Analysis of The Global Economic Recession - Research Paper Example

Analysis of The Global Economic Recession In attempting to highlight some of the considerations the managers must take in the event of relocating to other countries in view of globalisation, it is imperative to define the whole concept first. Globalisation is loosely defined as the economic activity taking place across the national boundaries (Buckman 2004). Globalisation is a result of internationalisation of financial markets which aims to promote free trade as well as direct investment among member states across the world. It liberalised trade where the barriers to trade which used to exist among nations were removed and different countries can engage in free trade. On the other hand, the concept of economic recession also ought to be explained in order to grasp the requirements needed to be taken into consideration before carrying out business across national boundaries. According to an IMF research document published in 2008, “the world economy is decelerating quickly, buffeted by an extraordinary financial shock and by still-high energy and commodity prices and many advanced economies are close to or moving into recession.” The global economic recession has seen many economies world wide slumping resulting in loss of jobs in some instances as well as a reduction in disposable income. Instead of growing, the economies across the world are instead declining and these have negative impacts across the spectrum. It should be noted that there are quite a number of key players that drive globalisation and these include the multinational corporations, World Trade Organisation (WTO), World Bank and International Monetary Fund (IMF). National governments are also key actors as they authorise trade to take place between them and the multinational corporations intending to invest in their countries. They are very instrumental in determining the outcomes of trade and investment between the states involved as they are the overall authority which would be responsible for regulation of the operations of the multinational companies. The WTO also play a pivotal role in that it facilitates the platform through which international trade agreements are negotiated and enforced among member states. On the other hand, the World Bank and the IMF are major actors in that they provide with loans as well as technical assistance to the governments or multinational corporations that wish to invest in other different countries. However, before attempting to highlight some of the considerations which need to be considered when deciding to invest in certain countries, it should be noted that under the concept of globalisation, the rich and powerful nations are in most cases on top of the situation where they are the ones who are seen carrying investment to lesser developed countries. The flow of the wealth is often seen as one sided and there is no equality in terms of sharing of the wealth (Bond 2002). Whilst globalisation is meant to promote development, it is often seen that it is not the case in some instances hence the need to check these considerations. The managers of the multinational corporations which would have decided to carry trade across the borders to the other countries ought to consider quite a number of factors in view of economic recession. Before investing in any other country, it should always be borne in mind that knowledge about the local economies is very essential before investing in a country. Effort should be made in order to establish the nature and extent of the inflation rates of the host country. It would be folly and equally dangerous to invest in a country where there is a runaway inflation rate. Basically, inflation can be defined as the general increase in the rate of price increases (online definition 2009).The inflation rate would swallow all the profits that would be likely to be generated by an organisation. In undertaking investment in another country, the management should gather necessary information about the state of affairs of the economy of the host countries. Inflation as highlighted above is detrimental to any economic growth and multinationals for instance would also not be spared by it. In most cases, inflation would lead to scaling down of operations as a result of the fact that production costs would be very high to such an extent that it would be difficult to realise profits given that the prices of all commodities would be rising at a tremendous rate which may not match the revenue generated by the organisations. In the event that a multinational organisation is concentrating in manufacturing, it also has to buy spare parts as well as raw materials but if the prices are increasing periodically, it would be difficult to be profitable in the organization’s operations as it would fail to keep pace with the rising costs of production. Rising costs can negatively impact on the operations of any business hence this knowledge is of paramount importance to be known by the managers of multi national organisations that would have decided to invest in other countries. The management should also consider the aspect of political stability of a country. It would be equally dangerous to invest in a politically volatile environment as this coupled with economic recession would have a great toll on the operations of an organisation. In countries where there is tension, it would not be advisable to make an investment as the chances of disturbances in the operations of the organisation would be very high. There also can be disruptions in operations since the workers may fail to turn up for work in the event of rioting caused by tensions arising from the tense political situation in the country. Peace and stability in a country are very important since they ensure that there would be limited chances of risk which may result in heavy losses after disruptions by civil unrest. Another very important factor that should be considered is the aspect of availability of forex in the host countries. Business involving multinational corporations is usually conducted using foreign currency. In some situations, the host counties may not have forex readily available which may disrupt the operations of the organisation. Some countries may not have the facility to get loans or balance of payments from international institutions such as IMF or World Bank which will make foreign currency scarce. In such situations, it would be very difficult to access the money to buy raw materials as well as other equipment that would be required in the day to day operations. In such cases where it would be difficult to access forex, the procurement of materials to use would be quite challenging which would make profitability quite impossible. It is also of paramount importance to take into consideration the host country’s legislation structure in terms of ownership. Some governments have laws in place that forbid any other multinational organisation to have more that 50% stake of the share holding of that particular organisation. Whilst this is meant to safeguard the interests of the host country as well as that of local nationals, it would also be important to take into consideration that the multinational organisation would have spent a fortune in making the investment only to be told at a later stage that they should equally share the proceeds with the national government. Some legal frameworks would be silent in terms of ownership structure which would also pose a threat to the organisation’s operations since it can loose its company in the event of political tensions that can lead to seizure of foreign owned companies. The operations of any organisation are guided by the legal framework of the host nation. The national government would be the final authority in determining how the organisations would be run. Failure to adhere to the requirements of the laws of the host country may even lead to the cancellation of the operating licence which would not be a good thing to happen especially to large multinational corporations. It is imperative for any multinational organisation to abide by the rules and regulations of the country to ensure cordial relationship with the government so as to minimize the chances of conflict. It is also very important to take into consideration the structure of the culture of the people in the country a multinational organisation would be intending to