Multinational Corporations Essay

Multi issue companionships confirm existed since the generator of oersea trade in. They take remained a scatter of the business scene passim history, go ining their advanced form in the 17th and 18th centuries with the creation of erect, European-based monopolistic strikes much(prenominal) as the British east India Comp some(prenominal) during the age of colonization. transnational concerns were viewed at that time as agents of civilization and play a pivotal role in the mercantile and industrial development of Asia, southeastward America, and Africa.By the end of the 19th century, advances in communications had more closely coupled domain grocery store egresss, and outside(a) corporations retained their thoroughly-off image as instruments of im turn up orbicular dealings through commercial ties. The cosmea of close world(prenominal) trading coituss did non pr take downt the outbreak of devil world wars in the first half(a) of the twentieth century, besides when an take down more closely bound world frugality emerged in the aftermath of the period of conflict. In more recent times, international corporations sop up grown in advocator and visibility, but make up come to be viewed more ambivalently by both governings and consumers worldwide.Indeed, transnationals today be viewed with increase suspicion attached their comprehend lack of concern for the scotch benefit of particular geographic regions and the public postage that multinationals atomic number 18 gaining force out in relation to national government agencies, international trade federations and organizations, and local, national, and international industry organizations. Despite such concerns, multinational corporations appear poised to expatiate their power and influence as barriers to international trade watch to be removed.Furthermore, the effective nature and methods of multinationals be in large measure misunders tood by the public, and thei r semipermanent influence is compar ablely to be slight sinister than imagined. international corporations sh ar galore(postnominal) common traits, including the methods they use to pe sack uprate advanced securities industrys, the manner in which their abroad subsidiaries argon tied to their headquarters trading trading trading trading trading operations, and their interaction with national governmental agencies and national and international churn organizations. WHAT IS A MULTINATIONAL CORPORATION? As the name implies, a multinational corporation is a business concern with operations in more than maven democracy.These operations outside the follows business firm country may be associate to the pargonnt by merger, conkd as subsidiaries, or meet considerable autonomy. transnational corporations argon sometimes perceived as large, useful enterprises with little or no deliberate for the social and economic well-organism of the countries in which they operate, bu t the reality of their situation is more complicated. There ar over 40,000 multinational corporations currently operating in the globular economy, in addition to approximately 250,000 overseas affiliates conducening cross-continental businesses.In 1995, the outperform cc multinational corporations had combined sales of $7. 1 trillion, which is equivalent to 28. 3 percent of the worlds gross internalated increase. The top multinational corporations argon headquartered in the linked States, Western Europe, and Japan they have the capacitance to shape world-wide trade, intersection, and financial transactions. Multinational corporations be viewed by many as favoring their nucleotide operations when making grueling economic decisions, but this tendency is declining as companies be forced to respond to change magnitude global contention.The creative activity Trade ecesis (WTO), the International M integritytary Fund (IMF), and the universe Bank are the three institutio ns that overlay the basic rules and regulations of economic, monetary, and trade relations among countries. many an early(a)(prenominal)(prenominal) development nations have disentangled trade rules under pressure from the IMF and the public Bank. The domestic financial markets in these countries have not been developed and do not have appropriate laws in go forth to enable domestic financial institutions to contribute up to exotic competition.The administrative setup, legal systems, and law-enforcing agencies generally cannot guarantee the social tick and political stability that are incumbent in order to support a ontogeny-friendly atmosphere. As a result, most multinational corporations are investing in accredited geographic locations only. In the 1990s, most unlike investment was in high-income countries and a hardly a(prenominal) geographic locations in the South like einsteinium Asia and Latin America. According to the World Banks 2002 World ripening Indicato rs, there are 63 countries considered to be low-income countries.The share of these low-income countries in which immaterial countries are making direct investments is real baseborn it rose from 0. 5 percent 1990 to only 1. 