Multinational Corporations Essay Example for Free

Multi topic Corporations Essaytransnational societys shake up existed since the beginning of kayoedside(prenominal) trade. They have remained a part of the business scene throughout history, shiping their modern form in the 17th and 18th centuries with the creation of large, European-based monopolistic reverences much(prenominal) as the British East India Company during the get on of colonization. Multinational refers were viewed at that time as agents of civilization and played a pivotal role in the commercial and industrial development of Asia, South America, and Africa.By the end of the 19th century, advances in communications had more than(prenominal) than closely linked world markets, and transnational thrones retained their favorable image as instruments of improved world(prenominal) congenerics through commercial ties. The existence of close international trading relations did not foil the outbreak of two world wars in the first half of the twentieth cent ury, plainly an even more closely forswear world economy emerged in the aftermath of the period of conflict. In more young times, multinational corporations have grown in power and visibility, notwithstanding have come to be viewed more ambivalently by both g overnments and consumers worldwide.Indeed, multinationals today be viewed with increased suspicion inclined their perceived lack of concern for the economic well-being of particular geographic regions and the public impression that multinationals ar gaining power in relation to national establishment agencies, international trade federations and organizations, and local, national, and international constancy organizations. Despite such concerns, multinational corporations bug out poised to expand their power and influence as barriers to international trade continue to be removed.Furthermore, the factual genius and methods of multinationals be in large measure misunderstood by the public, and their long-term influe nce is probable to be less sinister than imagined. Multinational corporations sh atomic number 18 many common traits, including the methods they use to penetrate upstart markets, the manner in which their international subsidiaries are tied to their headquarters operations, and their interaction with national governmental agencies and national and international craunch organizations. WHAT IS A MULTINATIONAL CORPORATION? As the name implies, a multinational corporation is a business concern with operations in more than one country.These operations outside the companys fireside country may be linked to the rear by merger, operated as subsidiaries, or have colossal autonomy. Multinational corporations are sometimes perceived as large, utilitarian enterprises with little or no require for the social and economic well-being of the countries in which they operate, but the reality of their situation is more complicated. There are over 40,000 multinational corporations currently op erating in the global economy, in addition to approximately 250,000 overseas affiliates running cross-continental businesses.In 1995, the top 200 multinational corporations had combined sales of $7. 1 trillion, which is equivalent to 28. 3 percent of the worlds gross hearth(prenominal) intersection point. The top multinational corporations are headquartered in the United States, Western Europe, and japan they have the capacity to shape global trade, achievement, and financial transactions. Multinational corporations are viewed by many as favoring their home operations when making difficult economic decisions, but this tendency is declining as companies are obligate to respond to increasing global competition.The earth Trade Organization (WTO), the International Monetary Fund (IMF), and the World Bank are the terzetto institutions that underwrite the basic rules and regulations of economic, monetary, and trade relations between countries. Many development nations have loosene d trade rules under pressure from the IMF and the World Bank. The internal financial markets in these countries have not been developed and do not have appropriate laws in perplex to enable domestic financial institutions to stand up to foreign competition.The administrative setup, judicial systems, and law-enforcing agencies generally cannot guarantee the social match and political stability that are necessary in order to support a growth-friendly atmosphere. As a result, most multinational corporations are investing in certain geographic locations only when. In the 1990s, most foreign investment was in high-income countries and a few geographic locations in the South like East Asia and Latin America. According to the World Banks 2002 World Development Indicators, there are 63 countries considered to be low-income countries.The share of these low-income countries in which foreign countries are making direct investments is very small it rose from 0. 5 percent 1990 to only 1. 6 percent in 2000. Although foreign direct investment in growing countries rose easily in the 1990s, not all developing countries benefited from these investments. Most of the foreign direct investment went to a very small number of lower and upper middle income developing countries in East Asia and Latin America. In these countries, the rate of economic growth is increasing and the number of people living at poverty direct is falling.However, there are unagitated nearly 140 developing countries that are showing very vague growth rates while the 24 richest, developed countries (plus another 10 to 12 stark nakedly modify 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, given their relative lack of association with any given locality.This criticism of multin ationals is valid to a point, but it moldiness be remembered that no corporation can success profusey operate without regard to local social, labor, and environmental standards, and that multinationals in large measure do conform 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 policy to some degree by threatening to move jobs overseas, but companies are often prevented from employing this tactic given the need for highly trained workers to produce many harvests.such(prenominal) workers can seldom be found in low-wage countries. Furthermore, once they enter a market, multinationals are bound by the same constraints as domestically owned concerns, and find it difficult to abandon the infrastructure they produced to enter the market in the first place. The modern multinational corporation is not necessarily 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 collective colonization seem to be nearing an end.Multinational corporations follow three general procedures when seeking to access new markets merger with or direct acquisition of existing concerns incidental market introduction and joint ventures. Merger or