Globalization, Multinational Corporations and U.S. Hegemony - Research Paper Example

 Multinational Corporations The end of the Cold War, symbolized by the disintegration of the Soviet Union has resulted in the emergence of a new global era (Meyer et al 1997, p 174) where the competition between the former super powers is being replaced by a consumer driven social, political and economic scenario. (Freidman, 2000). The Internet enables instant communication across geographical boundaries and thereby has fostered the growth of an era of capitalism and consumerism, where the focus has shifted to economic interests, with political, social and cultural aspects being subordinated to the dominant capitalist trend. This has produced the phenomenon of globalization, which is the inter-connectedness among the various nations of the world on the basis of economic ties. In order to cope with the challenges posed by the global environment, corporations are increasingly spreading out their operations across centres located all over the world, so that they are no longer restricted to one geographical location but have turned into multinational corporations. These new corporate forms have changed the way in which business is carried out and such multinational corporations have had a profound effect upon the local cultures, as well as employment and development patterns. Globalization, multinational corporations and U.S. hegemony: Several definitions have been proffered for the phenomenon of globalization. According to Thomas Friedman, globalization is the “inexorable integration of markets, nation states and technologies…..the spread of free market capitalism to virtually every country in the world.” (Friedman, 2000, p 7-8). The multinational corporation has been characterized as a firm that “owns production facilities that are financed by foreign direct investment outside its country of nationality.” (Emadi-Coffin, 146). However, this definition may be somewhat restricted because the scope of a multinational corporation’s activities also extend to a wide range of methods whereby these firms finance investments and control production in the foreign countries where they set up their operations. It is multinational firms which have been crucial to the spread of the free trade zone and they also account for a large share of the global output and investments. Most multinational corporations are very large, with subsidiaries in several nations across the world. As a result, in general, it is the decisions that these multinational corporations make about their location and investment choices which appear to have a greater impact upon local economies than the economic and legal policies that may actually be laid out by the Governments of those countries. With globalization, most businesses are forced to compete with other businesses on a global scale. This pushes many small businesses out, because it is only the large multinational corporations with plenty of money and resources that have the means to compete effectively on a global basis. The world economy is dominated by businesses from a few developed nations, notably the United States, while the others remain at the periphery, acceding to the controls of the dominant countries and emulating them (Tomlinson, 1991, p 37; Robertson 1995). The beliefs, values, behavioral patterns and norms of the economically dominant nations are imposed upon the weaker ones (Salwen 1991), as reflected in the large scale transmission of American beliefs and capitalistic philosophy all over the globe. Such cultural domination is viewed as a particularly dangerous process because it produces a homogenization of culture in line with dominant countries such as the United States – “the fundamental concepts of a society’s national image are remodeled in the American image” (White, 1983, p 120). Thomas Friedman (2000) explains this hegemony through the symbolism of the five gas stations of the world – the Japanese, the European, the American, the Communist and the developing world. The Japanese, European and Communist nations have a working system that represents the social contracts that are in place to maintain some equity, therefore prices are high and services are to be paid for. The developing countries enjoy the advantage of cheap labour, but are swamped with problems of corruption and poverty. America offers the right balance of entrepreneurship, freedom and inexpensive products, since the American system according to Friedman(2000) believes in empowering the people and letting the markets be as free as possible. For most multinational corporations, this has now become the norm and the American capitalistic system is reflected in their business practices. Multinational corporations have grown in terms of power and industrial diversity to such an extent that they are now also able to control labour standards in some local geographical areas where they are based. This is the case with multinational entities such as Walmart and others, which now effectively control the labour standards in the U.S. and Mexico; so much so that in 1997, when less than a quarter of Mexican banks were foreign owned, the current situation is that most of the major banks in Mexico are owned by a few global corporations in Wall Street while none are owned by Mexicans (www.enlaceintl.org). Multinational corporations like Walmart have been using low wage labour from developing countries in Asia, Africa and Latin America in order to inflate their profits and they have now assumed a position of such power that they are able to dictate the terms and conditions on which the labour markets in these countries will function. For example, the Swedish giant Securitas and other similar transnational companies are in a position to dictate terms to contractors, which in turn has produced low wages and benefits.(www.enlaceintl.org). Moreover, local groups are often unable to fight effectively against the vast global power that these multinationals possess, so that any struggle for better wages and working conditions cannot be limited locally; it must be global in scale if it is to be successful. Ethical issues: Multinational corporations have begun to exert such a strong influence that in many local areas, it has led to growing tension and conflicts. Calvano (2008) cites among others, the example of the Newmont Mining Company in Indonesia, where it was charged with illegally dumping mining wastes into the sea near the fishing community of Manado. In the United States, the case of the multinational corporation Enron raised a hue and cry when high ranking officials of the Company were found to have been tampering with accounts, thereby depriving thousands of investors and employees of monies that should have come to them. As Calvano (2008) points out, such incidents of conflict between multinational corporations and the local communities within which they are located have highlighted the need for these corporations to function in an ethical and responsible manner, without abusing the economic power that they have to exploit the local population or resources to unfair advantage. Calvano (2008) has presented a framework to examine the factors that may con tribute to such conflicts between multinational corporations and the local communities and includes among them the following: (a) stakeholder power inequality (b) stakeholder perception gaps and (c) cultural context. Friction generally erupts between a multinational corporation and local communities when their interests collide and the conflict generated is generally a dynamic process that unfolds over time. The MNC may enter into direct conflict with the community or may generate such ethnic conflicts between local groups indirectly, as demonstrated