Wednesday, May 6, 2020
Multinational Corporation Foreign Investments
Question: Discuss about theMultinational Corporationfor Foreign Investments. Answer: Introduction Multinational Corporation or the MNC is an organization, which owns or controls the production of the goods and the services in one or more. Corporation entails a group of individuals who are authorized to act as the single entity and are recognized by such laws (Alvarez, 2016). The MNCs operates in a number of countries and they have production or the service facilities in those countries. The general accepted definition of Multinational Corporation is an enterprise, which can produce at least twenty-five percent of its world output outside its country of the origin. Many of the factories especially in the North American and the Europe are located in the developing countries in order to reduce on the expenses by capitalizing on the low wages and the lax regulations that present in some of the other countries (Alvarez, 2016). The issue of the MNCs is a controversial issue. Many of the people are disgusted on how these entities treat on their workers especially in the developing count ries and the state on how these employees are working in. other people think that the businesses are doing the people in those countries a huge favor by providing them with the jobs. The multinational Corporation have been responsible for the rapid economic liberalization in many countries. Through the foreign investments, proposals and the commercial alliance have been signed on a scale that is unprecedented, thus giving to the rise to the controversy on whether these MNCs are our saviors or the saboteurs. The aspect of globalization has been the most significant factors in todays business. The global perspective is regarded as matter of the survival to the business. The new field that is ventured by the MNCs is a blend of the strategic management and the international business, which develops worldwide strategies for the global competitiveness (Channon and Jalland, 2016). The aspect of the global competitiveness has become a significant part for most of the businesses today and it demands a new way of thinking which incorporated the strategic management. It is thus significant to develop an international business strategy in order to handle the rapid developing global economy. Some of the world major multinational today are; Nokia, Microsoft, McDonalds, Starbucks and Exon Mobile. An initial MNC was the East India Company that had an excellent example of both the benefits and demerits of such a venture. The MNCs have come from a long way since then and they have exhibited a sharp increase for the last few decades (CuervoÃ Cazurra, 2012). The number of the active MNCs went from around seven thousand in 2007 to seventy eight thousand in 2006 being responsible for more than half of the global output. The report is aimed to explore on the concepts in MNCs with emphasizes on the advantages and critics that is brought to the developing countries. Moreover, it will look at the roles of the MNCs to modern. Further, will look at the impacts it has brought to the dev eloping countries. Impacts of the Multinational Companies on the Developing Economies Some individuals do not believe that it is not right that the MNC are taking advantages of the developing world and that they should be expected to and abide to the charter of the human rights. The multinational corporations usually bring foreign investment to the countries they are set up (CuervoÃ Cazurra, 2012). This is a direct investment in a country by the company for expanding on their business that has been existing or for buying of the raw goods and other inputs from them. The multinational companies are vital for the aspect of globalization, especially where the local and the national governments competed against each other to offer incentives and be able to attract more MNCs (Culbertson and Chen, 2013). An example of such incentive is the Free Trade Zones, where manufacturing of the goods can take place, landed or even be exported without any intervention from the local custom authorities. Many of these Free Trade Zones exists especially to the developing countries like M exico, Brazil, India, and Madagascar as they engage to attract more foreign investments. The provision of having foreign capital will yield more adequate infrastructure, and subsequently generate of the development in those countries (Drrenbcher and Geppert, 2014). It is significant to note that the intervention of the multinational corporations is vital in the context of the economic growth and the aspect of modernization of the developing economies. The adequate investment avenues relies on an open but yet due to the lack of the capital and the technological innovations. Advantages of the Multinational Corporations MNCs has many advantages especially to the developing countries some of these are as follows. An Increase in the Investments An argument in favor of the multinational corporations is that they bring investments to the less developed countries, which is a significant component to the economic growth (Dunning, 2013). Nonetheless, there is an existence of a gap between the optimal level of investments and the levels of saving in those countries. This gap can only be minimized through foreign direct investments; through the transfer of the resources from the foreign source in form of the economic injections. Technological Transfers In any country that has a multinational corporation and its operate there needs to have agreement with that country in regards to the guidelines of operations (Enderwick, 2013). The agreement can be either beneficial or harmful depending on the negotiations between them. If this has been done right the MNC may agree to transfer some of their technological advancement, which would be a huge benefit to the host country ,knowing the advancement in these technologies entails many research and development funds, which the developing countries do not have(Giuliani and Macchi, 2013). Moreover, it makes sense for the MNCs to open their market in exchange for the technology that would make them to be self-reliant and at the same time sustainable. Transfer of the Skills Just as the aspect of the transfer of the technological innovation, the MNCs brings wealth of the expertise and