Opportunities for the Multinational Enterprise - Term Paper Example

?Multinational Business The meaning of Globalisation can easily be interpreted from the word itself. It is nothing but going international. When people realized that they cannot survive from the resources that they had available in their vicinity, they began exchanging goods with their neighbours, which got expanded to exchange with other countries, organizations, etc. This exchange of goods for goods, or the Barter system, gradually turned into import and export of goods mainly based on availability, or technically the lack thereof, which brought about this whole cycle. When focused from an overall perspective, the term globalisation is something, as part of which common people, organisations, etc interact among themselves in different spheres of their lives, including cultural sphere, financial sphere, etc, etc.. “Globalisation may be thought of as the widening, deepening and speeding up of worldwide interconnectedness in all aspects of contemporary social life, from the cultural to the criminal, the financial to the spiritually.” (Wiley, Nandi and Shahidullah 1998, p.21). Although, from the above definition, one can infer that globalisation can be referred to any form of global integration or interaction, the fact, it is mainly used with an economic perspective and multinational business, and the resultant interaction between organizations particularly Multinational Companies (MNC). The term ‘globalisation’ involves increasing volume and variety of cross-border transactions in goods and services, free international capital flows and more rapid and widespread diffusion of technology. To make things simpler, we can say that Globalisation is a process of rapid integration of countries particularly MNCs, and how those companies utilizing opportunities in a particular market or other country, enter it to do business or other process there. On the other hand, critics of Globalisation emphasize the ensuing debate regarding the roles and relationships of corporations and the country’s citizens in maximizing economic development and social welfare. There appears quite number of challenges for the MNCs while doing business in new markets as part of the globalisation. So, this paper first discussing the main forces driving the globalisation process, will explain about the opportunities and then the challenges that globalisation presents to multinational businesses. Forces driving the globalisation process As the various trade and other barriers between the countries got broken, MNCs, using the globalisation plank, have entered and are entering into different business sectors. This entry of MNCs into various territories to do business was not a new phenomenon, but an age old phenomenon, which happened under the guise of imperialism. From time immemorial, various geographical territories as well as nations have been indulging in business with one another, to fulfil their product or service wants and shortages, as well as to garner good finances through product sale and thereby strengthening their economies. Even British entered Indian subcontinent to do business under the tag of British East India Company. This form of trade has been going on for many centuries, however certain countries in different points of their history has put certain restrictions on trade with other countries or enterprises due to political, financial as well as other social reasons. That is, this trade based entry started transforming into imperialism, as the European and other Western powers, tapping the weakness of the Asian and African ruling powers, eventually captured the nations’ territories and started to rule them. This set a bad precedent, and after independence many countries started actualizing a protectionist regime, preventing or restricting entry of foreign organizations. These countries or territories did not allow the entry of foreign companies as well as its products, and even went to the extent of preventing its own companies to do any business with the foreign companies. However, this type of regime started to crumble in the later part of the 20th century with the development of technology and also due to more political, social and economic interaction between countries and its people. “the closer integration of the countries and peoples of the world ...brought about by the enormous reduction of costs of transportation and communication, and the breaking down of artificial barriers to the flows of goods, services, capital, knowledge, and people across borders." (Stiglitz 2002, p.9). This crumbling down of protectionist regime and more global interaction and trade only paved the way for globalisation, and to the actualization of globalisation friendly policies. Development of various technologies particularly Information technology tools played the main catalytic role for globalisation. That is, with technology improving transportation and communication, MNCs can communicate with and study their prospective clients in another country, without being physically present there, and then can transport all the products and make it quickly available to the clients. Internet and other associated Information technology tools are also providing key communication platforms for all MNCs, enabling them to communicate with their branches and subsidiaries, thereby helping them to complete all the tasks quickly and efficiently. Apart from this driving force, liberalization that happened or is happening through WTO (World Trade organization) further ‘broke down’ the protectionist regimes, and optimally actualized globalisation, leading to accentuated trade. “WTO