Course: Contemporary issue in international business
Title: “The world economy is far from being genuinely “global”………..Genuinely transnational companies appear to be relatively rare” (Hirst and Thompson, p99 Global Transformations Reader). From the perspective of international business, do you agree with this view?
Globalisation is a process which involves the expansion and deepening of “interactions and interdependence among societies and states throughout the world”(Cohn: 2000). The process of globalisation has increased over the last two decades. As a consequence, what happens in one part of the world affects other regions. A typical example of such global impact is the global credit crunch. It actually began with the collapse of the U.S. housing market, but later extended to other parts of the world, and the impact is felt across Africa. Giant transnational corporations strongly reflect globalization as they produce and sell goods and services across national borders. These corporations have vast financial and technical resources that enable them to successfully plan and execute their operations in many countries (Eden: 1991).
Trans-National Corporations, also known as multinational companies, are business organizations that own and control economic assets in countries other than the one in which they are based. Companies like Nestle and Unilever are examples of transnational companies. Most transnational companies own vast financial and technical resources which enable them to successfully do business in a genuinely global perspective (GRIPS: 2004). More companies tend to trade multinationally by marketing their goods and service to other countries from a base in their host countries. Most of these goods and services are either shipped abroad, or foreigners come to the location of these companies and purchase these goods and services. Most of these companies do not own or control assets abroad, but they are engaged in international trade. The world economy is far from being genuinely global. Trade and investment flow is concentrated within a few elite nations, most of whom belong to the G8 (Beynon and Dunkerley, 2000). These include countries like Germany, France, Britain, Japan and the U.S. to name a few.
Genuine “globalisation” is supposed to imply a borderless global economy, which is free of nationalism and protectionism. In such an economy, production would become “internationalised,” making even the giant corporations to become small units of a wider system which includes thousands of corporations that specialise in the production of different goods and services in several countries. If genuine “globalisation” ever comes into play, the markets shall be characterised by free mobility of capital and goods (Greider: 1997). In this light, the current world economy cannot be rightfully referred to as being “global.” A frame work of rules and regulations make it difficult for foreigners to own and operate factors of production in some countries which discriminate against foreigners.
To an extent, international travel regulations and visa procedures make it difficult for people to quickly move from one country to the next. Take for instance, a small IT company in Mumbai, India, that wants to operate a branch in the U.S. would have to undergo a lot of difficulties to obtain a visa for its staff to travel to New York to begin initial research that would enable the company to plan its strategies in the U.S. (Harrington et al: 2002). It’s difficult to talk about globalization when the manager of this Indian company has the financial resources, but cannot travel because his visa application was not approved. That means he cannot decide to be in New York within two days. However, the case is different for an IT company in the U.K. or Germany. Nationals of these countries would quickly get a visa to travel to the U.S. In this respect, it is easier to conclude that nationals from developed countries have a different experience about the theory and evolution of globalization when compared with nationals from developing countries. Visa policies tend to be softer for nationals from developed policies.
It is hard to talk about a global economy, when American and European farmers receive government subsidies. This practice gives them an edge over farmers in developing countries. Farming is the one area where developing countries easily have an advantage and can compete. Despite criticisms, the European Union is continuing to disburse tens of billions of pounds on farm subsidies. All these expenditures are made despite the ongoing financial crisis (Deardorff: 1990). There is no point talking about globalisation when everyone is not put on the same platform. Globalisation in the business sense of the word should imply fair competition. But unfortunately, we cannot talk about a free market when some geographical regions have a lot of advantages over the others.
In the West African nation of Cameroon, for instance, agriculture is a major industry. It employs a bulk of the population. These impoverished hardworking farmers who grow food and raise animals cannot compete in the European market. No farmer in Cameroon can export pigs to Germany. That’s because the cost of raising a pig in Germany is relatively cheaper for German farmers, thanks in part, due to government subsidies (Agendia: 2008). The price is too low that, even after including the cost of shipping to Africa, pigs bred in Germany is cheaper than those bred by local Cameroonian farmers. In a small sense of the word, there is “globalisation.” The pig was raised in Germany and sold in Cameroon. However, we cannot talk of a genuine global economy when both farmers operate from two totally different environments (Elliot et al: 2002).
Recent developments in new communication technology and transportation have transformed the face of international trade. These developments and the introduction of new regulations have favoured the creation of some transnational companies (Rodrik: 1997). The General Agreement on Tariffs and Trade (GATT) and later the World Trade Organization (WTO) in 1995 are two major steps towards favouring the creation of multinational companies (Bagwell and Robert: 1999).