6 percent in 2000. Although foreign direct investment in underdeveloped countries rose considerably in the 1990s, not all exploitation countries benefited from these investments. Most of the foreign direct investment went to a very small number of lower and velocity middle income developing countries in East Asia and Latin America. In these countries, the rate of economic growth is increasing and the number of volume living at poverty direct is falling.However, there are still close to 140 developing countries that are show very slow growth order while the 24 richest, developed countries (plus other 10 to 12 impertinently industrialize countries) are benefiting from most of the economic growth and prosperity. Therefore, many people in the developing countries are still living in poverty. Similarly, multinational corporations are viewed as being exploitative of both their workers and the local environment, attached up their relative lack of association with any given locality.This criticism of multinationals is valid to a point, but it must be remembered that no corporation can successfully operate without regard to local social, toil, and environmental standards, and that multinationals in large measure do align to local standards in these regards. Multinational corporations are also seen as acquiring too much political and economic power in the modern business environment. Indeed, corporations are able to influence public polity to some degree by laborious to move jobs overseas, but companies are a good deal prevented from employing this tactic given the need for exceedingly trained workers to produce many products.such(prenominal) workers can seldom be erect in low-wage countries. Furthermore, once they enter a mark et, multinationals are bound by the same constraints as domestically owned concerns, and unwrap it difficult to abandon the infrastructure they produced to enter the market in the first place. The modern multinational corporation is not needfully headquartered in a wealthy nation. Many countries that were recently classified as part of the developing world, including Brazil, Taiwan, Kuwait, and Venezuela, are now home to large multinational concerns. The days of embodied colonization seem to be nearing an end.Multinational corporations follow three general procedures when seek to admission bran- hot markets merger with or direct acquisition of active concerns in series(p) market foundation and conjunction ventures. phraseure or direct acquisition of existing companies in a modern market is the most straightforward method of refreshed market penetration employed by multinational corporations. Such an entry, cognize as foreign direct investment, allows multinationals, e specially the bigger ones, to take full advantage of their surface and the economies of scale that this provides.The rash of mergers within the global automotive industries during the late 1990s are illustrative of this method of gaining access to new markets and, significantly, were made in response to increased global competition. Multinational corporations also knead use of a procedure known as sequential market entry when seeking to penetrate a new market. Sequential market entry frequently also embarrasss foreign direct investment, and involves the shaping or acquisition of concerns operating in niche markets related to the conjure federations product lines in the new country of operation.Japans Sony grass made use of sequential market entry in the unify States, beginning with the establishment of a small idiot box assembly plant in San Diego, California, in 1972. For the next two years, Sonys U. S. operations remained confined to the manufacture of televisions, the p arent friendships leading product line. Sony fork-like out in 1974 with the creation of a magnetic tape plant in Dothan, Alabama, and expanded hike up by outset an audio equipment plant in Delano, Pennsylvania, in 1977.After a period of integration brought on by an un well-off alternate rate between the yen and dollar, Sony continue to expand and diversify its U. S. operations, adding facilities for the production of computing machine displays and data storage systems during the 1980s. In the 1990s, Sony further diversified it U. S. facilities and now also produces semiconductors and ad hominem telecommunications products in the United States. Sonys utilization is a classic case of a multinational using its core product line to defeat indigenous competition and lay the foundation for the sequential expansion of incarnate activities into related areas.Finally, multinational corporations much access new markets by creating joint ventures with firms already operating in the se markets. This has particularly been the case in countries actorly or presently under communist rule, including those of the former Soviet uniting, eastern Europe, and the Peoples Republic of China. In such joint ventures, the venture partner in the market to be entered retains considerable or even complete autonomy, while realizing the advantages of technology dispatch and management and production expertise from the parent concern.The establishment of joint ventures has often proved awkward in the long run for multinational corporations, which are likely to engender their venture partners are formidable competitors when a more direct penetration of the new market is attempted. Multinational corporations are and so able to penetrate new markets in a variety of ways, which allow existing concerns in the market to be accessed a varying degree of autonomy and authorization over operations.While no one doubts the economic success and pervasiveness of multinational corporations , their motives and actions have been called into question by social benefit, environmental protection, and labor organizations and government agencies worldwide. National and international labor unions have expressed concern that multinational corporations in economically developed countries can avoid labor negotiations by simply moving their jobs to developing countries where labor costs are markedly less(prenominal). compass organizations in developing countries face the talk close to of the same problem, as they are ordinarily obliged to negotiate with the national hyponym of the multinational corporation in their country, which is usually departing to negotiate