Configuration of Global Trade - Example

TRANSNATIONAL CORPORATIONS TRANSNATIONAL CORPORATIONS Insert name: Insert course code: Instructor’s name: 19 October, 2010. Introduction The materialization of the transitional corporation (TNC) as a managerial form which plays a key responsibility in the worldwide financial system has created a new configuration of global trade in addition to offering a novel main force, as well as a new dimension in commercial strategy. International thinking, state and global institutional arrangements have not withheld the pace of revolution. The conventional speculation of worldwide trade is yet to integrate the continuation of TNCs into its constructs. Furthermore, the study on worldwide commerce has accorded the area of TNC-related global trade less amount of consideration (Dunning, 1993 p. 4). The influence of TNCs on worldwide commerce can be either trade-creating or trade-supplanting. Worldwide economists depict a parallel between the payback of TNCs and those of financial incorporation in which trade-formation effects are weighed against trade-deflection effects. How TNCs organize themselves internally to increases their global competitiveness TNCs make use of inter-organizational set-of-connections to access markets, exploit assets and attain possessions. The associations comprise of parent corporations linked to particular supplementary all over the earth. These associations are vertically organized and controlled through internal systems. TNCs as well participate in comprehensive networks of externalized relationships connecting autonomous and quasi-independent corporations. The latter associations are started partially by international infrastructural transformations that make it enviable for TNCs to function further than the confines of their own home boundaries. One way that TNCs go past home boundaries is use of loose or official coalitions amongst participants in the same or diverse industries. By amalgamating with contestants, TNCs generate horizontal links for trade to handle (Westwood, and Clegg, 2003 p. 243). Competitive approaches require fitting with characteristics of each corporation, industry setting, as well as exterior surroundings circumstances every state association faces, while the intercontinental company ought to vigorously build up a collection of tactical approaches to improve its war-chest in terms of overall competitiveness. Furthermore, the headquarters ought to presume the vital duty of leveraging informational possessions to support dispersal of improvement and more appreciably to evaluate the structure in which to convey inventive competitive practices. TNCs ought to build up a dependable scheme to support the basic essentials in the policy triangle, supervise to complement those fundamentals, as well as stirring supplementary associations to contribute to the information base of the entire company and study from the practice of other best-performing businesses (Joia, 2003 p. 17). Transnational corporations practicing worldwide strategies aim at attaining superior economies of scale and international effectiveness by manufacturing homogeneous products for global market. Firms putting weight on domestic receptiveness follow a multi-local policy that seeks to be responsive to variations in local tastes and preferences. These firms have a propensity of developing a complete set of value creating activities in respective countries and geographic regions by providing differentiated products and applying differing market marketing approaches to appropriate for each local market. Also, TNCs shift their home nation innovations and exclusive talents to new markets where original competitors do not have such capabilities (Joia, 2003 p. 18). To remain internationally aggressive, TNCs essentially pursue both home-state and host-state bases returns and merge both location bound and non-location bound sources of advantage. Competitiveness within the delegation sector is severe in that the minute firms are greatly submissive to the strict demands of the major companies. To remain competitive, TNCs carry out significant universal activity of expanding the subcontracting across state boundaries or else the global subcontracting. This results to relatively low transportation costs as well as the ability to control and coordinate the operation of long-distance subcontracting system, in addition to allowing firms to enjoy very low labour costs in developing countries. There are two types of subcontracting, that is direct worldwide subcontracting connecting autonomous firms located in separate countries, or indirect international subcontracting where the chief is an overseas partner of a TNC and the subcontractor is either a local firm or perhaps a colleague of another. This minimizes the costs of labour and the money can be channeled to other areas to increase the competitiveness of the TNC (Dicken, 2003 p. 257). The other way that the TNCs are increasing their competitiveness is by forming alliances or the associations of coalitions, in which relationships are more and more multilateral and