make phones for several different brands at once. In 2025, this came to $215,000, and Fairphone has now distributed over $1.25 million in living wage bonuses since the program started. Fairphone has also set up a separate fund at some factories, paid into for every phone sold, where workers elect their own representatives to decide how the money is spent, on things like bonuses, training, or safety upgrades.
Figure 7. Fairphone’s simplified representation of a smartphone supply chain.
(Credit: Fairphone)
Questions to consider:
Compare the Fairphone supply chain illustration in Figure 7 with the supply chain illustration in Figure 4.
a. Find one stage or role that both diagrams describe, but using different words.
b. The diagram does not include downstream stages of the supply chain. Why might Fairphone focus on the upstream stages for its reports?
Using the tier language from this section, what tier would the "component manufacturers" belong to? What about the mines?
Fairphone tries to make its supply chain visible and traceable, instead of leaving it "difficult to trace", as this section says most supply chains are. Suggest one reason why this is so hard for Fairphone to do completely, even as a company that is trying.
Earlier in this section, you read that distance between decision-makers and the places affected by their decisions can make it easier to extract rather than sustain. How is Fairphone trying to work against this?
Fairphone's living wage bonus reaches beyond its own workers to others in the same factory, but its worker-led welfare fund does not, since it depends on money tied to Fairphone's own sales. What does the difference between these two programmes suggest about the limits of what one company can fund on its own?
If you do activity Option 2, do you think Fairphone changes where its stages sit on the smile curve? Explain your answer.
Click on the arrow to reveal sample answers, but give it a go yourself or with a partner first!
a. Fairphone's ‘Final Assembly Manufacturer’ is the same role this section calls a tier-one supplier, the firm closest to the lead firm, since it's the one directly assembling the finished product. ‘Component Manufacturers’ here are the same as tier-two suppliers.
b. Fairphone's mission is to show where its materials come from and how the people mining and making them are treated. Those questions all sit upstream, so this diagram focuses there. It doesn't mean Fairphone ignores what happens after assembly, just that this particular diagram isn't built to show it.
Component manufacturers are tier-one suppliers, since they work closest to the lead firm. Mines are much further upstream, likely tier-three or beyond.
A smartphone has around 300 components from about 30 minerals, sourced from many different suppliers and countries. Tracing every single one back to its original mine is extremely difficult, since minerals like cobalt get mixed together from many mines before they can even be processed.
Fairphone traces specific minerals back to named mines where possible, pays money to fund improvements at mines it cannot fully trace, and funds a wage bonus that reaches workers directly. This narrows the distance between decisions made at company headquarters and the actual conditions of workers and miners.
The living wage bonus can reach every worker in a factory because it is designed to close a wage gap that affects everyone there, regardless of which brand they work for. But a fund tied to how many Fairphones are sold can only ever be as large as Fairphone's own sales allow. This shows that a single company, even one trying to solve an industry-wide problem, is still limited by its own size and market share.
Students may argue either way. Some may say Fairphone shifts more value toward workers and miners at the low point of the curve, since it pays wage bonuses and funds mining improvements. Others may say the curve itself has not changed, since design and branding still likely capture the most value, Fairphone has just chosen to share more of that value voluntarily rather than changing the underlying structure.
Option 2: Who captures the value?
Time: 25 minutes
A supply chain has many stages, and a different firm often carries out each one. Each firm sells its part of the work to the next firm in the chain, at a price the two firms agree on. Some firms can negotiate a high price for their stage. Others can only negotiate a low price, even if their stage took more work. Add these prices together, from the cotton farm to the shop shelf, and you get the final price a customer pays. How much of the final price each firm along the supply chain is able to keep is labeled ‘value added’ or ‘value captured’ depending on the framing.
Figure 8 shows a common pattern of value addition or value capture in many industries, sometimes called the smile curve. It shows which stages of production capture the most value, and which capture the least.
Figure 8. The ‘smile’ curve of value added / capture along the supply chain
(Credit: adapted from Shih, Baldwin & Ito)
Questions to consider:
Describe the shape of the curve. Which stages sit at the high points? Which stage sits at the low point?
Name a stage of a t-shirt's supply chain that would sit at the low point. Name one that would sit at a high point.
The garment factory that sews a t-shirt adds real value. Explain why it still captures a small share of the final price.
Why do design and branding usually capture more value than manufacturing?
Globalisation has made it much easier to move manufacturing to any country willing to do it cheaply. What do you think this has done to the smile curve over time, made it deeper or flatter? Explain your reasoning.
Why should we care about this pattern? What does it mean for the people and the environment involved in a supply chain?
Lead firms (often MNCs) rarely own manufacturing, but they almost always control design and branding. Suggest one reason why.
Click on the arrow to reveal sample answers, but give it a go yourself or with a partner first!
The curve is high at both ends and low in the middle. The high points are usually design and branding. The low point is usually manufacturing.
Low point: cutting and sewing the t-shirt. High point: designing the t-shirt or building the brand.
Many factories in different countries can do this work, so buyers can choose the cheapest one. Laws protecting suppliers and workers are often weak. Countries also compete with each other to attract manufacturing investment, often by keeping costs low. Together, these things weaken the factory's negotiating position.
Brands and designs are protected by law, through trademarks and patents. Only the owner can use them, which makes them scarce and valuable. Manufacturing capacity is not scarce in the same way. Many suppliers can offer it, so competition between them keeps prices low.
