The Problem of a Role of Transnational Companies in the North Africa - Term Paper Example

Content ……………………………………………………………………………………..2 Executive summary……………………………………………………………………………2 Overall economic characteristic of North Africa…………...…………………………………2 Transnational companies in the modern world………………………………………………..4 Conclusions Governing Global Business Abstract The problem of a role of transnational companies is going to be considered in this paper. Their influence in the world’s economy and national economy of countries of North Africa will be analyzed. The main task is to define the future of such companies in the global economy. Taking into account this goal, the paper is going to have the following structure: executive summary, overall economic characteristic of North Africa, transnational economies in the modern world, conclusions. Executive summary The modern world is the world of changes. It is characterized with a range of influential trends. One of such trends is growing role of multinational companies not only in a business world, but in the whole society. Transnational companies have influence equal to influence of some countries. That is why it is important to study their role and predict possible future. It is going to be the main task of this research paper. Big attention is going to be paid to national economies and place of TNCs in the countries of North Africa. Overall economic characteristic of North Africa To begin with it would be reasonable to provide background information about the region under consideration. North Africa is the widest part of the mainland. This region of Africa includes the following countries: Algeria, Egypt, Libya, Mauritania, Morocco, Sudan, Tunisia, and Western Sahara. Canary Islands, Ethiopia, Eritrea and Madeira are also sometimes referred to North Africa. North Africa is the most developed among African countries. The most developed are the following countries: Egypt, Libya, Tunisia, Morocco, and Algeria. This region has a favorable economic and geographical position, situated at the crossroads of three continents - Europe, Asia and Africa. Trade has always played an important role, especially after the construction of the Suez Canal. Then the region gained important military-strategic importance. Countries in the region are heterogeneous in terms of economic development. Basis countries are members of OPEC, where GDP per capita is 17-20 thousand dollars. The region is rich in minerals (phosphates, chromite, bauxite, zinc), but the main resource is energy - oil and natural gas. Profits from the sale of oil - "petrodollars" in recent decades have been invested in the economy. According to experts, this figure reaches more than a trillion dollars. Most of them went to the creation of new industries in these countries: automotive, petroleum, chemistry, organic synthesis, basic chemistry, light industry and others. Some countries in the region have invested heavily in the creation of industrial zones of joint enterprise. Yet this group of countries still heavily depends on the world’s demand on the oil and gas. The region also includes agricultural producers (Egypt, Morocco, Sudan). The structure of production is dominated by grains - rice, wheat and barley, and vegetables and fruits, livestock mainly specializes in them sheep. Such dependence on oil sector creates a lot of problems for the local multinational companies. For example, the recent social and politic crisis in some countries of the region created significant problems for these companies. This opinion can be proved by the following words. “A look at the 20 largest oil companies quickly shows that Occidental, Eni, andApache are amongst the most vulnerable companies in the context of this this crisis.  Occidental Petroleum, with a daily production 288,000 barrels of oil equivalent (boe) in the region, or about 38% of its total production, is the company with the greatest exposure.  Occidental’s stock has gone up about 4.7% since mid-January, below the 6.9% average for the group.  The XLE Energy Select Sector SPDR, an ETF that tracks the energy sector, gained 10.9% since January 14” (How Do Revolutions In North Africa Affect Oil Companies Stock Performance?). Earlier, Lebanon has played the role of the main financial center of the region, now it has moved to Bahrain. Another source of foreign exchange earnings is tourism (Egypt, Tunisia, Syria, Morocco). Region has the highest world level of spending on armaments. This is due to the fact that there are many "hot spots" and places with "smoldering conflict." Transnational companies in the modern world Thus, oil industry plays probably the main local in the region’s economy. It is a well-known fact that large multinational companies play a great role in this industry. That is why it is justified to analyze their influence in the modern and future global economy. “Transnational corporation is  commercial enterprise that operates substantial facilities, does business in more than one country and does not consider any particular country its national home. One of the significant advantages of a transnational company is that they are able to maintain a greater degree of responsiveness to the local markets where they maintain facilities” (Transnational Corporation Definition). However, there are a lot of other approaches to defining a multinational company. Therefore, the different definitions of this term can be provided. For example, the following definition may be provided. “Another test requires company executives to come from a mix of nationalities. In practical terms, people tend to call any company that sells products or services on the global market or has operations in several countries a multinational or global company” (Huebsch). Transnational corporations have played a decisive role in the globalization of the world economy, the scope of their activity shows the presence of their disposal costs that often exceed the size of the national income nation states. TNCs control 40% of industrial production in the world, half of international trade. They employ about 73 million employees, every tenth engaged in the world other than agriculture. 500 most powerful multinationals sell 80% of output electronics and chemistry, 95% pharmaceuticals, 76% of engineering products. “Multinational companies are increasing their investments in Africa, says the latest IBM’s Global Location Trends Study. The study attributed this trend to concerted efforts by emerging markets to build infrastructure. Africa and Latin America jointly received approximately 17% of the global jobs created from foreign investment and expansion projects in 2007, compared to 13% in the previous year” (Multinational Companies Increasing Investments in Africa). In modern conditions, operations of TNCs are becoming increasingly global and the acquisition of factors of production, goods and market are oriented on global volume. Placement abroad much of the production and numerous branches, integrated into a single network producing goods and services, allows multinational corporations to use the resources and competitive advantages in many countries. This is due to the fact that the global economy is characterized by the operation of its business, based on the priority investment ties to international relations. Development of globalization reduces barriers to cross-border movement of goods, capital and services, promotes uniform regulation that facilitates access to foreign markets, provides standardized requirements for the movement of capital and payment and settlement transactions. The effect of these factors contributes to the intensification of investment and financial flows. Activity of TNCs provides