How Multinational Corporations Adjust to Benefit from Globalization
Introduction
Globalization can be defined as the increasing interdependence among business firms in national economies around the globe. The change agents in a more interconnected globe are businesses that have majority ownership interest in multinational corporations. A corporation or enterprise that is involved in managing production or delivering services in more than one country is known as a multinational corporation. According to International Labor Organization, a multinational corporation is a corporation whose management headquarters are located in one country, called the home country, and it does its operations in many other nations, called host nations. Supporters of globalization claim that the process has led to the rise of the middle-class of people in developing countries, continual expansion of the global stock markets, growth within peripheral economies as well and emergence of a global culture. Multinational corporations have adjusted to and benefited from globalization. This fact will be examined in this essay.
Discussion
Globalization is not a novel phenomenon because capitalism has been present since the period when Europeans started forming colonies in the 1400s. These economies were organized in such a manner that they conformed to the needs of the integral nations of the capitalist global system. Despite the fact that globalization principles have been there for a long time, there are various globalization elements that are popularly accepted to represent the current stage of development of global capitalist. The rising interconnection of finances, markets, services and goods as well as the increasing stature of multinational corporate networks greatly influence the cultural, political and economic processes of current globalization trend. This influence of globalization entails creation of novel global market, novel global culture as well as global multinational political organizations. Rather than being linear, globalization process involves a relationship that is dialectical in nature between its cultural, political and economic dimensions that most of the times seem to be chaotic and contradictory (Michie, 2003).
Under the economical dimension, globalization entails capitalism accumulation as a contemporary process. This process is evident via worldwide division of labor, global commodity chains, increasing number of industries within multinational corporations, the global movement of capital, the change in world trade services and goods to financial instruments and the emergence of global regulatory institutions. International elites who have managed to bring the global economy under the domain of multinational corporations without overlooking the national economic priorities of leading core states are at the centre of the process of globalization. The increasing percentage of world trade as a percentage as world production is an empirical demonstration of economic globalization. The increasing global trade has resulted to increased multinational connections in production that is reinforced by technological advancements effected in multinational corporations within core capitalist nations (Dasgupta, 2004).
The political dimension of globalization is characterized by the rise of global governance as well as rising contradictions within and between national states. The major political tension associated with globalization stems between transnational instititution such as United Nations, World Trade Organizations, International Monetary Fund and World Bank, that are increasingly powerful, and reigning nation-states over global capitalism regulatory landscape. A shift in organization from the level of nation-state to the levels of transcontinental and intra-regional is one of the fundamental features of globalization process. This implies that institutions of global governance are involved in mediation of connections between nation-states (Pizzuti, 2001).
The cultural dimension of globalization entails the increasingly interlinking in the social world that encourages convergence of style and communication among diverse people across the globe while at the same time weakening the uniqueness of national ways of living, non-capitalist values and local cultures. The international elite prefer a cultural globalization process that interconnects the global community as customers of services and goods produced and disseminated by multinational corporations. Multinational corporations have been focusing on distinct social categories through gender, sexual orientation, class, ethnicity and race since the late 1970s, with the aim of satisfying the needs and wants of consumers via promotion and production delivery of services and goods (Nandi and Shahidullah, 1998).
Martell (2010) postulated that, activities of multinational corporations are among the key drivers of globalization. These corporations produce services and goods that can be traded in the global market. The main reason why such corporations trade their products in the global market is to amass huge profits. Activities of worldwide consumers also contribute towards globalization process. The desires and tastes of consumers originating from diverse countries worldwide are increasingly becoming the same. It is now easy to expert technology, fashion and food to different countries. In regard to technology, there are some national variations that multinational corporations should take into account when exporting their goods and services. Technological progress is the other driver of globalization. Oversees transportation of products has been made faster and cheaper by the development of faster, better and larger ships as well as aeroplanes. Consequently, this has cut the costs of production, making it extremely easy for multinational corporations to establish themselves and survive in the global community (Martell, 2010).