experiences. The workers are amongst the best in the world and the workers from the less developed countries learn plethora of these wide skills from them thus, enabling them to train others to have a trickledown effect. This effect is achieved through linkages using the broad investment (Fuest, Spengel, Finke, Heckemeyer and Nusser, 2013). The corporation provides the FDI, and it benefits on the companies they have collaboration with, example those that produce the complementary goods (Giuliani and Macchi, 2013). The service industry also benefits from the increase in the investment. Nonetheless, these MNCs pay and provide a diverse class training to all its employees and thus they help to stimulate on the intellectual as well as the capital growth. An Increase in the Tax Revenue The MNCs in the host country pay tax revenue to the government, which is a benefit. The revenue that is gotten from the taxes can be used to finance of the projects that leads to the development of the infrastructure, thus causing an economic development (Hashai and Buckley, 2014). Reduction of the Gap Between the Capital and Labor The developing countries are faced with the challenge of labor sensitivity. The ratio of the capital to labor level is significantly low (Hilson, 2012). Multinational corporations employ a big number of the local population thus reducing significantly on this gap, creating jobs and employment and revenue means to these individuals. There are two ways they achieve these; it can be direct or the indirect way (Kim, Hoskisson and Lee, 2015). The creation of the jobs is a direct way, while the increase in the stimulus in the demand and the supply is the indirect employment effects. Encourages Competition Through the investment that the MNCs brings to the host countries, they encourage entrepreneurship and breed a culture of competitiveness (Kotabe and Kothari, 2016). This helps the local companies to compete in order to reach the standards of the foreign companies, through improvement of the goods and services by increase on the efficiently and the quality to enable the product compete better in the market. The Criticism of the MNCs There are critism that have resulted from the establishment of the MNCs especially in the developing countries some of these are; Colonialism The multinational corporation are seen as the offshoot of the western colonialism. Far from the aspects of the improvement of the Balance of payments on the current and the capital accounts, the critics have elaborated that they indeed have worsen on it (Koveshnikov, Vaara and Ehrnrooth, 2016). This happens when the profits are repatriated to their own countries. Despite the local governments coming to an agreement that a certain portion of the inputs to be injected back to the local market, this may come at a cost, that has a negative impact on the current accounts of the developing countries. The Issue of Unmatchable Influence The multinational corporations have the power, reach and influence which enables them to have a considerable huge and influence effect on the dynamics of the politics to the numerous governments and their countries (Mingst and Arregun-Toft, 2013). It has been known widely that the MNCs uses this influence to pressurize on to the governments to let them to become more competitive through the implementation of the national policies which is conducive and favorable to their end goals, consequently hefty profits for them (Mingst and Arregun-Toft, 2013). The major drawback of this effect is an imperative decline to the socio-economic reforms. Nonetheless, the regulations and the responsibilities of the states is growing to a number as the multinationals are continuing to expand economically and geographically. There have been a rise of the shortcomings more so as the MNCs are continuing to take over to most of the economic activities.in the recent times, it has been seen that these corpor ations have outnumber the size in terms of their sizes and the power influence (Moran, 2013). An example of this is the GM, which has influence on the economics and politics, and this has enabled it to control a huge chunk all over the world. The large portfolios of their investments has made them to be the powerhouse especially when negotiating and most of these developing countries cannot match to their levels, thus enabling them to have the upper hand (Samuels, 2014). Through this, it has been able to coerce the government to implement on the policies that favors all their needs at the expense of the local market and industries. Technological Innovation Fraud The agreement in regards to the technological transfer more often are not kept, and when they are kept, they are skewed to the favor of the multinational corporations (Asmussen and Foss, 2014). Sometimes even though most of these do not agree to the complete technological transfer, even if it happens, the technology, which is passed to the host country, is usually obsolete in nature or sometimes it is patented in a way it is of little use to the country on a global scale. Undermining of the Social and the Economic Rights The MNCs have dominated across the international forum and they are usually opposing on the competencies. They can promote or al the same time undermine on the economic and the social rights, which can affect positively or negatively on the international community depending on the local market of an economy (Wang, Luo, Lu, Sun and Maksimov, 2014). Even though the state hold a significant level of power over the laws and the regulations on an international level, the MNCs have an influence also over the process of making decisions of nation state. There is a shift in the power as the multinational companies continue to grow economically and politically. There is a need for these corporations to consider on the effects they are leaving on the developing countries since this has become a trend that has been seen over the years (Westney, 2014). The interferences to these countries has led to both economic and social hazards for the general public, example to the employees, the shareholde rs, local populations and consumers. There is need to call for a tight and rigid regulations and responsibilities of these corporations within the platform of their new roles. Environmental Degradation Economic globalization of recent has had destructive