Multinational Corporations and Their Consequences for the International Economy - Research Paper Example

Topic: Multinational Corporations and Their Consequences for the International Economy Economic liberalization, as expressed through open market, transformed the global community into one village. It bolstered the entry of the open information and open trade where commodities and services are exchanged via multinational corporations. Throughout history, this open economy intensified the political, social, cultural and economic relations which somehow reverted the world into transcendental homogenization where major global economic traders work. This research will explore about the lives of multinational corporations and its consequences in the international economy. Multinational Corporations A Multinational Corporation (MNC) is an enterprise engages in Foreign Direct Investment (FDI) which possesses or built facilities, operates and controls value-added undertakings in many countries. A firm is considered an MNC when 25% of its production and services output came from external through trading and services as well as infuse capital, technology, and managerial expertise to undertake production in foreign countries (Spero & Hart, 1997). Economists posit that a company is considered multinational when it has nurtured a number of affiliates or has subsidiaries in other countries; operate in an array of services and operations globally; gather high rate or percentile of assets, revenues, or profits; its human capital, stockholders, and administrators composed of varied nationalities, and their offshore operations are extensive, ambitious, and inclusive of manufacturing, research and developments (Spero et.al.1997, p 117). Often, the subsidiary company got financial and supervisory support from its parent company or may undertake joint venture in the operations. The financial transfer is called by economists as Foreign Direct Investment (FDI) which is aimed at controlling some offshore assets and when it invests capital to a subsidiary in other nation by purchasing an enterprise or by feeding capital to commence a new operation (Spero et.al.1997). Sometimes, MNCs does portfolio investment by buying stock or bonds from a national corporation (Spero et.al.1997). Many MNCs are engaged in extractive industries, manufacturing of technology, banking and finance, and the like, but in its corporate management, they are distinct in their technological capacity, corporate structure and the nature of products and services they introduced to the market (Spero et.al.,1997). Their characteristics illustrate that their profit sometimes is more that the gross domestic product (GDP) in almost 170 nations (Spero et.al.1987, p. 119) because they operate within oligopolistic market and with such leverage, dominance, financial capability, control and distinction of product or services. Sometimes, those MNCs engaged in multinational undertake production through joint ventures to permeate alliances with domestic corporations and to lessen problems on capital and operational investments, although decision-makings is in an interplay of centralism and decentralism, depending on how problems and challenges affect them (Gilpin, 1987). This system is otherwise called as classic semi-independent foreign operations which integrate international operations in a separate international division within the whole company. Often, MNC opt decentralization when decisions are to be categorically made at the local level while those that which involved crucial offshore undertaking remained a significant matter to be dealt by parent company (Gilpin, 1987).. These issues would often cover matters pertaining to determination of sites where facilities are constructed, markets where products be distributed, location for research and development, strategic planning, and amount of capital to be invested [Spero et.al., 1997, p. 121). MNCs likewise integrate the production and marketing at an international scale, although the former may undergo varied stages in distinct countries and the distribution would still be marketed in desired countries. These companies are mobile and flexible but also prefer regions where raw materials are available, cheap skilled labor forces are abundant, and where there is evident commitment to pull sufficient capital commitment. They shift areas of operations, crossing boundaries, in the name of profits, markets, security, or survival (Gilpin, 1987). In most cases, these MNCs may run in conflict with the states noting that its geographical operations cross borders and can create political problems in host countries because maybe some corporate operational policies run inconsistent with regulatory policies and jurisdictional issues (Spero et.al., 1997 pp. 121-122). It’s also noteworthy that MNCs are oligopolistic organization that is operating in rapidly changing market. With its nature, MNCs contend FDI is part of the system to increasing their production and contribution to growth. FDI permit the transfer of capital, technology, knowledge, and maximize domestic resources, thus, it’s forecasted that it can increase MNC’s production which they perceived as amongst the requisite to gain growth (Spero et.al., 1997). FDI facilitate trade commodities and services by consenting corporations to be recompensed as remedy to market imperfections while under trading relations. It increases the capital and resources for firms who are acculturating FDI as part of the adopted investment utilization and system. It also indirectly generates positive external economies that gain revenue and other associated benefits from MNCs and other stakeholders directly affianced with FDI (Spero et.al., 1997 p.132). Experts argued that MNCs became increasingly significant since they are oligopolistic competitors in the