MNC AND ECONOMIC GLOBALIZATION: AN ANALYSIS
Dr. Tanvir Orakzai
February 12, 2007
The history of MNC (Multinational Corporation) coincides with the rise of globolisation. It was the eve of WWI that spurred the entrepreneurs and firms to drive the manufacturing and production at global scale. However, the true global economy took pace between 1950s and 1970. The Japan economic miracle made it possible to drive the global integration of capital and commodity throughout the world. MNCs are the most powerful institutes in the world transforming the world through rapid growth and expansion. The reason for such growth is the process of globalization that started after the end of Cold War in 1991. Since the end of Cold War, states all over the world removed barriers to the international movement of goods, services, capital and technology. These factors provided enormous benefits to the world economy in the early and mid 1990s.
This process of expansion not only increased economic pace of various countries, but it also brought the world together in many ways. For example the arrival of information technology created a new breed of corporation (Microsoft and Cisco etc) that changed the competitive landscape dramatically. This new age of digital revolution allowed these corporations to develop and run complex productions all over the world. As the world came closer together, new managerial techniques were invented; where foreign partners catered for the local consumers. By early 1990s, much of the developing world welcomed foreign goods and services.
During 1990s the firms also entered through FDI (Foreign Direct Investment) into Eastern Europe and Soviet Union to develop their economies. The foreign direct investment involves a long lasting interest in the host country. It implies that the investors have enormous control in another country’s economy due to its own interest, which ultimately leads to the economic development. Thus any increase in FDI flow is directly associated with increase in GDP. FDI is undertaken by large and technologically advanced firms not only to accelerate the speed of economic pace but also helps in transfer of technology. For example the world top 100 non-financial firms have foreign assets worth US$1.9 trillion employing about 6.5 million people, which results in foreign sales of $2.1 trillion. Majority of these MNCs are from US and Japan (89 percent). MNCs are the main conduits of FDI and cash flow in the developing countries. This speed has accelerated since 1980s gaining momentum in 1990s and is the main driving force of modern globalization. The worldwide flow of FDI tripled between 1993 and 1999, even in the middle of Asian financial crisis, the developing world received US$165 billion, which was an average of $35 billion from 1987 to 1992. In recent times China and Brazil have received huge amount of FDI due to their rapid economic growth. In 1998, China and Brazil alone received about $45 billion and $28 billion respectively.
Globalization is identified with many trends since World War II, which includes international movement of commodities, money, information and people. One of the most important roles of globalization is its increasing economic role in international trade in world economy. Free trade is strongly supported by economically powerful nations, such as US, UK and Japan as they own 89 percent of MNCs. In recent days China and India are also becoming advocates of free trade as their economies are opening up to the international market. Free trade allows not only free flow of commodities across the borders, but it also increases the pressure to raise the tariff to protect domestic products.
The firms who invest overseas accelerate the pace of globalization making world trade and financial markets more integrated. For example some countries in Asia have been more swiftly integrated which increased their per captia income. If FDI helps the host country, the globalization helps multiple countries to better manage their output and consumption volatility, which means that the countries are able to diversify their income risk in the world markets.
According to the IMF study in 2000, the developing countries have increased their share of world trade from 19 to 29 percent between 1971 and 1999 with variations. For example Asian countries have performed better compared to African countries. It also depends, what kind of product, countries are importing or offering. Singapore, Japan and Korea are more specialized in manufacturing which brought them progress and development more quickly compared to other developing countries. Majority of the developing countries economies are based on agricultural commodities, such as food and raw material that proves to be less beneficial. During the 20th century world income per captia has grown considerably despite the huge income gap between the developed and developing countries. The recent global development has increased income level considerably due to free trade and massive flow of FDI. It is not mere income level that has been on the rise, the poor countries have improved a lot in the past two decades. For example countries like Sri Lanka, India and China have developed enormously and are on the move.
The foreign firm investments not only bring expansion in capital, but it also increases technical skills and innovation of the host country. It enables the local population to learn business skills, such as production methods, management techniques and access to export markets. For example when Toyota setup car plants in countries outside Japan, it required higher level of standard to maintain the quality of products, for which it has to train the local workers. If Toyota gets the competitive advantage, the host countries get the skills and jobs. A few proven examples are the Asian Tigers; Singapore, Korea and Taiwan. The economies of these countries prospered through export led strategies with the use of cheap labour which became skillful, creative within two three decades. Korean firm Samsung, Kia, Hyundai and Singapore’s Creative are few examples of successful local companies.
