Relationship between the Transnational Companies and the Regulatory Bodies of the Nations - Literature review Example

CHANGING RELATIONSHIPS BETWEEN TNCS AND NATIONS Table of Contents Table of Contents 2 Introduction: 3 Nature and purpose of Nations: 4 Nature and Purpose of TNCs: 5 Relationship between nations and TNCS: 7 Factors affecting the actions of States and TNCs: 8 Conclusion: 9 Reference List: 11 Introduction: In the words of Banerjee (2011), the balance of the global economy hangs between the corporate and civil alignment. The statement reflects the importance of the relationship between the transnational companies and the regulatory bodies of the nations. The international economy is just recovering from the global financial meltdown of 2007-08. The tremendous come back from this set back, is mostly supported by the growth of technology and the globalization concept which allowed the corporate sector to open up new platforms for mutual growth and development. Czinkota (2009) stated that, instable economic conditions of some of the developed nations are hampering the global economic growth opportunities. The present situation of the global economy can be better understood by evaluating the contribution of globalization in economical and business growth. Gilligan and Hird (2008) defined globalization as, the process of developing business by expanding it to multiple market places beyond the border of the domestic nation. Grenville (2010) focused on the aim of globalization and stated that, it is the process of integrating, financial and economic growth and develop communicative network all over the world. Dess and Lumpkin (2009) evaluated the wider scope of globalization and reflected that, globalization is the process of integrating and interacting between people, firms, nations and governments. Globalization in the present scenario has helped in identifying the new market places in the international segment such as the Brazil, Russia, India and China (BRIC) and the Mexico, Indonesia, Turkey and South Korea (MITSK). The importance of globalization for growth of the world economy has been almost single handedly created by the technological development in the last decade (Jansson, 2011). Hitt, Ireland and Hoskisson (2009) highlighted that, improvement in Information and Communications Technology (ICT) has enabled cross-communication and reduced the barriers of geographical barriers. Technological influence has helped in developing a platform for communication among the consumers and the business firms. New mediums of communication such as social media, video conferencing, etc. have allowed business firms to conduct business meetings with other companies, or broadcast the happenings of any major event by the governments of the nations to the entire world. This study will focus on the relationship between the transnational corporations and the nations of the world in the existing scenario of international integration. Nature and purpose of Nations: According to Jeannet and Hennessey (2010), the government of a country is responsible for the growth of its economic, financial and social development keeping in mind the sustainability of the development process and fulfilling the responsibilities towards the national population. Jansson (2011) added that, nations try to ensure optimal usage of the national resources for growth of the country as well as gather resources from external bodies that are in operational terms with the nation. Lymbersky (2009) stated that, in the contemporary scenario, every nation is focusing on expanding their international relations by creating opportunities for their business segment to operate in a global marketplace. The activities of the corporate sector are one of the major focus points of the governments of the nations (Schoenecker and Cooper, 2010). However, Morris, Schindehutte and Allen (2011) criticized that, political and cultural differences among the countries of the world are some major factors that can hamper the purpose of the unification of the nations. For instance, neighboring countries such as India and China are two of super powers in the prevailing scenario, but political differences regarding the geographical boundaries are preventing them from amalgamating their resource and technology to curve a passage for mutual growth (Kono and Clegg, 2010). Adcock (2010) explained that, in the present scenario most of the nations are adapting the concept of globalization and thus, should focus on educating their population regarding the changes in the national economy. Bowma and Gatignon (2010) argued that, most of the governments are more focused on resolving their internal conflicts which is hampering the process of international integration. In order to achieve their national and international objectives, the governments of the nations should try to align their internal policies and culture with the international frameworks. Countries such as Singapore have performed exceptionally in order to meet their national objectives and have also successfully transformed themselves into an international business hub. Malhotra (2011) reflected on the performance of the Vietnam in the last five years as they have used their vast natural resources and are among the fastest growing economies of the world. However, on the other hand, countries such as Somalia and Kenya have not been able to utilize their resources mainly because of, intense internal political and social instability. On the other hand, the approach of outsourcing applied by developed countries such as USA and UK has also enabled them to build sustainable relationships with Asian nations such as India, Malaysia and Indonesia. These strategies are some of the common approaches used by the nations of the world for fulfilling their objectives of national growth. Nature and Purpose of TNCs: In the words of Carrigan, Marinova and Szmigin (2005), the purpose of transnational corporations can be categorized into four categories namely, identifying the right market, the right product, the right process of suppliers and the right process of operation. According to this definition of the purpose, the multinational organizations focus mainly on evaluating their target market and the product or services for their consumers. The internal managerial factors such as procurement in order to enhance the efficacy of the product or service developing process and also create a strategy for sustainable business development are the key objectives of the multinational business houses in the contemporary business scenario. Malhotra (2011) observed that the aspect of CSR is another addition in the primary business objectives of the firms that urges the business houses to fulfill their responsibilities towards the nation, environment and the society. Some of the big firms that have made a name with their CSR activities include Sainsbury’s, Virgin, and Tesco. These firms have tried to align their business activities with the corporate social responsibility objectives. Lymbersky (2009) emphasized that, competition is increasing in all business sectors and firms are looking to expand business activities by identifying new market places in the global markets. However, cultural and regional barriers are hampering the process of business expansion. In such as scenario, firms