Transnational Corporations on South Africa's Example - Essay Example

Topic: Lecturer’s Introduction Transnational corporations mainly arise in the quest of corporations to improve on marketing, reduce production costs, and explore potential areas for expansion of the production base as well as to utilize various opportunities arising in foreign countries. They are companies with branches in several countries. A transnational corporation is a main corporation that produces in foreign countries through its branches or partners situated in several countries. The policies of the branches and partners are directly controlled by the parent corporation which sets strategies for all of its activities that go beyond the boundaries of the host countries. These include; product marketing, personnel, financial matters as well as production strategies. The policies may have host country orientation or parent country orientation (Held, D and Mcgrew, 2000 pp.122-127). A transnational corporation may be owned by citizens of one, two countries or more. Transnational corporations come up due to the following factors; A company situated in a particular country may be producing enough to satisfy the domestic market, and the managers are compelled to look for extra market. In another situation, a corporation may establish branches in different countries in order to reduce the cost of transporting raw materials in order to reduce the final cost of the products that is added to the consumer price. A corporation may also establish branches in countries that import its products in order to escape import tax that may be enforced by the importing country against foreign corporations. An example of this is when external levy was enforced against outsiders by the European Community, corporations from the United States engaged in Foreign Direct Investment in order to evade these tariffs (Howard Perlmutter, 1969 pp.36-38). Fluctuating exchange rates are also a factor that leads to the establishment of transnational corporations in order to avoid losses that are associated with these rates. This phenomenon arises when corporations produce at a high value of the local currency and then the value falls during exportation. They opt to establish a subsidiary industry in the importing country. Competition is also a factor that gives rise to transnational corporations. A corporation X in one country may be producing the same products as another corporation Y in a different country, both competing for a common market Z. corporation X may tackle this competition through purchasing company Y and other such corporations in several countries, thereby becoming a transnational corporation. An example is when both Monarch in Germany and Opel in Canada were purchased by GM which gave rise to GM Germany and GM Canada respectively (Hill, Charles W L, 2008 pp 24-31). Lower costs of production may encourage companies to establish in different countries from the parent country. These low costs may be attributed to cheap labor in those other countries as well as low taxes or subsidies. Transnational corporations operate globally, without a particular country of parentage. They usually have unlimited boundaries internationally. Their organization and management differ from one country to another. The corporations are developed through a complex integration of all its affiliates worldwide. Knowledge and skills are shared amongst the affiliates with each of them learning from all the global operations. They are globally incorporated corporations having a decision making system involving two or more nations. These nations are connected by ownership and exert some influence over the rest of the members. The corporations mainly possess at least 25 percent and above of their production outside one country. They harmonize invention, intentions, and product promotion and administration services on a number of continents. To achieve this, they make their investment in the capabilities of other nations, e. g purchasing or constructing industrial units in a foreign country to carry out diverse aspects of their industry. They take advantage of the labor market available worldwide as they engage in foreign direct investment (Sloman, J, Sutcliffe, M, 2004 pp. 171-176). Transnational Corporations in South Africa The United States has the largest number of transnational corporations with subsidiaries in South Africa. By now, there are more than 500 United States corporations in South Africa. There was a rise in foreign investments in South Africa since 1995 due to the emergence of new investment prospects as well as the favorable environment created by the South African government’s legal and economic reforms. For example, South Africa government restored the United States foreign tariff credit on investment. This impacted positively on the United States transnational corporations in South Africa. On top of this, South Africa offers cheap labor, which enables foreign transnational corporations to invest in the country. The transnational corporations mainly concentrated on manufacturing. This is because South Africa is a haven for raw materials as well as market for the transnational corporations. In the absence of a language barrier between the United States and South Africa, it was easy for American transnational corporations to establish. More over, the South African authorities as well as the business system are very much alike to those of the United States. South Africa is