“Globalization, particularly the dismantling of trade barriers, has allowed companies to spread widely in search of cost efficiency and to implement integrated production strategies across regions and even continents. Unquestionably, they bring resources of great potential benefit to developing countries” (GRIPS: 2004). Genuinely transnational companies appear to be relatively rare. There are about 64,000 transnational companies around the world. These companies bring in foreign direct investment. Such investment has the potential to create new jobs, improve output and even go a long way to transfer technical know-how and develop local economies of the countries that host them (Beynon and Dunkerley, 2000).
There are relatively few transnational companies as defined at the beginning of this paper. That’s because many companies that engage in multinational trade do so from a national headquarters. It’s quite expensive to own and operate factors of production in many countries (Beynon and Dunkerley, 2000). That’s because each country is unique, with its own rules and regulations that govern businesses. When it comes to business, two countries are rarely the same. Tax and customs laws vary from country to country. As a result of the above, many companies that have the capital to produce and market goods in huge quantities do so from a single domestic base, and then find sales representatives in other countries who come and buy these goods. Alternatively, these goods are shipped to the other countries (Dunning: 2000). For example, a company producing toys and based in China could have numerous markets abroad. It would manufacture and export these toys to different destinations like Germany, U.S.A., U.K. and Nigeria. This company cannot be considered a true transnational company. That’s because the company does not have offices, a plant and management in these countries. It simply sells to many markets from a single base.
It takes much more than capital to create a transnational company. In addition to the huge capital required to create these companies, the technical know how to successfully operate business of such scale is not acquired over night. For any transnational company to succeed there is need for experienced managers. That’s because managing such a company entails overseeing a complex system of thousands of employees in diverse locations with different law, political climate and cultures. As a result of such complexities, there are relatively few transnational companies when compared with the traditional national companies. Consider the example of French mobile telecommunication company like Orange S.A. This company operates in countries across Europe. At the same time, the company has operations in West Africa. This company lost the market in the West African nation of Cameroon for a single reason. Instead of upgrading its server to accommodate more telephone lines, the company was deleting the lines of customers who failed to upgrade their subscription by consuming airtime at least five US dollars monthly. At the same time, MTN another transnational mobile telephone network from South Africa had a different policy. It did maintain subscribers who were unable to consume up to five dollars monthly. Today, MTN has four million subscribers in Cameroon, while Orange S.A. has less than a million subscribers. The reason was that MTN, being an African company, understood the African market. When they introduced free texting among MTN numbers, many Orange S.A. subscribers switched to MTN network (Sumelong: 2007). Such are the complexities of operating a transnational company. It requires good knowledge of each market. This can explain why there are relatively few genuinely transnational companies. One mistake can lead to huge losses.
Creating a transnational firm means that the company must acquire the necessary licenses required to operate a business in that specific country. This could be a very complex procedure especially when a company is conserving operations in four countries that include London, Angola, China and Singapore (Bagwell and Robert: 1999). These countries use different currencies and languages. It’s not an easy process to establish the required papers especially if we have to consider the fact that these countries have varying official languages, and waiting times. Such differences account for the relatively rare nature of truly genuine transnational companies. Unfortunately, some of these procedures are more complex in some corrupt developing countries.
Geopolitics can be considered one of the reasons why there are fewer transnational companies. West Africa’s Gulf of Guinea is blessed with enormous oil and gas reserves. However, not every petroleum company in Texas has made an attempt too drill in West Africa. Nigeria’s Niger Delta region, which harbours vast oil and gas resources, is one of the most unsafe places for expatriates to work in (Chinedu: 2006). There is this vicious cycle of kidnapping of foreign oil workers, payment of huge ransoms and then releasing of the hostages. This means companies find themselves in a situation where they have to pay huge ransoms to secure the freedom of captured workers. Such payments can lead to huge losses (Chinedu: 2006). For such reasons, there are fewer petroleum companies that are ready to take the risk. And hence, the fewer number of transnational companies.
It is true that the volume of international trade has tremendously improved over the last two decades (Jarblad: 2003). Transnational corporations have a significant role to play in the global economy. There have been remarkable improvements in foreign direct investment due to the expansion of transnational companies. “The world’s largest transnational corporations account for four-fifths of world industrial output, and the 500 largest transnational companies account for 90 percent of the world’s direct investment” (Jarblad: 2003). Globalisation has made it possible for goods and persons to quickly circulate around the world. But at the same time, it is important to admit that there is more to be done if the world economy has to be genuinely global (Dunning: 2002). In order to create a genuinely “global” business climate, nations need to tear down all trade barriers and internationalise national business environment. That means the eradication of all protectionist policies. Such a scenario would create the ideal environment for transnational corporations to thrive.
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