Advancement in computer technology and telecommunication particularly email and the Internet, have greatly enhanced communication and international trade between different countries all over the world. Through such progress, consumers have the ability to find out the products available on the global market, order them and coordinate their delivery, at times in just a matter of hours or minutes. The final contributor of globalization includes actions undertaken by the governments. The activities undertaken by different governments since the end of the Second World War have reinforced the process of globalization. Governments have tried as much as they can to minimize hurdles preventing international trade particularly by reducing tariff barriers. For example, the Australian government altered its foreign investment rules in the 1980s in order to give foreign investors an easy time in accessing to their local markets (Nandi, 1998).
Multinational corporations have been known to be effective agents of globalization. What had impacted to a great degree on globalization process are the activities of multinational corporations. Prospective nations and at times regions within countries must compete with each other to have multinational corporations locate their facilities within, owing to their international access and mobility. For competition purposes, political districts as well as nations give incentives to multinational corporations for instance, lax environment, pledges of government assistance, tax breaks, improved infrastructure and labor standards. The process of becoming more favorable to foreign investment can be given a feature of a race to the bottom. Hence, it is evident that there are strong positions held by multinational corporations and transnational companies in different globalization channels. Such corporations give account for virtually all foreign direct investment, FDI since they are extremely active in global trade. They thus shift the technological knowledge and bulk across borders through transactions within different firms across the world (Dasgupta, 2004).
The actual model of a multinational corporation may slightly different. One of the most popular models is that of positioning the executive headquarters in a single country while its activities are positioned in several nations. This kind of model enables a corporation to maximize the benefits associated with incorporating in a given region while at the same time having the ability to produce services and products is regions with a lower production cost. A second structural model entails basing the host company in a single country and undertaking subsidiary operation in several other nations across the globe. Virtually all activities of the parent are based in the origin country with this model. The operation of subsidiaries is more or less autonomous, despite some fundamental ties to the parent. A third structural model is that of establishing a multinational corporation headquarters in one country, which plays the role of overseeing a diverse conglomeration stretching across several industries and nations. In this type of model, multinational corporations comprise of subsidiaries, affiliates and at times a few facilities reporting directly to the headquarters (Michie, 2003).
The Multinational corporation ideology has been present fro several centuries. Some have claimed that the ideology originated in the 17th century from the Dutch East India Company. This is because its corporate structure comprised of more that one nation. The idea of a corporation functioning in more than one country became increasingly popular during the nineteenth and twentieth centuries. This business model continues to be extremely desirable in the twenty first century. Multinational corporations emerged through several ways. One of the approaches was intentional establishing of novel company whose headquarters are located in one nation while basing its activities in other countries. Other multinational corporations emerged as a result of partnerships between 2 or more companies which are based in varying nations. Multinational corporations can also be created through acquisitions and hostile takeovers (Pizzuti, 2001).
Despite being the key agents of globalization, several multinational corporations are affected by the same process either positively or negatively. This fact is owed to the fact that there are many subsidiaries associated with multinational corporations, and some of them benefit while others do not benefit. Therefore, globalization effects on multinational corporations can either be positive or negative, and the determining factor is the nature of the multinational corporation under discussion. It is worth noting that the process of globalization or global trends has led to flourishing of multinational corporations (Nandi, 1998).
Over the last few decades, multinational corporations have been expanding their business in world markets due to increased globalization. A non-debatable phenomenon is the increasing demand of expansion of business outlets in several countries. All parts of the world have experienced a rapid movement of businesses resulting from increases of consumers’ demands. The definitive mindset and behavior of people were highlighted by the demand for supplies of any goods above necessity. People’s inclination to dogmatism and spiritualism was aborted by materialism and consumerism. Multinationals have opted to take risks of bargaining and trading their products considering the slim chance of survival due to fast-paced global developments as a result of scientific and industrial revolutions (Pizzuti, 2001).