through case studies in Niger, New Guinea and Indonesia, where the MNCs were responsible for generating conflict between rival local factions (Calvano, 2008). The nature of the conflicts that take place may be low level, characterized by peaceful protests against the activities of the MNC by the local population, or in some instances they may be high intensity conflicts that could result in violence, death and destruction. In general, when communities decide to confront MNC’s they are likely to be placed at a disadvantage because of their relative lack of power. The relative inequality between the two sides is therefore likely to influence the outcome more in favour of the MNCs rather than the communities. Secondly, the differences in stakeholder perceptions can also impact upon the outcomes of conflicts arising between multinational corporations and the local communities. Multinational firms generally bring employment opportunities to developing countries. As a result, protests from the local communities may be viewed by these MNC forms as ingratitude on the part of the local communities to the economic benefits that are ushered in by MNCs. Moreover, the perception of MNCs about poor people is generally that they are cheap sources of labour to be exploited for the purpose of enhancing profits; hence people are viewed merely as a means to an end – i.e, a way to improve profits (Calvano, 2008). It is this existing perception that MNCs are growing rich at the expense of the poor people in the developing nations of the world that is fuelling the pressure for these companies to assume corporate social responsibility and to operate in an ethical manner. Where the cultural context is concerned, a notable example of American cultural imperialism may be noted in the phenomenon that has been referred to as the “Macdonaldization” of global society. (Ritzer 2000). This multinational corporation which is a fast food giant has implemented a bureaucratic system that focuses on predictability and efficiency, often with a dehumanizing effect, and the subculture spawned by the fast food rules have now permeated throughout the world where almost every country can boast of the ubiquitous McDonalds – a modern day phenomenon serving up a homogenous burger and coke. In European countries, where exquisite dishes and fine wines flourish, the ridiculous proliferation of Macdonalds amply illustrates cultural imperialism and the imposition of the American way of life (Salwen 1991). Similarly, another multinational corporation Disney, has set up theme parks which present an insular world, where the theme of fun and innocence is maintained through careful corporate training of its employees, creating a culture revolving around cartoon characters – a mini world that represents a global culture that is valid and appealing anywhere in the world. According to Friedman, “The cultural messages we transmit through Hollywood and Mc­ Donald's go out across the world to capture and also undermine other societies. …..We insist that they be like us. And of course for their own good. No wonder many feel threatened by what we represent. " (Friedman, 2003, p 132). Multinational corporations have changed the manner in which business operations are carried out. The vast power they possess has given rise to scope for much misuse and dictation of unfair terms to workers through the monopoly they are able to acquire. It is also more difficult to regulate the business activities of these multinational corporations through the application of local legal frameworks because the business operations of a multinational entity may be spread out across many nations. This has given rise to the demand for corporate social responsibility from multinational corporations, but as Gugler and Shi(2009) point out, this phenomenon is better developed in the Western countries than in the developing nations. In providing an explanation for this phenomenon, they suggest that developing countries may be reluctant to implement and enforce Western style corporate social responsibility, because of the negative impact it has on the competitive advantage these countries enjoy through the provision of cheaper supply chains to the multinational corporations of the developed nations. According to Calvano (2008), the application of the Corporate Social responsibility model to multinational corporations may explain conflict as the resulting situation when a corporation ignores or minimizes its non financial obligations. She has argued that CSR may in fact actually increase stakeholder power inequalities, because although most firms claim that CSR is introduced in order that the business honours its broader obligations to society, most researchers are of the view that CSR is also introduced ultimately to improve profitability of the MNCs. In effect, an MNC that claims to adopt practices fostering Corporate Social Responsibility is likely to attract higher volumes of business and thereby enhance its profitability. But in actual practice, when a conflict is posed between profitability and corporate social responsibility, it is likely that the former will prevail and the corporation will pay a higher level of attention to it, because it is their profitability alone that can ensure that they continue to hold a competitive advantage in the global marketplace. Conclusions: On the basis of the discussions above, it may be noted that multinational corporations have a considerable impact at local, regional and national levels. By virtue of their very size and their power to make investment decisions that are likely to influence local economies, they can exert a great influence on the lives of the common people. In some instances, conflicts have been generated with the local communities when the MNCs have abused their position of power and used it unfairly to profit from cheap labour and even the notion of corporate social responsibility may not be exercised in the manner in which it should be. Rather, CSR may be implemented by an MNC just for outward show and to increase profits, but where a conflict arises with profitability, then it is always the MNCs profit making objective that will be dominant. In many developing nations, it is these MNCs rather than the social and economic policies of Governments which have brought development and economic progress to poor people in these countries. On the other hand, MNCs have also brought suffering to the local people in some instances through exploitation of the people or the local environmental resources, to the detriment of the locals. It must be concluded however, that there can be no doubt that MNCs have an economic power base that can override local cultures and desires, through the sheer economic power that such corporations possess. References: Calvano, Lisa, 2008. “Multinational Corporations and local communities: A critical analysis of conflict”, Journal of Business Ethics, 82: 793-805 Emadi-Coffin, Barbara, 2002. “Rethinking internal organization”, Routledge Friedman, Thomas L, 2000. The Lexus and the Olive Tree New York: Anchor Books Friedman’s Five gas stations theory http://people.brandeis.edu/~cerbil/lexusgas.html Friedman, Thomas L, 2003. Revolution is US In Massik, Sonia and Solomon, Jack. Signs of Life in the USA 4th edn. Bedford: St Martin’s Press, pp 132-137. Gugler, Philippe and Shi, Jaclyn Y J, 2009. “Corporate social responsibility for developing country multinational corporations: Lost war in pertaining global competitiveness?”, Journal of Business Ethics, 87(3):24 Meyer, J et al, 1997. World Society and the Nation State American Journal of Sociology Ritzer,George, 2000. The Macdonaldization of Society Pine Forge Press Salwen, M. 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