The Nature and Purpose of a Nation-State and the TNC - Coursework Example

Global Business Practice THE GROWTH OF THE GLOBAL ECONOMY Globalization is a term that is being commonly used to describe the phenomena where national boundaries are fast erasing. As mobility among the countries increases on account of improved technology, companies are benefiting from developing operations around the world. These operations do not just benefit the company by achieving its objectives to increase revenues and operations but also ultimately benefits states by improving their infrastructure and economic conditions. All of this has been possible primarily because of technology. Technology has managed to reduce the gaps and barriers between countries by improving transportation as well as communication. Technologies have now made countries just a click away as companies continue to open up manufacturing centers around the world and conduct businesses throughout the globe. Examples of such companies are Pepsi, Coca-Cola, Nestle, Unilever etc. THE NATURE AND PURPOSE OF THE NATION STATE A nation state is an amalgamation of a nation and a state, thereby taking element from both to form a modern entity, termed as the Nation State. This term may be defined as a cultural group of people aligned after political governance. The Nation state is one that has four characteristics, which are: sovereign entity, organized government, defined territory and population. Sovereign entity refers to the fact that the country should be independent from others. It should not be colony of other nations. The nation states should rule their country exclusively. Organized government is the form of ruling within the country which is distinct from monarch rule. The third characteristic refers to the fact that the nation state should have a clearly demarcated territory as opposed to certain areas such as Palestine and Kashmir. The four characteristic requires the nation state to have citizens belonging to the same nationality but with different ethnic or cultural backgrounds. The objective of the Nation State is increase the GDP along with improving employment opportunities within the country to a 100 percent. In terms of technology, the objective is to improve technological infrastructure so as to attain the above mentioned objectives. The nation state is able to attain these objectives by attracting and retaining TNCs to develop operations and headquarters in their country. This will allow for an increase in the GDP and will facilitate employment within the country. An example of a successful state that has managed to attain these objectives to a great degree is Singapore. When Singapore attained independence from Malaysia in 1965, it actively pursued a policy of a labor intensive nation state that attracted TNCs through its manufacturing industry. It thus began pursuing an aim of an export oriented country (Dickens, 2011). The country pursued a strategy of attracting TNCs through cheap labor because the unemployment rate within the country was quite high. The labor intensive policy, not just improved unemployment but allowed TNCs to develop operations and manufacturing within the region to benefit from lower production costs. Furthermore, Singapore declared its port as a free port, thus benefiting from the flow of goods within and outside the country. Foreign Direct Investment increased within the country which was further facilitated by the government’s support towards these investors. The government passed laws to facilitate FDI. The government improved FDI within the country by putting a ban on strikes; improving infrastructure, maintaining a transparent economy and promoting a policy of rapid industrialization (Bercuson, 1995). While Singapore has been able to bank on its port to develop a position as a successful nation state, Pakistan has been categorized as a failed nation despite having a port. Pakistan has been listed as a failed state in the Failed States Index. The ranking that Pakistan received was 13th as it received a score of -1 out of 120; below that of Nigeria and Kenya but ranking above Somalia, Sudan and Afghanistan (The Fund for Peace, 2012). Pakistan is listed as a failed state primarily because the country has been undergoing one failed corrupt government after another. This has made the country so weak that it has been unable to fight the issues plaguing the country such as the issue of Taliban, the sectorial division within the country and the mass movement of refugees from Afghanistan within the country (Bukovac, 2011) THE NATURE AND PURPOSE OF THE TNC TNC can be defined as a corporation that operates in more than two countries. However, the concept of TNC is often used interchangeably with the multinational corporation (MNC) that also operates in more than two countries. Before proceeding further, it is imperative to distinguish between the two concepts. The MNC is a corporation that has a known national base; that is, it is strongly associated with a country. This country is most often the country where the corporation is headquartered in. The management and operational style of these corporations is very similar to their country of origin (Held, 2000). An example of an MNC is Toyota. This corporation is headquartered in Japan and thus the corporation greatly reflects on the Japanese style of management. The company works on Japanese principles of Respect, Teamwork, Challenge and Improvement. As the Japanese respect their elders and maintain a strictly hierarchical chain of command, the company also follows the same. This puts the company clearly in the category of a MNC (Toyota, 2013). Other examples of MNCs include Colgate Palmolive and Zara. The TNCs, on the other hand, are corporations that have been able to disembody themselves from their national base. Thus, they are not associated with a certain country. These companies adopt an international style of management. They operate and market their products and services in countries where they are able to gain the most competitive advantage. For this reasons, these companies outsource their manufacturing and other operations to various countries (Held, 2000). An example of a TNC is Nestle. The company has developed operations all around the world and markets its products globally. While the company operates in different areas, it allows the liberty to every country to operate on their own without a lot of control. For example, when marketing products, the management of Nestle at Singapore would be allowed to develop their own advertising. This allows the management the liberty to adapt the product and its brand image according to the culture of the country. The objective of the TNC is to maximize their profits and to allow maximum returns to the shareholders. For this, they focus on developing economies of scale by choosing to operate in countries that provide them the maximum advantage. Research and development of such companies is also conducted in areas that have an ideal technological infrastructure. The objective of the TNC is thus not to maximum profit returns to their home country but rather to the company. The Relationship between the State and the TNC The relationship between the state and the TNC is both conflicting and complementary because their objectives often complement each other but at times also contradict each other. The complementary objectives of the TNC and State include developing a good infrastructure where industries can develop and