The curve has likely deepened. As more countries around the world became able to offer low-cost manufacturing, lead firms gained more choice over where to produce, which pushed manufacturing prices down further. Design and branding did not face the same competition, so their share of value stayed high or grew. Research on this pattern supports this: studies of global exports have found that manufacturing's share of value fell in most countries after the mid-1990s, while design, marketing, and other service-based stages captured a growing share.
Stages that capture less value often have less money for fair wages, safe conditions, and environmental protection. This can mean low pay and environmental harm at these stages, while the stages that capture more value stay profitable and comfortable.
Firms keep the stages with the most market power and profit for themselves, and let other firms take on the cost and risk of manufacturing. They are able to do ths because of their relative power compared to other firms in the supply chain.
Ideas for longer activities and projects are listed in Subtopic 7.5 coming soon
Checking for understanding
Checking for understanding
Further exploration
Further exploration
Goods Across the World – An OER Project article tracing the global supply chains behind the iPhone and Starbucks coffee, covering Foxconn's Zhengzhou factory, conflict minerals from the Democratic Republic of Congo, and corporate ethical sourcing programmes. Difficulty level: medium.
What is the bullwhip effect? A short video from the Open University explaining why it’s so hard to manage supply chains, especially if collaboration and coordination across those supply chains is missing. Difficulty level: medium
What fuels fashion? Fashion Revolution’s 2025 report on the supply chains of major multinational fashion brands. Packed with information on accountability, decarbonisation, energy procurement, finance and a just transition. Difficulty level: medium
Corporate Power in a Global Economy - A university teaching module explaining why large multinational firms grow so big, how they shape the rules and decisions of the countries they operate in, and what responsibility they have for the social and environmental costs of their business. Difficulty level: medium
Planet Money’s T-Shirt Project – A video series from NPR’s Planet Money following the global supply chain of a simple cotton T-shirt, from cotton farms to factories to shipping networks. It highlights the role of globalisation, trade agreements, and labour conditions in modern manufacturing. Difficulty level: easy.
How Containerization Shaped the Modern World – A short animated video from TED-Ed explaining how the invention of shipping containers revolutionised global trade, making it faster and cheaper, but also contributing to job losses in local industries and increased global economic interdependence. Difficulty level: easy.
Global Witness - An investigative organisation that has spent over 30 years exposing how companies in industries like oil, gas, mining, and timber profit from conflict, corruption, and environmental destruction, and tracking the money and power behind it. Their current investigations cover fossil fuels, minerals used in the clean energy transition, and forests. Difficulty level: medium
Fashion Revolution: The impact of Covid-19 on the people who make our clothes - A detailed account of what happened to garment workers after brands like Primark cancelled billions of dollars in orders during the pandemic, including how little brands disclosed publicly about the harm caused, and the campaigns that pushed several brands to reverse their decisions. Difficulty level: medium
Open Supply Hub - A free, open map of global production locations, built by a nonprofit organisation. Brands and organisations voluntarily upload supplier data, showing one real attempt by some MNCs to make hard-to-trace supply chains more visible. Difficulty level: high
Fortune Global 500 interactive map - An interactive world map showing every headquarters on the 2025 Fortune Global 500, sized by revenue, so you can visually confirm which countries dominate the list. Also includes a ranking history showing how each company's position has shifted over time. Difficulty level: easy
Ethical audits and the supply chains of global corporations - Brands hire auditors to check that their factories are safe and fair. This research brief from the Sheffield Political Economy Research Institute argues that these audits often miss real problems, because factories are warned in advance, brands choose how deep the checks go, and auditors have no power to verify what they're told. Some factories passed an audit only months before a disaster. The brief also argues that these voluntary audits let companies check themselves, instead of states doing it. Difficulty level: medium/hard
Sources
Sources
Baldwin, R., & Ito, T. (2021). The smile curve: Evolving sources of value added in manufacturing. Canadian Journal of Economics, 54(4), 1842–1880. https://doi.org/10.1111/caje.12555
Business & Human Rights Resource Centre. (2020, April 21). Primark: Retailer reverses decision to withhold payment for cancelled orders, committing to pay £370 million to suppliers across Asia. https://www.business-humanrights.org/en/latest-news/primark-retailer-reverses-decision-to-withhold-payment-for-cancelled-orders-committing-to-pay-370-million-to-suppliers-across-asia/
Fairphone. (2026). Fairphone's impact 2025. https://www.fairphone.com/impact-report
Fortune. (2025, July 29). Fortune announces 2025 Fortune Global 500 list [Press release]. Fortune Media. https://fortunemedia.mediaroom.com/2025-07-29-Fortune-Announces-2025-Fortune-Global-500-List
Kognity. (n.d.). 4.2.9 Foreign direct investment and transnational corporations. IBDP Geography HL FE2019.
Kognity. (n.d.). 4.10.7 Inward foreign direct investment. IBDP Economics HL FE2024.
OECD, & United Nations Statistics Division. (n.d.). OECD-UNSD Multinational Enterprise Information Platform [Dashboard]. OECD. Retrieved July 25, 2026, from https://www.oecd.org/en/data/dashboards/oecd-unsd-multinational-enterprise-information-platform.html
Roach, B. (2023). Corporate power in a global economy (Economics in Context Initiative teaching module). Global Development Policy Center, Boston University. https://www.bu.edu/eci/files/2023/09/Corporate-Power-Module.pdf
Shih, S. (1996). Me-too is not my style: Challenge difficulties, break through bottlenecks, create values. The Acer Foundation.
van Staveren, I. (2015). Economics after the crisis: An introduction to economics from a pluralist and global perspective. Routledge.
Terminology
Terminology
Coming soon!
Page updated
Google Sites
Report abuse