Necessity of Multinational Businesses and its Influences - Term Paper Example

?Multinational Business Table of Contents Introduction 3 2.Drivers Forces of Globalisation Process 4 3.Necessity of Multinational Businesses and its Influences 6 4.Challenges and Opportunities to Multinational Businesses led by Globalisation 8 4.1.Opportunities: 8 4.2.Challenges 9 5.Conclusion 10 Reference 12 1. Introduction The term, globalisation is very broad that cover a wide aspects of human activities as it has influence the major human activities and their thought process. Globalisation has played an instrumental role in the establishment of the prevailing post modern world. The globalization factor has influenced people’s cultural, social, lifestyles, knowledge etc. However, in this process, the most important outcome of globalisation process is the emergence of multinational business. The multinational business has made major contributions in the economic growth and developments as it helps in increasing employment, industrial production, better government control, higher GDP, national income etc. Having realised the growth importance of multinational business, the most developed and developing countries are following free trade policies to encourage multinational business. The recent developments in the field of international trade are primarily led by deregulation of the business in the global platform. The multinational business are very helpful in increasing flow of capital, exchanges of resources like labour force, raw material, technology etc and it also offer a number of opportunities to the multinational corporation along with hosting country. It brings the competition in the market by making the specific market matured and efficient. In this regard, Hope and Maeleng have described the trade policy as “competition-enhancing device” as the host countries’ market receive a number of new players making the market highly competitive for the existing domestic companies (Hope and Maeleng, 1998, p.52). The organisations are trying to expand their market in the overseas boundaries to grab market opportunities. However, in this process of internationalisation there are a number of challenges which have been driven by multiple factors. This paper will attempt to main drivers of multinational business led by globalisation process and major opportunities and challenges in this regard. 2. Drivers Forces of Globalisation Process Globalization has been a very debatable but an interesting area of the Economics as it includes all the necessary aspects of growth and development. In fact, the process of globalisation includes combines economics, international relation, sociology and management. All these areas are very significant for economic development and globalisation have playing a crucial role in this regard. As globalisation covers wide aspects, many scholars have tried to define globalisation as per their perspectives. Rhodes (1996) stressed on economic and financial “the functional integration of national economies within the circuits of industrial and financial capital” (Ali, 2000, p.5). On the other hand, Mobley and Weldon have given a much broader definition of the globalisation as they defined that is refers to any force that creates an unexpected, uniform, sometimes disruptive condition across heretofore impermeable boundaries within which the relevant conditions were previously varied” (Mobley and Weldon, 2006, p.146). The process of globalisation has been very gradual and there are a number of driving forces behind this process. Globalisation can also be viewed from the multidisciplinary aspects which includes a philosophy, a phenomenon and a process and these three multidisciplinary aspects have influences the human being profoundly. In this regard, the driving forces have led to turn the phenomenon as a process and philosophy. There are four major driving forces of the globalisation process that includes trade, finance, technology, communication and transport. The role of each driving forces are explained below in the process of globalisation. Trade: history trade and is old and it started since the age of barter system which is can also termed as the advent of economic activities. However, in today’s world, the importance of trade for economic development is indispensible. In the next, the importance of international trade will be discussed in detail. The increasing frequencies of international trade due to multilateral liberalisation of trade which was mainly led by the World Trade Organisation (WTO) have offered better exposure of international relation and exchange of factors like culture, resources, thoughts etc. Finance: As soon as the multilateral liberalisation became the prominent phenomena, the develop countries started to offer necessary required capital for the growth and purposes. However, the develop countries also gained a number of advantages by investing those developing nations for example cheap resources. Technology: increasing international trade and financial activities due to multilateral liberalisation has also given rise to technological advancements. The developed countries used their technological advancements for the expansion their business. Technology has always been playing a very crucial role in developing trade and business which is the prime driver of globalisation. Communication: communication development is also part of technological advancement but it holds a very special attention in the globalisation process. The communication has led to narrow the gap between two nations. The Internet-based satellite communication is brought the revolution in globalisation process. Transport: Like communicational development, transportation also made vital contributions in the process of globalisation. Expansion of international market and international trade activities necessitate the frequent use of transport. It has made the better link with countries and better transportation infrastructure also leads to attract multinational corporations (UNESCAP, p.5-7). 3. Necessity of Multinational Businesses and its Influences With the emergence of post modern world, people have realized the importance of the economic stability of the growth and development an economy. Hence, the economic decision makers are trying to implement effective policies and strategies that strive to stabilized the economic growth. On the other hand, the fact is that no economies are self-dependent for achieving growth and development as each of them lack certain necessary resources which are indispensible for the economic development. In this respect, economics plays a crucial role in as it helps in removing the barriers of economic development. The prime concern of Economics is in making the efficient and proper allocation of resources. This allocation of the resources in the international level is done by the means to practising the international trade and business which benefits entire population of the world by increasing productivity, production efficiency and by availing the low cost products. In case of developing national importance of multinational business are more essential as these developing nations receive compulsory factors for the economic. Therefore, it can be interpreted that multinational business is a major means of getting financial aid for the growth of the economy. The developed countries like USA, Japan, Germany, Australia etc are trying to expand their business in the developing countries like India, China, Taiwan etc as there are significant amount of business opportunities in these countries due to higher