The globolisation has helped in creating new ideas at a very swift speed developing a global culture. For example consumer all over the world have access to similar products. The other aspects of globalization include revolution in information technology and transportation, which has given rise to the concept of global village, where information travels across the globe at lightening speed. For example email, chat and cheap telephone calls have allowed human being in the 21st century to connect with other people across the continents easily. Cheaper transportation and low fares have created an environment, where going overseas is no longer an expensive deal. Multinational Corporations are growing and spreading the global economy that was never adopted in the past. This process is bringing together culture; geography and different nationalities together giving rise to global culture through success and progress. Thus we can say that there is strong co-relation between globalization and MNC proliferation, which must go side by side for the development of the nations.
This process of expansion not only increased economic pace of various countries, but it also brought the world together in many ways. For example the arrival of information technology created a new breed of corporation (Microsoft and Cisco etc) that changed the competitive landscape dramatically. This new age of digital revolution allowed these corporations to develop and run complex productions all over the world. As the world came closer together, new managerial techniques were invented; where foreign partners catered for the local consumers. By early 1990s, much of the developing world welcomed foreign goods and services.
During 1990s the firms also entered through FDI (Foreign Direct Investment) into Eastern Europe and Soviet Union to develop their economies. The foreign direct investment involves a long lasting interest in the host country. It implies that the investors have enormous control in another country’s economy due to its own interest, which ultimately leads to the economic development. Thus any increase in FDI flow is directly associated with increase in GDP. FDI is undertaken by large and technologically advanced firms not only to accelerate the speed of economic pace but also helps in transfer of technology. For example the world top 100 non-financial firms have foreign assets worth US$1.9 trillion employing about 6.5 million people, which results in foreign sales of $2.1 trillion. Majority of these MNCs are from US and Japan (89 percent). MNCs are the main conduits of FDI and cash flow in the developing countries. This speed has accelerated since 1980s gaining momentum in 1990s and is the main driving force of modern globalization. The worldwide flow of FDI tripled between 1993 and 1999, even in the middle of Asian financial crisis, the developing world received US$165 billion, which was an average of $35 billion from 1987 to 1992. In recent times China and Brazil have received huge amount of FDI due to their rapid economic growth. In 1998, China and Brazil alone received about $45 billion and $28 billion respectively.
Globalization is identified with many trends since World War II, which includes international movement of commodities, money, information and people. One of the most important roles of globalization is its increasing economic role in international trade in world economy. Free trade is strongly supported by economically powerful nations, such as US, UK and Japan as they own 89 percent of MNCs. In recent days China and India are also becoming advocates of free trade as their economies are opening up to the international market. Free trade allows not only free flow of commodities across the borders, but it also increases the pressure to raise the tariff to protect domestic products.
The firms who invest overseas accelerate the pace of globalization making world trade and financial markets more integrated. For example some countries in Asia have been more swiftly integrated which increased their per captia income. If FDI helps the host country, the globalization helps multiple countries to better manage their output and consumption volatility, which means that the countries are able to diversify their income risk in the world markets.
According to the IMF study in 2000, the developing countries have increased their share of world trade from 19 to 29 percent between 1971 and 1999 with variations. For example Asian countries have performed better compared to African countries. It also depends, what kind of product, countries are importing or offering. Singapore, Japan and Korea are more specialized in manufacturing which brought them progress and development more quickly compared to other developing countries. Majority of the developing countries economies are based on agricultural commodities, such as food and raw material that proves to be less beneficial. During the 20th century world income per captia has grown considerably despite the huge income gap between the developed and developing countries. The recent global development has increased income level considerably due to free trade and massive flow of FDI. It is not mere income level that has been on the rise, the poor countries have improved a lot in the past two decades. For example countries like Sri Lanka, India and China have developed enormously and are on the move.
The foreign firm investments not only bring expansion in capital, but it also increases technical skills and innovation of the host country. It enables the local population to learn business skills, such as production methods, management techniques and access to export markets. For example when Toyota setup car plants in countries outside Japan, it required higher level of standard to maintain the quality of products, for which it has to train the local workers. If Toyota gets the competitive advantage, the host countries get the skills and jobs. A few proven examples are the Asian Tigers; Singapore, Korea and Taiwan. The economies of these countries prospered through export led strategies with the use of cheap labour which became skillful, creative within two three decades. Korean firm Samsung, Kia, Hyundai and Singapore’s Creative are few examples of successful local companies.
The globolisation has helped in creating new ideas at a very swift speed developing a global culture. For example consumer all over the world have access to similar products. The other aspects of globalization include revolution in information technology and transportation, which has given rise to the concept of global village, where information travels across the globe at lightening speed. For example email, chat and cheap telephone calls have allowed human being in the 21st century to connect with other people across the continents easily. Cheaper transportation and low fares have created an environment, where going overseas is no longer an expensive deal. Multinational Corporations are growing and spreading the global economy that was never adopted in the past. This process is bringing together culture; geography and different nationalities together giving rise to global culture through success and progress. Thus we can say that there is strong co-relation between globalization and MNC proliferation, which must go side by side for the development of the nations.
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