In the past five years the globe has experienced a recession and this has had an impact on MNC’s. Many MNC’s stopped or reduced their OFDI but China took this opportunity to build their profile. Chinese product seems to be the dominated name in many products and textiles. Globalisation has been made feasible due to the betterment on technology and transport links. This report looks at the positive and negative impacts of globalisation on MNC’s. The paper will show the drivers as well as the advantages and disadvantages for globalisation with the support of different academics.
Globalisation can be defined as the process of social, political, economic, cultural and technological integration among countries around the world. ’ Luthans,F (2009). Globalisation creates opportunities for businesses providing multinational corporations with scarce commodities and comparative advantage. Giddens (1999) argues that globalisation that “globalisation is a complex set of processes and not one single entity” Globalisation has had both a positive and negative impact on MNC’s over that past 5 years. MNC’s role within globalisation is to provide employment, improve a countries infrastructure and the economy.
Impacts of globalisation Dunning’s theory (1998) suggests reasons for companies making the shift to become a MNC. Although his theory
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The impact this has had on MNCs across the globe has been both positive and negative. It can be argued that the impact felt by MNCs is a result of them being exposed to the effects of globalisation On one hand globalisation has lead to falling trade barriers which meant MNCs could further their growth mergers and acquisitions in developing and developed countries. However, post-recession has seen MNCs retract their growth in an attempt to recoup losses and manage spiralling debt bills. This shift in how the MNC operates is due all in part to its exposure to the process of globalisation.
The real impact of globalisation now evident is that MNCs are more interdependent on the global markets to survive and grow. eg On the other hand after the global recession hit most MNCs were affected except for MNCs present in the BRICS; a political alliance between Brazil, Russia, India, China and South Africa. These countries saw the benefits of globalisation and created an environment for their MNCs to continue to grow and experience abnormal profits. One way the MNCs have reacted to the impact of globalisation is to adopt the practice of business process outsourcing (BPO).
This is a process used by MNCs in the BRICS to take advantage of the effects of globalisation on countries whereby knowledge in the form of technical know-how can be utilised no matter where the MNC is located. reacting to globalisation which has given MNCs the opportunity to create a Knowledge based economy which benefit the MNCs that operates within these countries. Example of a companies operating within theses countries. MNCs are able to buy and sell products in less developed countries at a cheap and lower price compared to the companies trading in their own countries.
Globalisation led to falling of trade barriers which has only been beneficial to the highly industrialised countries as they have more competition advantage in terms of labour skills and resources compared to other countries. This has given MNC a competitive advantage over the local companies. After considering the above the following must also be considered. Corruption within governments of developing countries during the recession has left MNCs with greater bargaining power. (Watson, 2004 cited in Kwok and Tadesse, 2006) argues that ‘foreign direct investment will lead to an increase of corruption in the host country’.
This puts the MNC in the driver’s seat and allows them to grow how they see fit without the interference from local authority. This enables MNCs to take advantage of relaxed regulation, exploit natural resource and cheap labour. However, although this of benefit to the MNC trying to achieve abnormal profits it also has a detrimental effect on the MNC in the image the organisation promotes. This takes shape in the form of corporate social responsibility (CSR) which globalisation has seen to becoming an important part of how MNCs code of conduct or ethics.
Corruption can also lead to loss of profits by the MNC if the government of the country or people of the country decide to change their practices. For example Thakurta (2011) states that Delhi are now in the process of making a shift in telecoms policies which were seen as corrupt. This has meant MNCs now have to find new partners to work with as local partners might lose their license under new rules set by country. Corruption has been made worse due to the lack of competitiveness in labour, infrastructure and technology which has left the countries more vulnerable to corruption.
This is also an example of how comparative advantage is also an impact on MNC main objective is growth and to gain competitive advantage over the other MNCs. Globalisation has led to the formation of the BRICS which is a political alliance between Brazil, Russia, India, China and South Africa Due to the recession caused by globalisation organisations have had to analyse and re think their portfoliosCountries like BRIC have used this technology to create BPO has given MNCs the opportunity to create a Knowledge based economy which benefit the MNCs that operates within these countries.
Example TATA chemicals buys British salt expanding their resources to the UK market. Drivers of globalisation Theorists have suggested that there are four drivers of globalisations, technology drivers, cost drivers, market drivers, labour drivers Technology has had a big impact on globalisation it has given MNCs the ability to extend and strengthen communications links which has formed an integration and connection between economies across the border.