contract hurt only on the basis of domestic wage standards, which may be well below those in the parent companys country. Offshore outsourcing, or offshoring, is a term used to draw off the rule of using flash foreign labor to manufacture goods or provide work only to apportion them back into the domestic ma rketplace.Today, many Americans are interested about the issue of whether American multinational companies will continue to export jobs to cheap overseas labor markets. In the fall of 2003, the University of California-Berkeley showed that as many as 14 jillion American jobs were potentially at risk of exposure over the next decade. In 2004, the United States faced a half-trillion-dollar trade deficit, with a surplus in services. Opponents of offshoring claim that it takes jobs away(p) from Americans, while also increasing the instability of trade.When foreign companies set up operations in America, they usually sell the products fabricate in the U. S. to American consumers. However, when U. S. companies outsource jobs to cheap overseas labor markets, they usually sell the goods they produce to Americans, rather than to the consumers in the country in which they are made. In 2004, the states of Illinois and Tennessee passed edict aimed at limiting offshoring in 2005, another 1 6 states considered bills that would limit state avail and tax breaks to firms that outsource abroad.Insourcing, on the other hand, is a term used to describe the practice of foreign companies employing U. S. workers. Foreign automakers are among the largest insourcers. Many non-U. S. auto manufacturers have construct plants in the United States, thus ensuring access to American consumers. Auto manufacturers such as Toyota now make approximately one third of its profits from U. S. car sales. loving welfare organizations are similarly touch on about the actions of multinationals, which are presumably less interested in social matters in countries in which they maintain subsidiary operations.environmental protection agencies are equally concerned about the activities of multinationals, which often maintain environmentally hazardous operations in countries with stripped-down environmental protection statutes. Finally, government agencies revere the growing power of multinationals , which once once more can use the threat of removing their operations from a country to secure favorable regulation and legislation. All of these concerns are valid, and abuses have undoubtedly occurred, but many forces are also at work to bread and butter multinational corporations from wielding unlimited power over even their own operations.Increased consumer cognizance of environmental and social issues and the impact of commercial activity on social welfare and environmental quality have greatly influenced the actions of all corporations in recent years, and this curve shows every sign of continuing. Multinational corporations are constrained from moving their operations into areas with besides low labor costs given the relative lack of skilled laborers ready(prenominal) for work in such areas.Furthermore, the sensitiveness of the modern consumer to the plight of individuals in countries with restrictive governments mitigates the removal of multinational business operati ons to areas where legal protection of workers is minimal. Examples of consumer reaction to less-traveled action by multinationals are plentiful, and include the outcry against the use of sweatshop labor by Nike and activism against operations by the Shell cover Company in Nigeria and PepsiCo in Myanmar (formerly Burma) delinquent to the repressive nature of the governments in those countries.Multinational corporations are also constrained by consumer attitudes in environmental matters. Environmental disasters such as those which occurred in Bhopal, India (the explosion of an grave chemical plant operated by Union Carbide, resulting in great loss of living in surrounding areas) and Prince William Sound, Alaska (the rupture of a single-hulled tanker, the Exxon Valdez, causing an environmental catastrophe) led to regular bad publicity for the corporations involved and continue to serve as a monitor lizard of the long-term cost in consumer plaudit of ignoring environmental, lab or, and safety concerns.Similarly, consumer awareness of global issues lessens the power of multinational corporations in their dealings with government agencies. International conventions of governments are also able to regulate the activities of multinational corporations without fear of economic reprisal, with examples including the 1987 Montreal Protocol limiting global production and use of chlorofluorocarbons and the 1989 Basel Convention regulating the interference of and trade in chemical wastes.In fact, despite worries over the impact of multinational corporations in environmentally sensitive and economically developing areas, the corporate social surgery of multinationals has been surprisingly favorable to date. The activities of multinational corporations encourage technology transfer from the developed to the developing world, and the wages paid to multinational employees in developing countries are generally preceding(prenominal) the national average.When the actions of multinationals do cause a loss of jobs in a given country, it is often the case that another multinational will move into the resulting vacuum, with little net loss of jobs in the long run. Subsidiaries of multinationals are also likely to adhere to the corporate standard of environmental protection even if this is more stringent than the regulations in place in their country of operation, and so in most cases create less contamination than similar indigenous industries.