impacts on the regulation of the state. Individuals have been affected negatively and gradually these impacts are increasing and become more obvious by day (Kotabe and Kothari, 2016). If a nation is more competitive there is less regulation that is been done. Even though the tactic is good to attract these MNC to invest in the country this is causing destruction to the environment. This act has forced other nations to decrease on their regulations in order to compete more effectively to get the foreigners to invest in their countries (Samuels, 2014). This foreign investor are thus consuming the money that could have been invested in order to maintain on the right of the public socially, either culturally, or economically. The MNCs are free from any legal obligations, which may bind them and put an end to the activities they undertake that are destructive to communities subjected to the treatments of MNC. Role of MNCs in Modern World As the economy advances in the various major economic regions, most of the globally minded companies are expanding on their businesses across the national border in order to maintain the aspect of competitiveness. There is a rapid increase in the number of the multinationals corporation that are operating in the major markets, without the aspect of the level of the technological development (Westney, 2014). The MNCs have played a significant role in the global community on the following parameters. One of the aspect it has led to the increase of the international company alliances. There have been distortion in the world economy due to the political intervention since the times of the cold War (Samuels, 2014). The aspects of the corporate level competitive independence and the global alliance activity is becoming a significant element to the economy. The modern MNCs are desperately seeking on ways to ensure on their own survival. These companies cannot survive if they consider their own and their national interests, they need to be good citizens to the host countries as well. Reasons why Firms Become Multinational There are different reasons with respect to why the organizations might need to end up multinational some of these are as per the following. One of the reason is the requirement for the firm to develop the business, looking for of new market or the part of extra benefits and incomes. Different reasons might be to focus on the financial scales to a bigger universal interest it can bring (Williamson, Ramamurti, Fleury and Fleury, 2013). The intention that is connected with the business sector looking for exercises is solid among the organizations who have advantage which is identified with the innovation or the brand that offer upper hand over the local opponent. Moreover, another purpose behind the organizations to end up multinational is to have the capacity to secure the key supplies (Yin and Jamali, 2016). This involves to secure and have admittance to benefits on the data sources or the outlets for dispersion and the business sector access, which is reasonable to numerous firm par ticularly those in assembling, to pick up an upper hand over their less supported adversaries. Another explanation behind an organization to need to wind up multinational is to pick up an entrance to the ease variables of generation, for example, Work. This helps these organizations to seaward on the generation to the host nations and get to be aggressive. The part of minimal effort capital through the administration endowments is additionally an essential angle to wind up a MNC (Zhang, Jiang and Cantwell, 2015). In addition, Licensing and franchising can likewise be a contributing variable to wind up a MNC. Licensing is an understanding which one gathering can use or offer the protected innovation consequently for the pay (Samuels, 2014). The issue with these is that there is the danger of break of information and the protected innovation and the Licensing assertion is over the accomplice could turn into a capable contenders. Organization can get to be MNC can systematically climb the scale from the fare and authorizing to high responsibility outside direct venture. In addition, some of them can specifically embrace on the high duty technique because of the part of development of the business sector (Amal, Baffour Awuah, Raboch and Andersson, 2013). It is critical to note none of these methodologies are fundamentally right or even wrong however the one received ought to be steady to the general vital goals and the inspirations of the associations. Conclusion The multinational partnership are the business, which reach out outside the nation they live, and they are situated all through the world or in a few nations. The quality including exercises that is possessed by these organizations is to deliver unmistakable products, the impalpable administrations, or even maybe the mix of both. There are reasons with reference to why numerous organizations might need to end up multinational and these organizations to accomplish this have utilized different systems. Some of them are to grow their business, looking for of new market for their items, or notwithstanding for extra of the incomes and the benefits. In addition, it can be additionally to focus on the economies of scale since a huge multinational interest can bring it. Further, the thought process behind the business sector looking for exercises is solid among the firm that have the benefit of innovation. The report has also elaborated on the impacts of these multinational corporations especially to the developing countries. Some of they to bring the foreign investment to these countries, and they are vital for the aspect of globalization especially where the local governments competed against each other. These companies helps the country economy to grow to international levels. Moreover, the report has explained on some of the advantages Multinational Corporation has brought to the developing countries, such as transfer of technology, investment opportunities, transfer of skills, increase of the tax revenue, and the reduction of the gap between capital and labor. Nonetheless, there were some critics for these MNCs; some of them are colonialism, the issue of the unmatchable influences, the fraud of technology innovation and environmental degradation. 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