prosper. With respect to infrastructure, the development of technology and physical infrastructure is optimal for both the state and the TNC. This ensures that the TNC is able to invest more within the country which furthermore increases employment opportunities within the country and leads to better economic conditions. However conflict between the two arises when both want to maximize of their profits. The company wants to maximize profits by reducing manufacturing costs while the government wants to improve economy by getting more returns from the company through manufacturing. The government for this, enforces laws and policies that though bring it foreign investment within the country but still benefit the country. Both the state and the TNC are often in a constant tug of war as each wants to exert more power over the other. The states that are able to gain that power are termed as strong states while the others are termed as weak states. Strong states are able to exert such power merely on the basis of their physical infrastructure and human resource pool. When states have such advantage over the TNC, they impose quotas, tariffs, and other limitations on the TNC (Tonnaer, 2013). The TNC is able to exert more power over the weak states. They gain their objectives by demanding more tax cuts, more subsidies and more freedom to manage their operations. Globalization has greatly changed the landscape for both the State and the TNC. It has allowed for greater resource mobility. Organizations can set up manufacturing plants all over the world. TNCs, in this case, can enjoy the advantage of benefiting from the perks offered by different countries. While they can set up manufacturing facilities in China to take advantage of the cheap labor and technological infrastructure, they can set up design team in USA to benefit from skilled labor. An example of such a practice is Apple Inc. Globalization, in this regard, has given opportunity to the state to improve their infrastructure and governmental policies to attract these TNCs within their own country. Countries such as China, India and Singapore have been successful in bringing a hefty amount of foreign direct investment within the country. Often TNCs have been found to be engaged in practices where they take advantage of their position. An example of this is Starbucks that was able to avoid paying taxes properly in UK. The company was able to do this by claiming that it pays high licensing fees for its UK branch. Furthermore, the company buys its coffee beans from the Netherland subsidiary. Since the corporation tax in Netherland is quite lower than that of US, the company is able to avoid paying taxes even though it generates three billion pounds through sales. While the company is enjoying good sales, it continues to project losses due to high licensing fees. This allows the company to get a leeway from paying taxes. Same issues have arisen with respect to various other TNCs which includes reputable names such as Google, Amazon and Facebook (BBC, 2012) (Piccotto, 2012). In the case of Google, the company’s CEO, Eric Schmidt is very proud of the way he avoids taxes. This company with the help of globalization has been able to mobilize resources to such an extent that it avoids paying taxes. It has transferred its company profits to Bermuda. Bermuda, being a weak country, aims to attract TNCs such as Google through low tax policies and thus Google makes us of this. While the company benefits from this, the government on the other hand, does not get its due share of corporate taxes despite heavy sales of the company (Kumar, 2012). INFLUENCES AFFECTING THE ACTIONS OF THE STATE AND THE TNC International Organizations such as the WTO and the IMF have been formed in order to ensure that the neither the State nor the TNC is able to enjoy undue advantage of the situation. These institutions through the help of policies and agreements such as the General Agreement on Tariffs and Trade (GATT) have been able to help facilitate international trade. The objective of the GATT was to ensure free trade between countries based on the David Ricardo’s theory of comparative advantage. This theory prompted countries to promote the production of those goods and services which allows them to gain comparative advantage with the rest of the world. Trade barriers and trade tariffs were to be removed to improve trade across countries. Civil Society Organizations have been formed for the express purpose of preventing TNCs from taking undue advantage of the weak states. They ensure that there is fair competition in the global market place. They further ensure that these companies improve economic conditions within the country and provide development in the company with regard to introducing fair policies (Hutter and O’Mahony, 2004). Another important function that CSOs play is that they promote companies to be socially responsible towards the community and thus adopt a corporate social policy. TNCs around the world have thus consciously adopted CSR policies where they promise to give return back to the community. As consumers around the world are getting awareness regarding CSR, companies have been forced to adopt such policies to improve brand reputation. These policies revolve around issues such as human rights, environmental issue, fair business practices, community, employee and consumer issues, governance issues etc. (Leonard and McAdam, 2003). CSR policies include Fair Trade policies, charities by TNCs and providing value to the community through education, information etc. The main aim of the CSR policy for the TNC is to improve brand reputation among the consumers. However, CSR policies have been called under harsh criticisms on account of shady practices by certain businesses. Critics argue that companies initiate CSR policies as a way of redirecting the attention and interest of the consumers from certain unethical practices of the company. The main aim of any organization and TNC is to maximum its profits and increase value for the shareholders. A CSR policy is irrelevant in this aim. It is argued that companies only aim to implement a CSR policy to increase their brand reputation among the consumers and the community. Their aim is still to maximize profits and the CSR policy is just a gimmick to detract the consumers. An example of this is McDonald’s. The company has a CSR policy where it focuses on the 3 E’s namely ethics, environment and economic responsibility. While the company focuses on buying meat under the Animal Welfare Guidance Principle and ensures that harmful environmental impacts of the company are minimized (Paetzold, 2010), it is still selling products that increase the obesity levels among the general population which raises heart attack risks. The company is also criticized for its low per hour wages that prevent employees from enjoying a healthy lifestyle. Also companies such as Zara’s and Gap Inc. have been involved in practices where their suppliers hire illegal immigrants to produce the final product. These immigrants are forced to work under poor conditions with minimum pay. While these companies have established their CSR policies long ago, these incidents still arise which call into question the fact that whether CSR policies adopted by companies are a real agenda or a gimmick to improve their brand reputation among the consumers so as to increase sales for the company (Moore, 2011). 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