easily accessible from the United States with reduced corporate tax which makes it a preferable destination for transnational corporations. South Africa earns 4% of its Gross Domestic Products from these corporations of the United States (Raymond J. Mataloni 1999). Some from the United States include; Coca-Cola, Caltex and Dow chemicals. Unilever is from the Anglo-Dutch origin. For more than a century it has been operating in South Africa. Transnational corporations contribute to globalization through continuous formation of alliances that are aimed at enabling them to offer better services in an efficient manner. The main forms of alliances are evident in the international communication service providers. Global alliances have contributed greatly to re-organization of the global market structures. Alliances can be either equity oriented or non-equity associations. Alliances can be Global, where by the offer products for the international markets. The alliances may also take the form of subcontracting alliances whereby the main corporation subcontracts Small Medium-size Enterprises. There are several forms of global alliances in the communication corporations (Griffiths, A and Wall,S. 2007, p.78). The Concert communication services alliance between MCI and British Telecommunications was formed with a goal of offering telecommunication services internationally. They have a central point of getting in touch with their customers which is charged with network administration as well as customer service. The two corporations enjoy the autonomy while each set prices for the products offered. Global One alliance was formed with an objective of ensuring the best services for telecommunications are provided globally. It is an alliance between three corporations; Telekom from Deutsche, Sprint, and Telecom from France (Charlie, 2007, pp.66-72). The objectives of the alliance was provision of all the services as may be deemed appropriate by the global venture board, which is the main point of reference for all the affiliates. Other alliances in the telecommunication industry that have been formed in the global context include; world partners, the federation of cable and wire communications as well as Uniworld, which targeting the multinationals within Europe. Transnational corporations carry along with them several advantages to the host countries. These include; The governments of host countries collect a considerable amount of taxes from the transnational corporations, adding up to their total tax collection. Transnational corporations assist in poverty eradication through provision of employment opportunities for the natives. This assists in the improvement of the standards of living, as well as the host countries’ Gross Domestic Product. With the corporations introducing new skills in to the labor market of the host country, they contribute towards improving the skills of the local industry, and this consequently improves local production. In this context, local industries are challenged to produce quality products. Local resources within the host country are utilized to the desirable levels. Many host countries may poises the raw materials, but lack the capacity to convert them in to usable products. This utility is achieved through the initiative of the corporations extracting them and producing products that are useful to the natives at minimal costs since the cost of transportation of the raw materials as well as the finished goods is low. They also have disadvantages that they bring to the host country. These include; There is normally the tendency for over utilization of the available natural resources, since the transnational corporations aim at making maximum profits from their venture. With many of the branches of the transnational corporation depending on so many external factors such as political stability of the host country, there is a possibility of the parent company collapsing resulting in mass unemployment if the subsidiaries are closed in the host countries. Conclusion Transnational corporations are significant in globalization of the market structures. They are usually beneficial to the host countries in terms of economic development through provision of employment to the citizens. Governments should embrace their establishment due to the benefits derived, although there are minimal disadvantages. Formation of alliances is important in order for multinational companies to improve on products and services delivery. Corporations that form alliances hardly fail in their endeavors to form a successful network globally, and are able to counter any competition that may face one of the affiliate corporations in its area of jurisdiction. Bibliography 1. Charlie S. 2007. the Rise of Multinational Companies: an Overview of Development, 2nd edition, London: Century Business 2. Griffiths, A and Wall,S. 2007. Applied Economics, Eleventh Edition, Pearson Education, Harlow. 3. Held, D and Mcgrew, 2000. The Global Transformation Reader, 1st edition, Polity Press. 4. Hill, C. W. 2008. Global Business Today, Part One Mcgraw Hill, New York Overview of Development, 2nd edition, London: Century Business 5. Howard P. 1969. Advances in Telecommunication: Effective Service Delivery. Journal on Communication. vol. 5, no. 3, September, pp. 36-78 6. Sloman, J, Sutcliffe, M, 2004. Economics for Business, Pearson Education, Harlow. 7. Raymond J. M. 1999, U.S. Multinational Companies and Operations, viewed on 28 Feb. 2009 at Read More