Transnational Corporations Economic Strategies - Literature review Example

CONTRASTING AND CRITICALLY EXAMINING TWO VIEWS ON TRANSNATIONAL CORPORATIONS (TNCs) ECONOMIC STRATEGIES By INTRODUCTION: There has been dramatic change in the overall scenario of the world after the increased globalisation (Amin, 2002). Organisations have been expanding their business to all over world in order to exploit global market. This phenomenon on one hand has resulted in facilitating the organisations in the process of growth and progress and on the other hand contributed in the generation of different issues and problems (Buxey, 2000). One major issue in this regard is the formulation of strategic alliances by Transnational Corporations. Transnational Corporations are the large organisations which operate in different countries and focus on local preferences and demands. These organisations formulate strategies according to the needs and requirements of the local region. It is important to establish at this point that these Transnational Corporations (TNCs) have become one of the most strong unit in the economic and political setup all over the globe. These Transnational Corporations (TNCs) have been coming up with different economic strategies in order to fulfil their objectives and goals. In this regard these organisations have formed different strategic alliances and have entered into different subcontracts, which in turn are allowing them to operate successfully in the international market (Kale, P, Singh, H, & Perlmutter, 2000). This phenomenon has given rise to one of the largest dilemma in the business sector i.e. that either global market forces have resulted in the formulation of these strategic alliances or these subcontracts and strategic alliances are being used as a strategy by these organisation in order to get hold of more resources. According to one school of thought, these economic strategies of subcontracting and strategic alliances are because of different global market forces. Transnational Organisations (TNCs) are forced to use these strategies in order to respond to the changing economic, political, social, and technological forces in the international market. On the other hand, there is a second school of thought which is of the view that these economic strategies of subcontracting and strategic alliance are being used by the Transnational Organisations (TNCs) for their own benefits. These strategies facilitate the organisations in the process of gaining more control over the resources as compared to other small companies and communities and as a result controlling the overall international economy (Gereffi, Humphrey, Kaplinsky, & Sturgeon, 2001). In this paper an attempt has been made to compare and critically review these two views. For this purpose, views of both school of thoughts have been presented and investigated. Apart from this the basic idea of Transnational Corporations (TNCs) and the associated economic strategies have also been explained. This will help in the process of exploring and critically evaluating the two views about the increasing subcontracting and strategic alliances by different Transnational Corporations (TNCs). TRANSNATIONAL CORPORATIONS (TNCs): There have been considerable growth in the number of Multinational Organisations (MNCs) or Transnational Corporations (TNCs). This is mainly because of the increasing international trade and globalisation. Owing to increasing international demand, organisations expanded their operations and businesses in different countries. This not only resulted in benefiting these organisations by also contributed in the growth and development of overall global economy. With the passage of time, Transnational Corporations (TNCs) became one of the essential player in the international economy. These organisations with the aim of increasing profits and revenues have been keep on exploring and exploiting different areas and regions. Recently, Transnational Corporations (TNCs) have shifted their focus towards developing countries. This have resulted in different economic strategies and tactics on part of these organisations. ECONOMIC STRATEGIES OF TRANSNATIONAL CORPORATIONS (TNCs): Overall scenario of world has been changing at rapid pace. There are certain ongoing changes in the global environment, which in turn force the organisations to change their structure and business strategies (Benington, 1986). Organisations are looking for ways and strategies in order to reduce the overall cost of the operations and at the same time increasing the control over the important resources (Lovering, 1998). This in turn allows these organisations to fulfil the long term objectives and goals. Two economic strategies which are growing at rapid pace are of subcontracting and strategic alliance (Doz, 1996). Subcontracting: Subcontracting is the strategy of entering a contract with a third person or party in order to get certain amount of work done (Mieghem, 1999). This strategy is used to outsource some work to the third party in order to do it more effectively and efficiently (Kawasaki, S, McMillan, 1987). This in turn facilitates the organisation in saving the time and cost associated with that particular work and in turn reducing the overall cost of operations (Kamien, M, & Li, 1990). In the view of increasing globalisation, different organisations have been entering into subcontracts with suppliers and distributors in the third world or developing countries. These contracts with the smaller organisations from developing countries result in providing the organisations with more control over different resources (Cantwell, 1995). Strategic Alliance: The economic strategy of strategic alliance is all about entering into a mutual benefitted relationship with some other organisation or party in order to fulfil same goals and targets (Simonin, 1999). Organisations entering into strategic alliance maintain the status of independent companies (Das & Teng, 2001). Most of time different organisations form strategic alliance in order to enter into some new market (Harrigan, 1998). This alliance provides the organisations with more resources like production, distribution, knowledge, human resource, expertise and several others (Ohmae, 1987). These strategic alliances can be with the suppliers, distributors, or with other competitive organisations in the industry (Hamel, 1991). REASONS BEHIND INCREASING SUBCONTRACTING