market. They have become integrated into the global strategies and have gained heightened dominance in the international economy. Such domination became essential in the economies of scale and monopoly of control (Spero et.al., 1997). Through trade and production strategies, MNCs expand its leverage with liberalized globalization through bilateral or multilateral trade negotiations. This environment is further bolstered by sophistication brought by improved technology-based communication system, hence, economic expansion is more possible with cost-efficient operation (Spero et.al., 1997). MNCs have also gained such reputation of being adherent to models, systems, innovative management and organization. Thus, MNCs have made their structure characteristically integrated and flexible with human capitals that are imbued with academic and experiential expertise. It’s in this context that governments welcome and encourage multinationals’ expansion to generate investments and mobilize capitals. Some advanced governments, like United States of America, actively encourage multinational development. Economists theorized that market expansion, as part of the internationalization theory, support cost-efficient operation and that the possible disadvantages are offset by the advantages that could be fostered from optimized transactions done by subsidiaries (Spero et.al., 1997). On the other hand, product cycle theory explicated the MNCs has the tendency to FDI than export operations. Such meant that developing subsidiaries is preferred to optimize its competitiveness and cost while accessing other markets. Obsolescing bargain theory, moreover, contends that MNC’s advantage in possessing capital and proficiency would encourage more bargaining influence (Spero & Hart, 2002). Oligopoly Theory of FDI likewise contend that MNCs opted to invest offshore to take advantage of the power to monopolize the market in the distribution of products, expertise, technology, administrative skills, and access to resource and capital. This is essential in corporate overall competitive strategy to seize opportunities to exploit new foreign market (Spero et.al., p. 130). Meanwhile, the Tariff-Jumping Hypothesis explicate that FDI encourage MNCs to leap over existing tariff or nontariff barriers in host countries (Spero et.al., 2000). MNCs Consequences in International Market MNCs both provide opportunities and disadvantages. On the advantageous side, MNCs create opportunities, raise revenue, provide employment, encourage construction of facilities, and helped the market to become more rigorous (Spero et.al. 2000). In the exercise of corporate social responsibility, MNCs were able to provide scholarship, supports social activities, fund programs, and offer perks and incentives for its loyal customers and human capitals. From that light, it could be inferred that vibrant market, capital are mobilized which help nurture intrafirm trading as well as provide decent lifestyle to its workers to fill their expectations. If their corporate reports are solely appraised, it can be inferred that sustainable development is indeed cultivated based on some models they adhered to and the investment of capital sounds like wealth of opportunity. However, in another context, the MNCs’ intensification of economic, political, and cultural relations across international boundaries for transcendental market homogenization, has also produced accumulated crises with the increasing division of labor brought by industrialization; impelled distribution of economic and political opportunities and power; consequential imbalance of global capital; decline of communal lifestyle in agricultural economy; and the abrupt changes of global political’s physiology (Spero et.al. 2000; Griswold, Silvinski, & Prebe, 2006). It also encouraged the migration of people from rural communities to urban areas to respond to low-wage menial opportunities, thus, among its result is the departure of natural farmers from their agricultural life toward an existentialist modern lifestyle in the industrial centers (Griswold, et.al, 2006). As observed, liberalized economy provide the impetus of capitalism expansion (MacEwan, 1990) which led to the emergence and ascension of economic system that are basically structured to favor the interests of western countries and the unfortunate collapse of Eastern Europe’s economy in the 90s. Recently, China has likewise restructured its non-capitalist economy dramatically and patterned its international economic policy orientation that welcome foreign direct investments, more than that of developing nations (Griswold, et.al, 2006). Other that the focus on capital inflows and trade investment, it is also important to note that open economy has been considered as a doorway of disastrous consequences among governments of emerging regions. Gilpin (1987) pointed that most regions in Africa, Asia, the Middle East, and Latin America remained dependent economically and technologically and albeit dominance of MNCs in its economy, they still rely on export commodities and raw materials in exchange for manufactured goods that are controlled by other MNCs of developed countries. Instead of developing its own economic potentials, emerging economy countries became reliant to advanced economies for opportunities, food, capital, and technology. For them, liberalization of economy simply perpetuated underdevelopment and rests the accountability of such frustrating situation to offshore advanced world economy and to MNC capitalists (Spero, et.al. 2000; Gilpin, 1987). Economic theorists, who contended from the light of structuralist theory, that liberal economy and dominance of MNCs in the utilization and maximization of resources and capital actually increase social inequities amongst advanced and emerging markets. While liberalization