How changes in the world economy since 1945 have affected room for maneuver of multinational firms - Essay Example

?How changes in the world economy since 1945 have affected room for maneuver of multinational firms Introduction Over several centuries, trade has always flowed across states, borders, and civilizations thus joining economic fortunes and acting as a channel for social practices, technologies, and ideas. International trade began to flourish at the beginning of the nineteenth century. The trade grew geographically between nations that were industrialized and in the imperial patronage, it grew between the underdeveloped peripheries and the urban centers. During the century, the average export to GDP ratio for developed economies rose to about 11% and for individual trading countries particularly in Europe, higher ratios were recorded (Gruber, 2007). This however did not last for a long time as the First World War coupled with depression of inter-war brought international trade to a halt, introduced imperial trading blocks, and increased trade tariffs substantially and other restrictions on import. Since 1945 however, there emerged far-reaching trading systems. Most countries began to trade with a large number of other countries. Regional trading became supportive of and complementary to more widespread multinational link. Even though the majority of trade took place between OECD nations, things began take a different route pretty first. These changes in the world economy since 1945 affected room for maneuver of multinational firms. Such changes included: The Latin American and Eastern Asia industrializing economies began taking a substantial share of world trade; the liberalization in India, China as well as other developing countries, which made these countries more than ever set to intensify their trading ties beyond borders. Another change was the growing communication and transportation infrastructure, which reduced uncertainties and costs of trade according to Karlsson & Honig (2009). This growth in transportation and communication reduced significantly the investment required by multinational firms to venture in foreign economies. The crumbling of communism after 1945 also brought very many nations into the international trading system. The formation of GATT and later WTO created a legal infrastructure, which was more accommodating than other previous systems before 1945 and the tariffs were also substantially decreased. Discussion The improvement in communication and transportation boosted the process of internationalization process of firms. Before 1945, communication infrastructure was still very poor. In 1956, the most noteworthy improvement in communication came to pass when for the first time the American telegram as well as telephone opened a telephone cable that was transatlantic by means of microwaves amplification technology. Following this advancement, multinational corporations for instance Ford began utilizing this new communication network to exchange information as well as manage operations based in other countries from their headquarters in the United States. According to Gruber (2007), though telephone cable tremendously enhanced enterprise communication after 1945 especially in urban areas, a huge portion of the world never utilized that opportunity optimally. Nevertheless, the introduction of satellite communications in the early 1980s started a new chapter in the world of multinational firms as it ended isolation and made the world a global village, multinational firms could now operate from almost anywhere in the world as communication made everything quite simple for them. The collapse of communism and the emergence of capitalism after 1945 saw many other nations accepting the American style globalization. The fall of communism gave the Anglo-American powers an opportunity to institute the system of the United Nations and establish the institutions of international economics such as the World Trade Organization (WTO). Financial collaboration was also introduced and this was a great opportunity for the multinational firms as these international economic institutions were able to push for acceptance throughout the world of universal standards as well as the rule of law whose concepts were very vital to globalization. As aforementioned, the designing of international financial collaboration as well as institutions of international economics such as the World Bank, World Trade Organization (WTO), and the International Monetary Fund (IMF) took place. According to Ranyan et al. (2008), the establishment of these institutions paved way for an explosive growth of multinational firms after 1945, as they could be able to borrow financial assistance as well as guidance from such institutions whenever the need arose. Trade barriers and tariffs were significantly lowered and trade opening simplified. Trade restrictions were removed through agreements initially made under GATT (Agreement on Tariffs and Trade) which was later succeeded by the World Trade Organization (WTO). The WTO designed an institution that was mandated to supervise the system of trading. The world economics and political decentralization began to take a center stage in mid 1970s; by this time, globalization had picked momentum. The advancement in technology permitted multinational firms to circumvent some of the national regulations. The world was taken by surprise by the rise of Organization of Petroleum Exporting Countries (OPEC), which reallocated the world economic power from the west. As a result of the shift in the global economic power, there were free exchange rates; the international investors were given great flexibility, and the golden dollar standard was no longer fixed (Morris et al., 2005). The technologically advanced firms ceased the opportunity of market opening to expand beyond the borders. Consequently, there was an increase in the battle on the market share on the global field from Asia, North America, and Europe. Multinational firms as well as nations after 1945 came together as a global market and consumer products were standardized across the world including their pricing. Conclusion There were several ways in which changes in the world economy since 1945 affected room for maneuver of multinational firms. Improvement in communication and transport had a big impact on the multinational firms. This growth in transportation and communication reduced significantly the investment required by multinational firms to venture in foreign economies. Following this advancement in communication, multinational corporations for instance Ford began utilizing this new communication network to exchange information as well as manage operations based in other countries from their headquarters in the United States (Ewing 2011). The establishment of international financial collaboration as well as institutions of international economics such as the World Bank, World Trade Organization (WTO), and the International Monetary Fund helped multinational firms have room in the world markets as they helped to simplify trade openings as well as significantly lower trade barriers and tariffs. Trade restrictions were removed through agreements initially made under GATT. Further, decentralization of world economics and politics brought about reallocated the world economic power from the west to the Organization of Petroleum Exporting Countries (OPEC). As a result of the shift in the global economic power, the golden dollar standard was no longer fixed, there were free exchange rates, and the international investors were given great flexibility more than ever before. References Ewing, M 2011, Kauffman: The foundation of entrepreneurship, viewed 15 Feb 2012, . Gruber, M 2007, ‘Uncovering the value of planning in new venture creation: A process and contingency perspective’, Journal of Business Venturing, 22(6), 782–807. Karlsson, T, & Honig, B 2009, ‘Judging a business by its cover: An institutional perspective on new ventures and the business plan’, Journal of Business Venturing, 24(1), 27–45. Morris, M., et al 2005, ‘The entrepreneur's business model: Toward a unified perspective’, Journal of Business Research, 58(6), 726–735. Ranyan, R., et al 2008, ‘Entrepreneurial orientation versus business orientation: What are their relationships to firm performance?’, Journal of Small Business Management, 46(4), 567– 588. Read More