International Business Business University Question 1 The world, post-world war II, is a complex web of increased global co-operation, marked by increased inter-regional trade and commerce. While international trade has been a prevalent phenomenon for over two centuries, there has been a change in patterns with regard to the players involved…
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The regions that harbored this paradigm shift are the United States, Japan and Europe; which have been deemed as the Triad. After establishing a strong industrial base, many corporations in this region have expanded globally, particularly dispersing operations across the globe where economies of scale could be achieved in a cost-effective manner. A main feature of the past few decades has been the shift from labor intensive industries to capital intensive industries, consequently, labor activities have been shifted to less developed regions where labor cost is law and there is relatively less restraint posed by labor regulations. (Ohmae, K., 1983) While some scholars deem this transfer of functions as neo-colonialism, since most of the profits gained by virtue of these activities are diverted towards the operating MNE’s, our focus remains on the peculiar relation between multinational enterprises and small-medium enterprises that operate locally. Since Greenfield ventures are a rarity in the current sociopolitical environment, trade activities are spearheaded by focus on usage of factors of production, in particular, labor. Most of the major global corporations make use of ‘outsourcing’, delocalizing certain operational functions to push their costs down. This symbiotic relationship is possible due to particular philosophies that are distinct to the two major players here: MNEs have a focus on product innovation while local SMEs have a focus on process innovation. MNEs provide the financial and technological capital required, while SMEs facilitate production with an optimal production process. Inevitably, the SMEs, which are mostly situated in LDCs, are forced to specialize in the particular function that they are catering to. MNEs provide SMEs an opportunity they wouldn’t otherwise have in the form of markets that demand products requiring their services. It is usually the lack of local demand that inhibits many SMEs from growth and expansion. This notion is also supported by Porter’s diamond model, which suggests that in order for an industry to flourish in a national context, the local demand must be anticipatory of foreign demand. Since such is not the case in most LDCs, MNEs provide an opportunity for SMEs to expand and grow by increasing volumes of operation. Exposure to newer markets is also accompanied by the advent of newer technologies, capital and managerial skills.( Wright, R, W., & Russel, C, S., 1975) This in turn not only effects the SMEs in contact, but the local community involved as well in terms of employment. Ironically, the necessary technological capital required for SMEs is provided mainly from the Triad region. This obviously entails a certain monopolistic relation that is a feature of MNE-SME cooperation. What is deemed as an inequality, automatically translates to social indicators and economic factors as well. Some scholars label this relation as the dependency theory, which states that countries within the core are capital intensive nations that are able to maintain this superiority using their vast accumulated capital which focuses on innovation and technology, while lesser important functions are transferred to the peripheries which provide the necessary labor and raw material for industries to operate but are not allowed to accelerate beyond that. Lack of knowledge transfer is
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