not bilateral, polygamous and not monogamous. As a result, new assemblages of financial authority are produced, thus a new constituent to the financial setting called the collective competition. Strategic alliances are official contracts between firms to pursue a definite strategic aim, so as to enable firms to attain a specific goal that they believe cannot be attained on their own. An alliance entails the distribution of risk along with rewards through joint decision-making task for a particular venture. In a strategic alliance, only some of the participants’ business activities are involved; in every other respect the firms remain not only detached but also typically competitors. There are three modes of collaboration involved in strategic alliances: research-oriented, market-oriented and technology-oriented that offers the following types of merits to the participants: overcoming problems of gaining access to markets, facilitating entry into new/ unfamiliar markets, sharing the increasing costs, uncertainties and risks of R&D as well as new product development, gaining access to technologies in addition to achieving economies of synergy, for instance by pooling resources and capabilities, and rationalizing production (Dicken, 2003 p. 260). Global restructuring has resulted to the consolidation of worldwide corporations, as the privatization of state possessions while the opening of home markets minimized wages and weakened the powers of nation-states. TNCs decrease their production costs and boost their international competitiveness by searching for more expedient surroundings for production worldwide (global sourcing). TNCs establish a global production system characterized by a network of exchange and links that allow for the creation of global commodity chains for the production of global commodities. TNCs have the ability to move freely around the world, and thus gain significant control of local political institutions and frequently transform them into agents of transnational corporate interests (Bonanno and Constance 2008 p. 34). How TNCs organize their relations with other businesses There is a far-reaching understanding that the massive business giants have developed into large and technological companies to contend with the more vigorous and creative smaller firms that are speedily gaining the benefit in highly competitive worldwide markets. Probabilities of this view point to the fact that large firm are laying off workers by hundreds of thousands. To support their argument, they site figures indicating that the new employment and scientific improvements are being created mostly by more violent small as well as medium-sized firms. Competition generates tumult, which is embraced as a chance by opportunists. But for those who run productive ventures, the forth coming uncertainty makes investment arrangement basically hard, disrupts the logical function of the corporation, and may end up in very serious monetary ineffectiveness. Firms try to minimize the competition in the global economy by increasing their control over the capital, markets, technology as well as competitors. The weaker competitors are absorbed, colonized, or crushed. This is done by the stronger competitors through the formation of strategic coalitions, amalgamations, attainments as well as interlocking boards of directors (Korten, 2001 p. 211). Also these TNCs form financially viable sovereignties through accretion of authorities and forms private authority which relativizes or replaces the publicly legitimized power, so that the influential company actors can find means to legitimize their particularistic welfare without facing any difficulty for responsibility, without having to presume accountability towards the community and without obtaining democratic consent – without the legitimatory obstruction course attribute of power derived from the legal state (Beck, 2005 p. 144). TNCs also form alliances or foreign associates, which have a number of possible advantages over local firms in developing host countries in accessing and serving foreign markets. They have similar costs of production and thus can export more from a host economy than their local counterparts in products where such marketing advantages are significant. Being part of TNC system, associates draw benefits which make it possible for them to utilize the physical distribution association of the structure and at the same time, exploit the parent firms’ links with clients. Moreover, the duplication of new contestants is also tricky. Local firms experience high operation costs in addition to marketing disadvantages as compared to foreign firms. Foreign affiliates therefore are able to access marketing links, warehousing, transportation amenities, trade economics, recognized brand names as well as overseas channels. The foreign affiliates have ability to use recognized brands names that are particularly important in distinguished user goods. Competing local firms encounter a dire handicap when attempting to sell unbranded goods, especially when they are not in apposition to raise the large amounts