flow of capital, where there is an excess in the country, where its lack of providing satisfying the interests of both countries based TNCs and host countries. However, on the other hand, transnational capital rather can often act contrary to the national security of statehood countries, impacting negatively on the political and economic situation in them. Creating competition of nation states, TNCs can make a negative impact on the development of national business that generates the obstructionism of the national economies. Acting as powerful resource owners (equity TNCs in host countries is about 200 billion.), MNCs use different means of pressure on the state governments for the purpose of reducing the probability of investment risk. The biggest controversial is the relationship between TNCs and the governments of countries where they are based, although the unconditional recognition is of great opportunities TNCs and their essential role in capital investment in the national economy. Therefore, analysis of the relationships between MNCs and nation-states should focus on the following points: 1) the activities of TNCs host governments considered from two perspectives: from it may be profit and loss, especially political losses in terms of threats to national sovereignty; 2) given that the power of multinationals at present has reached a level that can be compared with the power of many states, regulation of TNCs for national governments is not only difficult, but also often dangerous; 3) In the case of countries with underdeveloped or transition coordination of state interests with the interests of TNCs, based on the development of mutually beneficial economic policy has much more advantages than the policy of open confrontation; 4) export TNK any product in the host country provides a positive impact on its national income, based on the fact that all forms of protectionism in most cases bring the national economy more harm than good, it is obvious that the loss of national consumer by limiting choice and Use products that lose in terms of quality, cannot be compensated by improving the balance of payments and support domestic producers; 5) MNCs, making involvement of foreign capital to decrease unemployment in the host country, in addition, the movement of foreign direct investment contributes to the displacement of large manufacturing resources that positively affects the growth of world production; 6) although TNCs investing in expansion can cause the instability of national investment, specific outcome depends on what company the company intends to create or acquire market host: market-oriented, raw materials and labor; 7) extremely cautious attitude should be the national governments efforts to acquire MNC companies host country, as the experience of developed countries, increasing the efficiency of enterprises in such cases remains only as desired, in fact, a foreign investor uses enterprise primarily effective in terms of only their own interests; 8) using TNC as a form of capital transfer pricing is one of the significant problems receiving countries, due to the fact that such prices are actually the most multinationals in the process of transactions between subsidiaries and affiliates, owned corporations. Analysis of key indicators States and TNCs (as GDP and sales volume) indicates that none of the existing MNCs can compete with the leading countries, which include the U.S., Japan, Germany. At the same time, MNCs are ahead of such countries as Finland, Ireland, and Denmark. Leading positions are occupied by MNCs in comparison with states about the level of work efficiency. This situation is caused by a mismatch of goals of states and MNCs: states seek to ensure adequate living standards of the population that generates the need for development of all spheres of economic life, even if there is a lack of effectiveness. TNC, based on the main objective - increasing profitability, focuses on the most profitable for them directions. As the ratio of states and TNCs in the important field of production technology, then, in our opinion, the crucial role of producer innovation and technology in the global technology market remains under national innovation systems. Although this statement does not match the conventional approach to globalization in scientific and technical fields, the state system is the most important center of the growth of technological innovation activity. Research and development related to the very strong financial costs and the availability of highly skilled professionals. Even those multinationals that possess them are not able to carry out complex scientific development and research in all areas of basic and applied research, focusing on the introduction of new technologies is not in one, but in all production sectors. Moreover, from a legal standpoint TNCs are subordinate unit to the state, the laws which regulate their activities, because national governments have a greater ability to create the right conditions in the field of scientific and technical activities. MNCs have turned into a major market force production and the international division of labor, the dominant factor in the world economy and international economic relations. Their ability to flexibly adapt the mechanism of investment, organizational methods and tools to the changes occurring in the national and global economy, turned them into global business units that consider the world economy as the scope of their capital. In the legal aspects of TNCs inferior states, but given the trend of merging politics and business, the possibility of lobbying and influence political decisions, MNCs are transformed into compelling subjects of international relations, whose interests will shape the geopolitical structure of the world in the future. Conclusions To conclude we would like to say the following. The number of international companies accounts for about 500 multinational corporations with virtually unlimited economic power. The economic strength of large multinationals comparable to the GDP of the medium, and they dictate their will to many countries. Thus, the global civil aircraft market, the volume of which is estimated at $ 1 trillion. dollars. and 16 thousand new aircraft per year until recently dominated mainly three companies - "Airbus Industry," "Boeing" and "McDonnell Douglas." They controlled 35%, 65% and 3% of the world market. Mergers in August 1997 "Boeing" and "McDonnell Douglas" that cost the first $ 15 billion., Strengthened the position of American capital and left the market only two major companies. Market capitalization of certain multinationals exceed 500 billion dollars., And annual sales of 150-200 billion. Countries which operate branches and subsidiaries of leading multinationals, often more than embassies abroad have their home state, and the number of employees and their families, the welfare of a greater or lesser extent, depends on the activity of a single large corporation, equal to the population countries such as Slovakia and Macedonia. Reference list Adusei, A. Multinational Corporations: The New Colonisers in Africa. Available from: . [16 November 2012] Artadi, E., 2003, The Economic Tragedy of the XXth Century: Growth in Africa. NBER Working Paper №9865 Doing Business in North Africa. Available from: . [16 November 2012] Gorg, H., 2001, Multinational Companies and Productivity Spillovers: A Meta-Analysis. The Economic Journal, Vol. 111, Issues 475, 723-739 Harrigan, J., 2006, The Economic and Political Determinants of IMF and World Bank Lending in the Middle East and North Africa. World Development, Vol. 34, Issue 2, 324 404 Huebsch, R. 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