availability of unexploited market (Seyoum, 2000, p.7-9). While discussion in the inevitability of the multinational business for the economic development, it is quite necessary to discuss the foreign direct investment (FDI). FDI is the most important tool in the multinational trade led by the globalisation process. Since last two decades the frequency of FDI flows in the global economies has increased significantly. The multinational organisations are trying to investment in diversified arena in terms of different sectors as well in different nations that has created a greater international economic integration (Mody, 2004, p.2).United Nations Conference on Trade and Development (UNCTAD) has monitored the trend of global investment that has revealed that FDI inflows are higher in developing and transition economies that the developed economies. This fact has been presented graphically. Figure 1: FDI Inflows, Global and by Group of Economies, 1995-2010 (Billions of dollars) (Source: UNCTAD, 2011, p.1) 4. Challenges and Opportunities to Multinational Businesses led by Globalisation The previous section has described the necessity of multinational business in the growth and development of the world economies including the developed and developing nations. Therefore, most of the countries are trying to encourage the FDIs by enforcing the free trade policies. Due to growth of multinational business the opportunities are enjoyed by both the host counties and multinational corporations. On the hand, in spite of inevitability of multinational business, there are also certain challenges that prevent international trade and business. Therefore, globalisation has also brought certain opportunities as well as certain challenges to multinational business which has been discussion below. 4.1. Opportunities: The globalisation has presented a number of opportunities to the multinational businesses. Multinational business requires a number of factors in order to emerge. One of the basic requirements of multinational business is the deregulation of the trade market. It already has been described that globalisation also include the sociology and international relation, and hence the economies have taken necessary steps to enforce the free trade policies that boost up the multinational trade. Secondly, globalisation has also led to changes the thought process of people and they started to become familiar with global business environment which has also contributed towards the growth of international business. The exchange of cultural and lifestyles have given a new shape to the global business world. For example, the US fast companies are doing profitable business in the Chinese market as the Chinese people have started liking the taste of US fast food which has given new opportunities to multinational business. Purchasing power of the host country is the prior consideration for many multinational organisations in the process of market expansion. Globalisation has also bring major economic development in the under developed countries by means of financial aid and thus the markets of those under developed countries become more potential in terms of international expansion. Moreover, with the help of technological advancement, it becomes very easier to access the worldwide information that plays a key role in business processes. However the most significant opportunity of globalisation is the international relations that have given a new rise to international cooperation and co-ordination paving the way for the future growth advancements. 4.2. Challenges The process of globalisation has brought multiple risks and challenges along with the development. With this development, many complexities and complications have raised in the process of the human activities. The multination businesses are also facing the same consequences due to globalisation process. Many critics have claimed that the process of globalisation is quite controversial. The primary claim of the globalisation process in to bring the development in the world economy by the means of encouraging capital regimes, open trade, FDIs etc. However, the some historical evidences are against this claim. During 1970s, the financial liberalisation became regular phenomena for growth economic growth but results during 1980s and 1990s showed that the growth rate of world GDP declined. This is a critical augment against the globalisation process and the reason for declining world GDP growth rate was “less wiliness to undertake long-term investment” (Mrak, 2000, p.18). Globalisation process also is also criticised as it led to create certain risks for multination businesses. After the globalisation process, the international business environment has become very competitive that hurts profitability of industries. On the other hand, multinational business is also often being criticised for due to dumping activities and due to exploitation of domestic market. Hence, many countries followed very stricter trade policies. For example, China is often blamed for its unconventional free trade policies (Jinwen, 2010). Frequency of industrialisation after the financial liberalisation led by globalisation has increased in different parts of the world. In this process, the environment has been affected negatively. Lechner and Boli have claimed that “global warming and environmental degradation are inevitable by-products of economic development” which is led by globalisation process (Lechner and Boli, 2004, p.212). 5. Conclusion Globalisation has always been an interesting area of study covering a broad aspect of modern society. It is the prime driver of the world development which has influences human activities as well as their thought process. Emerging multinational business led by globalisation process has brought the major economic development to the world economy. This paper has presented important aspects of globalisation and multination business and it includes three major sections. First section has indentified and discussed five major drivers of globalisation including trade, finance, technology, communication and transportation. Second section has focused necessity of multination business and its influences. Multinational business led by globalisation are indispensible the development and it leads to encourage the flow of FDI, exchange of technology, higher GDP, employment, national income etc. In case of developing nations, multinational businesses are more necessary for economic stability. Third section has presented explain the challenges and opportunities that globalisation presents to multinational businesses. The major opportunities to multination business offered by globalisation are market exposure, international relation, new business opportunities etc. On the other hand, globalisation is also criticised for its controversial aspects like market exploitation, global warming, intensified competition etc. Reference Ali, A. (2000). Globalization of business: practice and theory. Routledge. Hope, E. and Maeleng, P. (1998). Competition and trade policies: coherence or conflict. Routledge. Jinwen, Y. (June 02 2010). WTO criticism of China's export restraints 'picky'. [Online]. Available at: http://business.globaltimes.cn/china-economy/2010-06/537623.html. [Accessed on July 14, 2011]. Lechner, F. J. and Boli, J. (2004). The globalization reader. 2nd ed. Wiley-Blackwell. Mobley, W. H. and Weldon, E. (2006). Advances in Global Leadership, Volume 4. Emerald Group Publishing. Mody, A. (January 14, 2004). Is FDI Integrating the World Economy? [Pdf]. 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