agreement broadened the coverage of the GATT to include areas such as trade in services. The GATT establishes rules to liberalize trade in services, which in 2002 was estimated to be almost $1.6 trillion.” (Wild and Wild 2006, p.47). Thus, many countries started to open up their markets as well as their economies for MNCs, with globalisation mainly being the initiating force. The most prominent example is China, which functioned behind an ‘Iron Curtain’, established by the protectionist Communist regime. However, it started to open its economy from early 1990s, seeing the great advantages and opportunities of globalisation, thereby driving and promoting globalisation in a more optimum way. That is, when these countries understood how globalisation brought in more trade, more finances, more employment, more product and service options to its citizens, it started to encourage and drive globalisation, by allowing more foreign companies. In addition, globalisation is welcomed by majority of the people because of the economic development it is bestowing on majority of the people’s lives. One of the key driving forces of globalisation is the want of the many developing as well as the under-developed countries to develop their economies and thereby lift many of its citizens out of poverty. To raise populations above the poverty line, and also to sustain its current growth, countries, its governments as well as its companies want to continue following globalisation friendly policies. This can be particularly seen in the case of China and India. “According to World Bank calculations, out of a total 2.3 billion people in China and India, roughly 1.5 billion earn less than US$2 a day. Only rapid economic growth can hit them out of abject poverty” (Aslam 2007). So, the current economic augmentation will be continued by these countries, and this will act as a key driving force for globalisation, aiding the MNCs. Thus, the negativity surrounding imperialism gave away, with the advent of globalisation and with many foreign companies entering and benefiting the local population, local economies as well as the businesses themselves. However, that is not the case all the time, as globalisation and certain negative aspects of it, have also led to challenges and even opposition to the MNCs. Opportunities for the MNCs Companies or in particular MNCs as part of their organizational functioning will keep on breaking boundaries both geographically as well as economically, without being ‘static’. They will enter new markets and will tap the globalisation friendly opportunities, which are available in the new markets, achieving optimum success. To initiate the entry, MNCs will have to strategically analyse all the opportunities as well as challenges, so it can come up with apt entry strategies. “MNCs are organisations that have substantial direct investment in foreign countries and actively manage those operations and regard those operations as integral parts of the company both strategically and organizationally.” (Barlett, Ghoshal & Beamish 2008, p. 2). As globalisation is good for the country, which hosts the MNCs, many countries are welcoming it. From country and people’s perspective, it is clear that entry of many MNCs as part of globalisation provides the consumers wider range of products and services at competitive prices to choose from. That is, with many companies coming in, there will be intense competition between the incoming companies as well as the local companies, and so to entice or even hold on to the customer base, both type of companies will lower the price as much as possible, even while coming up with quality products, with added features. This will increase the buying interest of the customers, thereby providing more opportunities for the MNCs to do good business. In addition, globalisation and the ensuring entry provide companies a larger human pool to pick their employees from. That is, with governments encouraging MNCs to set ‘shops’, by giving various tax sops and other concessions, as part of globalisation friendly policies, sizable sections of the local population are getting employment. From the perspective of MNCs, this local employment is a good opportunity because they can get skilled and knowledgeable labour at a very cheap cost. Instead of bringing in employees from their home countries, MNCs can recruit equipped and efficient employees, giving them apt salaries, which will be a industry standard in the host country, but will be far cheaper when compared to MNCs’ Home country standards. This will give the MNCs apt productivity at a far lesser price. Globalisation also facilitates economic reconstruction by increasing volumes of investment flows from developed to developing nations. Globalisation thus helps in the growth of developing countries by the simple way of integrating their economy with that of the world. This positive aspect will further push the governments to come up with globalisation friendly policies, thereby providing more opportunities to the MNCs. Governments as well as organizations as part of globalisation friendly policies are also actualizing technology rich infrastructures and environments for the MNCs. Various business related technologies, developed in the globalisation period are also aiding and providing more opportunities to the MNCs. The exchange of intellectual property, royalties and licenses is carried out by MNCs with companies of other nations who need them (Rycroft 2002). Technology also has led to internationalization or globalisation of Research & Development (R&D), with MNCs ‘shipping’ or outsourcing sizable quantity of work to other countries, where