AND STRATEGIC ALLIANCES: There are different views about the increasing growth of subcontracting and strategic alliances among the Transnational Corporations (TNCs) (Parkhe, 1991). Two most famous views in this regard are presented and explored in this paper. VIEW 1: ‘THE POWER OF GLOBAL MARKET FORCES SINCE THE 1980s HAS CAUSED THE GROWTH OF SUBCONTRACTING AND INCREASED FORMATION OF STRATEGIC ALLIANCES BY TNCs’ The firs school of thought is of the view that the changing and powerful global market forces are forcing the Transnational Corporations (TNCs) to formulate different strategic alliances and enter into subcontracts in order to cope up with different economic situations in the global economy (Larsson, Bengtsson, Henriksson, & Sparks, 1998). The increasing globalisation have been resulting in increasing the interdependence of economies of different countries and in turn influencing the well being different nations (McKenzie, 1954). The growing international trade and different international trade bodies are demanding the organisations to be more responsive to the international demand. Organisations operating in different countries have to consider several international factors while formulating different strategies and tactics. There are different economic, social, political, and technological factors which hinders the successful operations of the Transnational Corporations (TNCs). Apart from this, organisations also have to keep in mind the overall global financial condition in order to come up with effective and efficient strategies. Globalisation has provided different economic, social, and cultural benefits (Buckley & Ghauri, 2004). This has resulted in the growth of international trade, and it has become considerably easy to transfer goods, technology, human resources , and other resources across the borders (Jones, 1961). But on the other hand this freely transfer of goods and other resources have resulted in putting extra pressure on different organisations operating in global economy (Samuelson, 2001). It is a recognised and accepted phenomenon that countries and organisations can only reap benefits from globalisation when they come up with effective strategies to take full advantage of the easy and free access to different resources including capital, information, technology, knowledge, human resource, and several others (Chipman, 1965). Along with this the organisations should be able to take advantage of the global competitive setup with in turn allows them to exploit the strengths and opportunities. In an attempt to cope up with these increasing global market forces, Transnational Corporations (TNCs) have come up with the economic strategies of subcontracting and strategic alliances (Koza, & Lewin, 1998). These economic strategies allows them to have more control over some important resources and thus in turn they can respond to any uncertain conditions in the international market (Kuruvilla, 2008). VIEW 2: ‘THE GROWTH OF SUBCONTRACTING AND INCREASED FORMATION OF STRATEGIC ALLIANCES ARE DELIBERATE TNC STRATGIES TO SHIFT RESOURCES FROM SMALL FIRMS AND COMMUNINITIES TO TNCs, GIVING TNCs MORE CONTROL OVER THE GLOBAL ECONOMY’ In contrast to the view of the first school of thought, there is another famous school of thought which is of the view that all these economic strategies of subcontracting and strategic alliances on part of different Transnational Corporations (TNCs) are deliberate attempt to exploit the overall global economy. In order to increase the profits and revenues of the organisations, these strategies are being implemented by the Transnational Corporations (TNCs) (Fiss & Hirsch, 2005). Economic strategies of strategic alliance and subcontracting allows the large multinational organisations to get hold of the resources. This in turn enables them to shift the resources from the small firms and communities to themselves and thus they are able to control the overall international economy (Dornbusch, Fischer, & Samuelson, 1977). Globalisation has resulted in placing the small firms and developing countries in a losing situation. The Transnational Corporations (TNCs) are taking advantage of this phenomenon and are exploiting the resources of small countries and organisations (Mundell, 1957). This have resulted in several serious implications for the losers countries and firms. There have been an increasing gap between the rich and poor economies (Madeley, 2003). Majority of the Transnational Corporations (TNCs) are from developed and rich countries which in turn exploit the resources of the poor and developing countries. This is also resulting in depletion of different resources. The strategies of subcontracting and strategic alliances allow the Transnational Corporations (TNCs) to control different important global resources. Which in turn enables them to use these resources for their own benefits and profits. As a result of these strategies, small firms and communities are not able to control their resources themselves and hence all these resources are shifted to the large multinational organisations (Robinson & Harris, 2000). This aspect of the economic globalisation has benefited Transnational Corporations (TNCs), and they have more control as compared to the citizens of the small economies and communities. This has also given rise to the issue of the accountability of the these organisations. Because of this extra control over the resources these organisations are capable of escaping different issues and hence it becomes difficult to hold them accountable for different harmful behaviours (Koenig-Archiburgi, 2004). Hence, many Transnational Corporations (TNCs) are deliberately using these economic strategies of subcontracting and strategic alliances in order to take advantage of the excessive control over the important resources. CONCLUSION: Globalisation on one hand has benefited the overall international economy by promoting free trade of different goods and resources (Storper, 1992). But at the same time it has resulted in providing opportunities to large Transnational Corporations (TNCs) to exploit the resources of small firms and economies. In order to monitor and control the activities of these larger corporations there should be proper international bodies and authorities which will stop these organisations from exploiting the resources of the developing countries. 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