invest as a way of trying not to violate the values of the local people. In the face of economic recession, already established multinational corporations may be forced to retrench some of the workers and this should be done with caution as this would affect the welfare of the retrenched people. It is important to know the structure of the culture of local people so as to know their patterns of working. In some societies, the breadwinner in the family would be one person which would affect their welfare in the event that he has been retrenched without due notice. On the other hand, the governments of host countries should also consider the factors going to be explained in detail below. According to Isaak (2005), poor countries must protect their manufacturing sectors in order to increase the national power of production and employment. The national governments have a duty to safeguard the interests of the local people and their financial considerations must also be taken into considerations. In a globalised economy, the flow of wealth in most cases is one sided and it is seen flowing from the poor countries to the rich and powerful nations. The powerful nations are primarily interested in extracting as much wealth as possible from the developing nations in the name of investment. Local people in most cases have little benefits from investment undertaken in their own country compared to the benefits that are reaped by the investors. The investors often get a lion’s share from the proceeds of their operations while the local people get nothing out of the investment deal. Given such an unfair state of affairs, the local government should put in place structures that are meant to safeguard the interests of the local people. Employment and labour laws must always be safeguarded under whatever condition as a way of ensuring the local people who are employed by these multinational organisations are not oppressed and being given very little money that is not commensurate with the profits that would be raised by the big organisations. In some cases, multinational organisations would seek to invest in poor and less developed countries where they would seek to get cheap labour from the local nationals. It is the duty of the local government of the host country to ensure that there are fair labour practices that are practiced by the investors. There ought to be an act of parliament which makes it compulsory for all organisations to observe the employment regulations of the country as a way of promoting the interests of the local people. Indeed, local communities should benefit from a major investment undertaken by multinational companies in a fair manner not the situation where they would end up being oppressed in their own country by being given little wages and working for longer hours. In this case the minimum wage policy must be clearly defined by the government so as to ensure that the interests of its own people are given priority rather than just focus on reaping profits. In some cases, the poor nations are not yet developed to the extent of focusing on “global values of exchange,” Isaak (2005). The developing countries in essence are not yet industrialized or developed to such an extent where they can match the developed nations. In order for them to undertake fair practices, the poor nations should have measures in place that would try to balance the situation whereby there will also be in a position to benefit technically from the operations of the multinational organisations. Provisions should be made that are meant to train the local people to be competent especially in manufacturing industries as a way of stimulating growth of their own economies through the acquisition of relevant knowledge. It should also be noted that each society has got its own cultural values and they ought to be protected. Every person has got a culture and all the people across the globe do have values that are shaped by their culture. It is very important to ensure that the culture of the national people is not violated by the foreigners who come to invest in the country. The values of the people shape their way of behavior hence they ought to be safeguarded. Structures should be put in place that would be meant to protect the interests of the local people and the government should take a leading role in spearheading such an initiative. If a multinational organisation fails to observe the values of the local people, it may be difficult to be profitable as there would be other problems related with managing the human resources since there would be some elements within the new value system that would not be compatible with their own culture. Local governments should also ensure that it has the legislation that is meant to create a fair shareholding of the company that would ensure that it also benefits from the investment by the multinational corporations instead of them just extracting the host country’s resources then repatriate them to their own countries. Globalisation has often been criticized for the unfair redistribution of wealth it creates as the rich and powerful nations often end up benefiting from investing in poor countries. The less developed countries in most cases do not have equal powers compared to the richer nations hence national governments of less developed countries should strive to enact legislation which makes it possible for them to have a reasonable stake of shares from any business that is directly operating in their countries. For example, many African countries are very rich in terms of the natural resources they possess. Unfortunately, most of these countries are very poor and are dependant on aid from the rich nations whilst these same developed countries have vasts of multinational enterprises directly operating in these poor countries. Instead of being dependents on the powerful western nations which extract precious minerals in their countries, the developing countries should strive to put measures that are meant to benefit them. There are many oil rich nations in Africa but these are among the poorest in the world. Given the economic recession currently gripping the world, the developing countries should put measures in place that would ensure that they can sustain themselves from their own resources especially during the hard times. Even the developed nations are finding it a bit difficult during these contemporary days to extend loans to the poor nations given that there is a decline in the world economy. Given the situation where the poor nations have control over their resources, they could be in a position to sustain themselves especially during this period where all the countries worldwide are facing the predicament of economic decline. Some governments may decide that they should get a 50% stake from any investment that is directly operating from their respective bases as a way of cushioning themselves from the effects of economic recession. Over and above, it can be noted that globalisation is based on the premise that is meant to promote free trade as well as liberalize investment among different countries. However, it seems that the rich and powerful nations end up benefiting more than their trading partners in the less developed world. In view of the current economic recession, both the mangers and governments of the host nations ought to take certain measures into consideration as a way of trying to mitigate the severe effects of global economic recession. (2 604 words) References Bond P.(2002) Fanon’s Warning: A civil reader on the new partnership for Africa’s Development, Africa World Press. Buckman G (2004), Globalisation: Tame it or scrap it, Zed Books, New York. Isaak R.A. (2005), How the rich get richer and the poor get left further behind: The globalisation gap, Prentice Hall. Shipman A.(2002) The Globalisation Myth, Cox and Wyman Ltd Rodrick A. (2001), Take it Personally: How Globalisation affects you and powerful ways to challenge it , HarperCollins Publishers, UK. What is globalisation? Retrieved on 28 Apr. 09:From: http://www.tssa.org.uk/article-38.php3?id_article=2190 What is inflation? Retrieved on 28 Apr. 09:From: http://useconomy.about.com/od/pricing/f/Inflation.htm What is inflation? Retrieved on 28 Apr. 09:From: http://www.rbnz.govt.nz/monpol/about/0053316.html IMF magazine WEO, Retrieved on 05 March 2009, From:http://www.imf.org/external/pubs/ft/survey/so/2008/res100808a.htm Read More