Increased access to markets is another benefit that globalization has on multinational corporations. Market that would have been extremely difficulty to reach in the past can be effectively accessed by multinational companies through the process of globalization. Customers from any given country across the globe can make orders of products from multinational corporations because of the Internet. The concept of online marketing and trade has gradually gained momentum in the current era of tremendous technological advancement. It is possible for customers from any given part of the world to have their goods or products delivered by airplanes within a few weeks after ordering. This is therefore a benefit to multinational corporations that stand great chances of increasing their market share and customer base. Such a base can be increased by thousands and even millions through contacting and reaching out to foreign customers through the Internet (Pizzuti, 2001).
Another benefit of globalization lies in labor factors. Through the process, multinational corporations are able to gain access to labor at extremely cheap costs. Such companies and corporations can employ a workforce in foreign countries where the costs of real estate and labor is much lower that the costs in corporations’ home country. This is possible through off-shoring and outsourcing. One notable fact about outsourcing is that while it is beneficial to multinational corporations, it has a negative aspect in that it depletes jobs from a country, resulting to increase in the number of unemployed citizens. However, while outsourcing practices may have negative effects on employees who are searching for permanent or full-time jobs, it is evident that business costs of multinational corporations are remarkably reduced through such practices (Dasgupta, 2004).
Generally, globalization is beneficial in terms of minimizing the costs of labor and thus increasing profitability for multinational corporations. It is the hope of multinational corporations to increase profitability through cutting their costs of labor. This may be possible through moving their process of production from a nation with high costs of labor to a nation that has lower costs of labor. Nations such as Thailand, Mexico, Indonesia and Philippines have lower costs of labor compared to nations like Britain, Australia and United States of America. For example Nike, an American footwear company has created a production company in Indonesia with the aim of increasing profitability and lowering its costs of production (Martell, 2010).
Partnership is another benefit that globalization has on multinational corporations. Through the process, multinational corporations are able to develop collaborations and partnerships with other organizations across the globe. Technology has enabled corporations to identify several other companies working towards achieving a similar goal. This implies that through technology, such corporation can identify potential partners and shareholders that can contribute towards sustainable development. Currently, several European, American and Asian corporations have corporate collaborations and partnerships stretching across regions and continents. A good example is that of MP3 players from a multinational corporation called Sony Ericsson, which are as a result of collaboration between the European Ericsson company and the Japanese Sony Company. These forms of partnerships maximize quality and reduce the costs through playing to the strengths of teams across the globe (Michie, 2003).
Tax effects brought about by globalization are also worth noting. Through the process of globalization multinational corporations gain the potentiality to search for foreign nations with the aim of investing, in cases where their home countries employ tax policies that are unfavorable. Countries which have low rates of corporate tax are at times referred to as tax havens due to the fact that they permit individuals as well as corporations to minimize their rates of taxes through shifting assets offshore. Examples of such countries include Belize, Bermuda and Switzerland. This is made possible through the International financial structure comprising of private documents and encrypted information systems. Availability of such data enables multinational corporations to make comparisons of tax rates between different nations around the globe (Nandi, 1998).
From a market point of view, multinational corporations develop global brands through foreign direct investment, FDI. Moreover, they capitalize on comparative benefits in other nations in order to optimize global production via service and subcontracting agreements among parent companies and foreign affiliates. The globalization of production plays the role of accelerating both product innovation and improvements in the process of production within and among multinational corporations. Globally engaged corporations have more research staff as well as the ability to gain knowledge from a diverse network of international sources of applied knowledge such as customers, suppliers, and foreign affiliates that are non-multinational corporations. The structural economic costs accompanying globalization of production such as plant closings and job losses are often publicized and discussed in political forums and the press, benefits which are rarely articulated (Pizzuti, 2001).
According to Michie (2010), the business dealings of multinational corporations with foreign affiliates complement instead of supplanting local economic activity. According to various academic studies, foreign investment as well as more globally integrated business activities by the multinational manufacturing corporations in the United States increases employment rate and overall national growth. The overall economy benefits from trade, outsourcing and globalization of production. Globalization not only complements product innovation but also growth in productivity, which in turn raised the standards of living of United States citizens. This example from the United States indicate the benefit that globalization imparts on multinational corporations.