skilled and cheap manpower is available. Earlier, companies tried to keep their major R&D activity in-house, but many MNCs are ‘exporting’ sizable portions of work to centres of excellence abroad. Thus, now organisations are able to comfortably move to any part of the world, settle down and be successful in whatever they do. Also, technological development has resulted in reverse brain drain in developing countries. Challenges for the MNCs Globalisation, like any other phenomenon, however is not without negative impacts and this will act as challenges for the MNCs. When developed countries outsource jobs to developing countries to cut costs, it results in a major loss of jobs for people in developed countries. This led to a loss of harmony between the common people of countries. For example, certain American MNCs have given out their call centre operations to developing countries such as China, India, etc for cost effectiveness, and this has resulted in a lot of American citizens losing their jobs. This has created ill-will against these companies among the American citizens, and has even led their respective government not to offer any tax sops and concession to the MNCs who outsource their jobs. “President Barack Obama today underlined his determination to end tax incentives for companies that create jobs overseas, saying he will provide a generous tax credit to companies that create more jobs in the US.” (indianexpress.com 2010). This is from the perspective of the home countries of the MNCs, and when viewed from the perspective of the host countries, its local businesses and its people, there are also certain challenges for the MNCs. With globalisation, trade between the countries has become a lot easier due to the removal of international trade barriers. This liberalization has ensured that local companies have to face competition not just from their local counterparts but from international companies as well. Due to this, their businesses require to be more rigorous and challenging, to survive this competitive atmosphere, which could lead to the rising of monopole companies and trough among production costs. A lot of the smaller organizations cannot bear such a high competition and end up shutting down. This worst case scenario for the local companies has made sizable sections to view globalisation negatively, and those sections protest against the presence of MNCs in host countries, thereby turning out to be a bigger challenge for the MNCs. That is, with the MNCs attracting sizable local customer base with quality products and services, as well as with optimal marketing, the local businesses lose their long standing customers, and thereby loses out to the MNCs. Local customers also ignore them and go for quality products of the MNCs, thereby putting question marks over the survival of the home grown businesses, as well as people doing those businesses. Although, loss of customers and market share happens mainly due to the inability of the local businesses, they wrongly fear that large multinationals would drive them into extinction and cripple domestic entrepreneurship. (Bhagwati 2004). This fear has led many people to view globalisation negatively, and also point out that there is an underlying threat that powerful MNCs could try to take control of trade across the globe and thus try to rule world over. This could indirectly lead to a subtle form of colonization for smaller developing nations that are at the receiving end. The economic inequality between the people benefiting from the globalisation and people suffering from globalisation and the resultant differences in the lifestyle creates a lot of tension and even clashes against MNCs. Demonstrations against MNCs are also mainly carried out by these local people, thereby becoming a big challenge for the MNCs. Conclusion Globalisation is said to have various positive and negative impacts on the country’s economy and the living standards of the people. Sure, with Globalisation free trade between countries increases and global mass media connects all the people across the world, but unemployment, social degeneration and difficulty of competition are the disadvantages on people life that is based on globalisation, not to mention exploitation of under developed and developing countries, dislodging of local industries that cannot compete in the global market and political interference and conflicts. Thus, these positive as well as negative effects of globalisation has turned out be opportunities as well as challenges to the MNCs. It is up to the MNCs to optimally tap the opportunities, even while overcoming the challenges, with effective strategies. Word Count: 2450 words References Aslam, SM, 2007, “The environmental cost of growth in China and India: Asia's powerhouses face serious dilemma on how to balance surging economic growth and environmental protection.” The Business Times, viewed on March 20, 2011 http://www.isasnus.org/articles/article-46.pdf Barlett, C., Ghoshal, S & Beamish, P 2008, Transnational Management, Text, Cases, and Readings in Cross-Border Management, McGraw-Hill Bhagwati, JN, 2004, In Defense of globalisation, Oxford University Press US, New York. indianexpress.com 2010, Obama stops tax breaks for US firms outsourcing jobs, viewed on March 21, 2011 http://www.indianexpress.com/news/obama-stops-tax-breaks-for-us-firms-outsourcing-jobs/679446/0 Rycroft, RW 2002, Technology-based globalisation indicators: The centrality of innovation network data, Occasional paper series Stiglitz, JE 2002, Globalisation and its Discontent, W. W. Norton & Company, New York. 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