try to spread brand awareness among the new customer segments with the help of CSR activities. Jeannet and Hennessey (2010) assessed the existing level of competition in the corporate sector and stated that, all the business objectives are aimed for achieving a long term sustainable competitive advantage in the market place in order to develop a loyal customer base. Jeannet and Hennessey (2010) added that, multinational firms are mainly focusing on gaining cost or differentiation competitive strategy, by reducing the cost of their operations or by introducing new segments in their customer offerings. Morris, Schindehutte and Allen (2011) argued that, all the activities of business houses are focused on brand development in order to gain customer loyalty. Operating in multiple market places and enhancing their market space creates more scope for the growth of the companies. Lymbersky (2009) developed an overall view of the business activities and opined that, in order to achieve a sustainable competitive advantage, firms are trying create mutual platform for transparent communication with their internal and external stakeholders. This also reflects the connection of the multinational organizations with the governments of the nations in the international marketplace. Relationship between nations and TNCS: The relationship between the multinational organizations and the host countries or the states has been explained by Adcock (2010) as the process of balancing the power between the two forces of economy. Morris, Schindehutte and Allen (2011) specifically mentioned that, aim of the host countries is to extract better opportunities from the multinational business houses for the growth of the national economy. On the other hand, the essentiality of fulfilling the national policies and safeguarding the guidelines of the regulatory bodies are among the initial considerations for a firm to engage in transnational activities. Jeannet and Hennessey (2010) stated that, nations are opening up their market for foreign firms in order to tackle the internal economic and financial problems. For instance, the process of outsourcing has allowed Asian countries such as India and China that are densely populated, to tackle their unemployment problem to a great extent. Lymbersky (2009) noted that, operating internationally also signifies a greater reserve of foreign currencies for the host nations which in turn, also helps in the national import and export activities of the nations. It can be observed that while multinational organizations are trying to develop their market growth opportunities by operating in multiple market places, the host countries focus on creating better opportunities for the population of the nation. Most of the MNCs try to create alliances with the domestic firms so that they can already have a brand advantage in the new markets. For instance, retail sector giant Tesco has merged with Stars Retail Group in India to promote their business scope (Fifel, 2012). dOn the other hand, the import and export regulations of the nations help them in generating revenue for the governments, also regulatory policies regarding employment for local citizens and CSR activities in the host country are the common ways for fulfilling the objectives of the host nations (Morris, Schindehutte and Allen, 2011). Globalization has allowed the nations to create a more suitable process for expanding the market place for the multinational organizations. But inspite of the opportunities, there are instances where the business firms and nations are able to align their objectives and operate in mutually beneficial manner. Some of the organizations such as Starbucks, McDonalds and Yum that operate in the global food industry are facing problems in creating a proper consumer relation with cultural and social policies of the host countries such as Hong Kong, Pakistan, etc. Recently all these three leaders of the global fast food industry were asked to provide halal meat to their consumers which were not accepted by the firms (Carney, 2014). These activities do not have any direct financial impact on the business processes, but can influence the choice and loyalty of the local customers. Factors affecting the actions of States and TNCs: Most of the host countries decide upon their strategies for the MNCs based on the benefits of letting a firm operate and use their resources. Jeannet and Hennessey (2010) stated that, this concept can be used in the perspectives of both host nations and the multinational firms. The concept of Corporate Social Responsibility is one of the primary strategies of the multinational corporations in this process (Fifel, 2012). The development of the business aspects in the international business segment also depends on the relationship of the organization with the government of the states. Moreover, the structure of the government also has an impact over the trade relations of multinational firms with the host nations (Lymbersky, 2009). For instance, in an emerging market like India, the state government has the authority to decide upon the activities of the business firms and take actions accordingly. The establishment of Volkswagen manufacturing unit Das Auto in India was delayed by 7 months because of the government protocols (Morris, Schindehutte and Allen, 2011). Another influential factor in the relationship between multinationals and the government of the host nations is the country of origin factor. This also focuses on the political and economic relation of the host nation with that of the country of origination of the multinational firms. The trade relations between superpowers such as China and America or Russia and America are still in the growth stage because of the political differences, as a result, the corporate activities of the multinational firms are also hampered (Brodie, Brookes and Little, 2009). Also, the regulatory bodies such as World Trade Organization or the European Union also contribute in the trade relations between business firms and their host nations. For instance, the EU has the static policy for foreign multinationals to use Euro as the currency for measuring business performance which can also create problems for the business houses in their international transactions (Farrell, 2005). Apart from this, the demand for social and environmental contribution on the part of the transnational firms acts as a platform for communication between both the parties and help in establishing a sustainable relationship. Conclusion: This essay is based on analyzing the factors that influence the relationship between the multinational firms and the nations of the host countries. The study reflected that, in order to expand its market into the international marketplace, the business process of a firm must develop an effective relationship with the host nations and vice-versa. However, factors such as power, benefits received, culture, political relations influence the relationship buildup process and can hamper the international trade. Reference List: Adcock, D., 2010. Marketing: Principles and practice. 4th ed. London, Thousand Oaks CA: Sage Publication. Banerjee, S., 2011. Corporate Social Responsibility. The good, the bad and the ugly. 3rd ed. New York: Harper Collins. 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