A result of globalization that is worth noting is its contribution to multinationals impact on local communities. Multinational corporations create an impact on local communities through diverse dimensions. First of all, such corporations seek to contract or establish their activities in nations where they can maximize resources and labor at a cheaper cost. While this may signify extra wealth flowing into such local communities, this globalization type is associated with fundamental inequalities. It may imply a high rate of unemployment in local communities that hosted such industries previously. The novel setting may also entail minimal wages and poor working conditions. This clearly shows that multinational companies that have integrated globalization concept may have an impact on local communities (Dasgupta, 2004).
Multinationals often look for either under-exploited or novel markets and seek to increased sales. They do so by attempting to develop novel needs among various target groups. A good example is that of operations of southern countries’ tobacco companies. Another one has been establishment of markets that predominantly comprise of young people and children. In deed the youth and child market has tremendously transformed to be among the most influential and profitable sectors. Young people are prized for both their own burgeoning spending power and their influence over adult spending. A linked that is closely linked to the mentioned point is depletion of public space by multinational corporations and their activities. For example, fundamental sectors of leisure have shifted to privatized, commercialized activity from more associational forms such clubs (Martell, 2010).
Globalization, characterized by integration of regional and national markets has greatly improved market conditions. Eventually, globalization benefits majority of market participants and many countries. Substantially, this leads to increased, incomes, productiveness and wealth. However, a few market participants inclusive of workers losing their jobs to foreign competition incur adjustment costs in short term, which are more than the long-run economic benefits. Reduction of trade barriers that protect companies from superior foreign competition hurt such companies, which do not have or lose their comparative advantage globally. Increasing globalization leads to relocation of products, resources and financial capital to uses that are valued highly globally (Michie, 2003).
A good example of a multinational corporation that has greatly enjoyed the benefits of globalization is General Motors Company. There are several ways that globalization has helped General Motors and many other companies that are internationally competitive. General Motors is a company that is highly diversified worldwide. It has about two hundred and sixty six employees who take part in the manufacture of trucks and cars in about thirty five countries. This multinational corporation is the largest automaker globally, and its success is partly owed to globalization process. Globalization has enabled General Motors to import a high amount if resources as well as export more products while at the same time selling and buying at high costs worldwide (Nandi, 1998, pg 40).
Globalization has also helped General Motors to borrow at low costs and lend at high costs in fiscal markets. Moreover, the process has enabled the multinational corporation to invest in higher-return assets and raise equity capital at the multinational level. Through globalization, General Motors has been able to reduce its cost of production through moving some production to foreign locations which have a much lower cost. Reduction of its risks through diversification of its operations and investments worldwide is the other benefit that General Motors has achieved as a result of globalization. Finally, globalization has enabled this multinational corporation to become highly efficient, technologically progressive, fair and customer-oriented with the aim of remaining competitive to the high foreign competition. This is in accordance to the theory stating the importance of competition as disciplining means an economy that is open-market in nature (Pizzuti, 2001).
Conclusion
Globalization as a process of integration and communication among companies, people and governments of different countries across the globe is driven by investment, international trade, informational technology and multinational corporations. Globalization process has an impact on culture, environment, economic progress and prosperity, political systems as well as the physical-well being of humans in global societies. Multinational corporations play a fundamental role in contributing to the process of globalization, which has in turn benefited them in various ways. Some of the benefits that globalization has on multinational corporations include increased access to markets, access to cheap labor, partnerships, tax effects and expansion of businesses in the global market. Two good examples of multinational corporations whose success is owed to globalization are the Sony Ericsson Company and General Motors Company.
References
Dasgupta, S. (2004). The changing face of globalization. SAGE
Martell, L. (2010). The sociology of Globalization. Polity, pg 157
Michie, J. (2003). The handbook of globalization. Elgar Publishing
Nandi, P. K., & Shahidullah, S. M. (1998). Globalization and the evolving world society.
BRILL, pg 40
Pizzuti, F. R. (2001). Globalization, institutions and social cohesion. Springer
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