advocate that trading and introduction of MNCs result to growth in contemporary economy, the structuralists on the other hand argue that it cannot sustain its economic role because of free trade’s dichotomized impact and effects to the socio-economic and demographic structures evident in emerging economies (Spero, et.al. 2000; Gilpin, 1987). Developing countries’ condition is characterized by overpopulation, agricultural character, incapacity to accumulate capital, over reliance to unstable commodity exports, and non-transparent and elitism within its governmental structures. This nurtured the quagmire which traps emerging countries at the state of underdevelopment and the malady of imbalanced equilibrium of domestic economy that will force them foreign capital-dependent (Spero, et.al. 2000; Gilpin, 1987). As MNCS thrive in emerging economy without barrier, the integration and linkaging of national economies free from protectionist policies open the national resources for exploitation and the wanton use of ecology which is unfortunately not quite monitored or is quite vulnerable to corrupt practices, such as, bribery or (Gilpin, 1987). The worst sides of these MNCs pursuits are featured with conflicting politics and interests that could often magnify in full-blown war, such as that case of oil industry and other extractive industries. Moreover, as infusion of capital often came along with some conditions, the host country is compelled to follow stringent policies and demands. As evident by experiences, host countries are forced to adapt to principles of liberalization, commercialization, privatization and property-based democratization (Madunagu, 1999; Biersteker, 1998). This paves the way for privatization of assets too, and what used to be state lands, could be developed for MNCs at the dislocation of native nationals. They became marginalized or are uprooted from their very native lands and such unfortunately would affect their indigenous and traditional way of living (Madunagu, 1999; Biersteker, 1998). Thus, it can be inferred that market openness has serious implications to economic and political landscape of host countries as policies will also transform their very lives: for good or for alienation. With foreign domination, became difficult for them to identify the distinct character of national economy with independent or autonomous decision-making power in the quest of national goals, especially on conflicting matters that relate to utilization of resources versus food security (Madunagu, 1999; Biersteker, 1998). This became conflicting as extractive industries also affect agricultural lands and ecological landscapes. Moreover, while it’s true that MNCs enhance the volume of international trade and investment, but it’s still susceptible of financial meltdown since capital is susceptible to market’s condition and inflation rates (Cerry, 1994). There are also a number of constituents from advanced countries who became irate about the constant outflow of their national financial capital to other countries at the expense their country’s increasing problems on welfare issues and unemployment rates (Cerry, 1994). Many of them occupy the parliaments to demand from their governments to stop infusing capital, taken form their national revenue, for warfare and other interventions to other countries’ domestic affair (Cerry, 1994). This is affirmed with growing movements of people asking the banking sectors to utilize its resources for its own nationals instead of pushing for resourced-based wars and further injecting capital to other countries as political machination of interventions. It must be viewed and realized that while United States and Europe experienced unbearable rates of unemployment, the strategic and systematized governance of Soviet Union accumulate capital to accord full employment to its citizens (Cerry, 1994). Others also looked at MNCs as expression of neo-imperialism—another face of control from immutable foreign government, just like how African view it as a method of exploiting their resources which result to the disintegration of their economy, albeit the strong interest shown by capitalists to invest in their region (Cerry, 1994). Conclusion Open economy is the pathway of MNCs entry in emerging economies. From varied vantage, MNCs are viewed as essential to development and growth, although paradigmatically, it’s also frown as contributory to inequities of emerging and developed countries. How MNCs will be able to humanize its operations that will make them more relevant to emerging economies is a challenged that they must strategically address in a most rational, legal but culture sensitive approach. True, there maybe significant shifts in the world economy, but, the impact and effects must be seen objectively and critically in host countries. MNCs should review its policies and its processes too in interrelating with emerging countries to deliberately set out more acceptable mechanisms that would reform its system and guarantee other emerging market of more democratized, humanized, culture-sensitive, and enjoyment of genuine mutual economic benefits with host countries where they are operating (Tarzi, 1999). Other than imposing requisites to third world economies at their favor, its must also adhere to standards set as control mechanism in operations and for better social cohesion. REFERENCES J. E. Spero and J. A. Hart, The Politics of International Economic Relations.New York: St. Martins Press 1997. p 117- 267-268. Gilpin, Global Political Economy, Princeton, NJ: Princeton University Press, 1987p.288 Robert Gilpin, War and Change in World Politics, Cambridge, MA: Cambridge University Press, 1987, 164–165. Griswold, D., Silvinski, S., & Preble, C. Reasons to kill farm subsidies and trade barriers. 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