required to develop autonomous brands, or when TNC is not willing to license the use of the brands (Abrol and Bhalla p. 268). The economic globalization on firms’ strategies has led to the global reorganization of production on the economic environment, to the extent that globalization has resulted to loss of national independence in principal organizations. The power of macro and microeconomic pricing has become significant due to the vast size of TNCs along with their dominant role in product markets. Thus TNCs have the ability to control international trade, affect government policy as well as weakening labor influence. These strategies have led to several firms, scattered all over the world, affiliated and organized under the cover of a single TNC mother firm, exchanging products and services with each other with an aim of completing and distributing final products. In conclusion, TNCs have the capability of organizing worldwide production; hence business resources may drift towards those nations which have outstanding combination of locational recompense. In this way, state financial systems are positioned in competition with each other with and effort to attract FDI in manufacturing plants. This has boosted TNCs’ bargaining power over governments such the taxation, employment, education as well as infrastructure policies are frequently created according to TNC requirements (Dignam, and Galanis p. 134). References: Abrol P.N, and Bhalla, V.K. 2005 Inter.Business Envi. & Mgmt. Edition 9, New Delhi, Anmol Publications PVT. LTD. From http://books.google.com/books?id=TKMeOIBU1fkC&pg=PA268&dq=How+stronger+TNCs+limit+competition+among+themselves&hl=en&ei=b-O9TImOA5e8jAeWypAg&sa=X&oi=book_result&ct=result&resnum=2&ved=0CCwQ6AEwAQ#v=onepage&q&f=false (accessed October 18, 2010) Beck U. 2005. Power in the global age: a new global political economy. Malden, Polity. From http://books.google.com/books?id=IbdmeKSw0d4C&pg=PA141&dq=How+TNCs+are+organized+internally+to+increase+their+global+competitiveness&hl=en&ei=8AW9TJiiFcSBOpfF9ZkN&sa=X&oi=book_result&ct=result&resnum=2&ved=0CC0Q6AEwAQ#v=onepage&q&f=false (accessed October 18, 2010) Bonanno, A. and Constance D. 2008. Stories of globalization: transnational corporations, resistance, and the state. PA, Penn State Press. From http://books.google.com/books?id=CAjRO5UW8FgC&pg=PA34&dq=the+internal+organization+of+TNCs+to+increase+their+global+competitiveness&hl=en&ei=Awm9TJqREcnqOZbe0IkN&sa=X&oi=book_result&ct=result&resnum=6&ved=0CEAQ6AEwBQ#v=onepage&q&f=true (accessed October 18, 2010) Dicken P. 2003. Global shift: reshaping the global economic map in the 21st century. Edition4, London, SAGE. From http://books.google.com/books?id=Ay_9sUvgB3MC&pg=PA270&dq=How+TNCs+are+organized+internally+to+increase+their+global+competitiveness&hl=en&ei=8AW9TJiiFcSBOpfF9ZkN&sa=X&oi=book_result&ct=result&resnum=3&ved=0CDIQ6AEwAg#v=onepage&q&f=true (accessed October 18, 2010) Dignam, A. and Galanis M. 2009. The globalization of corporate governance. Burlington, Ashgate Publishing, Ltd. From http://books.google.com/books?id=fwjEORW4FSAC&pg=PA134&dq=How+TNCs+organize+their+relations+with+other+businesses&hl=en&ei=zLC9TMeyDMnrOYbU6Cs&sa=X&oi=book_result&ct=result&resnum=6&ved=0CEIQ6AEwBQ#v=onepage&q&f=false (accessed October 18, 2010) Dunning J.H. 1993. United Nations Library on Transnational Corporations. “Volume 8: Transnational corporations and international trade and payments”. U.K, Routledge. From http://books.google.com/books?id=FcYOAAAAQAAJ&pg=PR8&dq=How+TNCs+are+organized+internally+to+increase+their+global+competitiveness&hl=en&ei=8AW9TJiiFcSBOpfF9ZkN&sa=X&oi=book_result&ct=result&resnum=7&ved=0CEYQ6AEwBg#v=onepage&q&f=false (accessed October 18, 2010) Joia L. A. 2003. IT-based management: challenges and solutions. Hershey, Idea Group Inc (IGI). From http://books.google.com/books?id=mu29s06R1GQC&pg=PA24&dq=How+TNCs+are+organized+internally+to+increase+their+global+competitiveness&hl=en&ei=8AW9TJiiFcSBOpfF9ZkN&sa=X&oi=book_result&ct=result&resnum=8&ved=0CEoQ6AEwBw#v=onepage&q&f=true (accessed October 18, 2010) Korten D. C. 2001. When corporations rule the world. Edition2, California, Berrett-Koehler Publishers. From http://books.google.com/books?id=G738BKUrkC&printsec=frontcover&dq=When+Corporations+Rule+the+World&client=firefox-a&cd=1#v=onepage&q&f=false (accessed October 18, 2010) Mareș R. 2004. Business and human rights: a compilation of documents PA, Martinus Nijhoff Publishers. From http://books.google.com/books?id=fnRnyS7I9cYC&pg=PA89&dq=How+TNCs+organize+their+relations+with+other+businesses&hl=en&ei=zLC9TMeyDMnrOYbU6Cs&sa=X&oi=book_result&ct=result&resnum=1&ved=0CCcQ6AEwAA#v=onepage&q&f=false (accessed October 18, 2010) Westwood, R. and Clegg S. 2003. Debating organization: point-counterpoint in organization. Malden, Wiley-Blackwell. From http://books.google.com/books?id=l2VwVlaJ_QgC&pg=PA246&dq=How+TNCs+are+organized+internally+to+increase+their+global+competitiveness&hl=en&ei=8AW9TJiiFcSBOpfF9ZkN&sa=X&oi=book_result&ct=result&resnum=9&ved=0CE8Q6AEwCA#v=onepage&q&f=false (accessed October 18, 2010) Read More