direct acquisition of existing companies in a new market is the most straightforward method of new market penetration employed by multinational corporations. Such an entry, known as foreign direct investment, allows multinationals, especially the larger ones, to take full advantage of their size 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 respo nse to increased global competition. Multinational corporations also make use of a procedure known as sequential market entry when seeking to penetrate a new market. Sequential market entry often also includes foreign direct investment, and involves the establishment or acquisition of concerns operating in niche markets related to to the parent companys product lines in the new country of operation.Japans Sony Corporation made use of sequential market entry in the United States, beginning with the establishment of a small television 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 parent companys leading product line. Sony branched out in 1974 with the creation of a magnetic tape plant in Dothan, Alabama, and expanded further by opening an audio equipment plant in Delano, Pennsylvania, in 1977.After a period of consolidation brought on by an unfavorable exchange rate between the yen and dollar, Sony continued to expand and diversify its U. S. operations, adding facilities for the production of computer displays and data storage systems during the 1980s. In the 1990s, Sony further diversified it U. S. facilities and now also produces semiconductors and personal telecommunications products in the United States. Sonys example is a classic case of a multinational using its core product line to defeat native competition and lay the foundation for the sequential expansion of corporate activities into related areas.Finally, multinational corporations often access new markets by creating joint ventures with firms already operating in these markets. This has especially been the case in countries formerly or presently under communist rule, including those of the former Soviet Union, east Europe, and the Peoples Republic of China. In such joint ventures, the venture partner in the market to be entered retains ample or even complete autonomy, while realizing the ad vantages of technology transfer 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 possible to find their venture partners are formidable competitors when a more direct penetration of the new market is attempted. Multinational corporations are thus able to penetrate new markets in a categorisation of ways, which allow existing concerns in the market to be accessed a varying degree of autonomy and maneuver 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 welfare, environmental tax shelter, 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 sorrowful the ir jobs to developing countries where labor personifys are markedly less.Labor organizations in developing countries face the communion of the same problem, as they are usually obliged to negotiate with the national subsidiary of the multinational corporation in their country, which is usually willing to negotiate contract terms 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 describe the practice of using cheap foreign labor to manufacture goods or provide services only to sell them back into the domestic marketplace.Today, many Americans are bear on nearly 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 million American jobs were potentially at lay on the line over the next decade. In 2004, the United States face d a half-trillion-dollar trade deficit, with a surplus in services. Opponents of offshoring claim that it takes jobs away from Americans, while also increasing the imbalance of trade.When foreign companies set up operations in America, they usually sell the products manufactured in the U. S. to American consumers. However, when U. S. companies source 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 enactment aimed at alteration offshoring in 2005, another 16 states considered bills that would limit state aid 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 built plants in the United States, thus ensuring access to A merican consumers. car manufacturers such as Toyota now make approximately one third of its profits from U. S. car sales. kind welfare organizations are similarly concerned about the actions of multinationals, which are presumably less interested in social matters in countries in which they maintain subsidiary operations.Environmental fortress agencies are equally concerned about the activities of multinationals, which often maintain environmentally hazardous operations in countries with minimal environmental protection statutes. Finally, government agencies fear the growing power of multinationals, which once again 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 keep multinational corporations from wielding unlimited power over even their own operations.Increased consumer awareness of environmental and social is sues and the impact of commercial activity on social welfare and environmental quality have abundantly influenced the actions of all corporations in recent years, and this trend shows every sign of continuing. Multinational corporations are constrained from moving their operations into areas with excessively low labor costs given the relative lack of skilled laborers available for work in such areas.Furthermore, the sensibility of the modern consumer to the plight of individuals in countries with repressive governments mitigates the removal of multinational business operations to areas where legal protection of workers is minimal. Examples of consumer reaction to unpopular action by multinationals are plentiful, and include the outcry against the use of sweatshop labor by Nike and activism against operations by the Shell Oil Company in Nigeria and PepsiCo in Myanmar (formerly Burma) due to the repressive nature of the governments in those countries.Multinational corporations are a lso constrained by consumer attitudes in environmental matters. Environmental disasters such as those which occurred in Bhopal, India (the explosion of an unsafe chemical plant operated by Union Carbide, resulting in great loss of life in surrounding areas) and Prince William Sound, Alaska (the rupture of a single-hulled tanker, the Exxon Valdez, causing an environmental catastrophe) led to invariant bad publicity for the corporations involved and continue to serve as a reminder of the long-term cost in consumer approval of ignoring environmental, labor, 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 C onvention regulating the treatment 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 performance 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 above 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 pollution than similar indi genous industries.