A Transnational Corporation That Is Engaged In International Production And Usually Sales Business Essay
A transnational corporation (TNC) is a large company engaged in international production and, usually, sales. The largest TNCs—also known as MNEs, for transnational enterprises—have production sites in several or even dozens of nations. An TNC typically scans the whole world, or at least substantial regions of the world, for markets, production sites, and sources of raw materials.
A TNC can be defined as a company that is headquartered in one country but has operations in two or more countries. Large TNCs account for a large percentage of world sales and employment and are therefore courted by governments of the world. TNCs have existed for centuries for example, the East India Company which was founded in 1600, but it is of late that we witness a proliferation of TNCs. This is due to many factors, such as advances in transportation and telecommunication, and the availability of capital across the globe, all of which are the results of globalization.
Globalization means different things to different people. To capitalists, it is an extension of laissez-faire economy on a global scale which promotes free trade and elevates the quality of life. Indeed, globalization has improved the lives of countless citizens across the globe by reducing the price of goods and services of items that were previously viewed as luxuries like computers and mobile telephones, and reducing poverty in developing countries. However, globalization has also brought about an unprecedented level of uncertainty and paranoia about jobs being lost and a disappearance of security (Certo, 2000). Even developed countries institute some form of protectionism against unfettered capitalism and populist leaders denounce it as the scourge of humanity, a popular political tool used as a smokescreen over their own inadequacies. The target of protests against globalization in the developed world are of course TNCs, as they are perceived as the root of all economic woes by mercilessly laying off workers and moving operations to locations with cheaper material and labour. In developing countries, TNCs become the target of abuse for human rights violations and creating a loss in the traditional way of life.
The monumental changes to the social, economic, political and educational environment are all the outcome of the new global economy (David, 2005). Throughout human history, change has never before occurred in such a dramatic and accelerated manner and on such an international scale as what is happening at present. . This new economic order was born as a result of the interplay of three forces which are the liberalization of trade, the information and communication technology boom and of course, globalization. The impact of these forces cannot be understated. With the liberalization of trade, greater integration of economies is made possible (Robbins, 2007). Time and distance have been rendered obsolete because of the information and communication technology boom and national boundaries have become porous due to globalization. Significantly, this new economy is the outcome of an innovative culture (Rugman & Hodgetts, 1995). In fact, what defines the new global economy is new ideas, new ways of doing things and new innovations.
The complete overhaul of cash flows, the grouping of small businesses into clusters, dramatic changes in the production process and new approaches in marketing have collectively contributed to the economic progress and development that we now enjoy. As international trade flourished, enterprises realized the need to create new and better technology to serve in their best interest (Porter, 1980). Consequently, the entire structure of society had to be reshaped. The driving force of economic growth is innovation, though it alone is not enough. A nation needs to be equipped with the necessary human capital who can contribute via innovation to the new economic model, and this would require a high level of education and technical proficiency among the populace. This entails perpetual skills upgrades, the commitment towards acquiring knowledge and skills at all stages of life and the realignment of the work structure and organization. Productivity and economic performance have risen exponentially in this new economic model because of advances in technology, research and development and human capital. In a nutshell, technology powers the new economy which is propelled by human capital. Knowledge is the new trading commodity and the internet is its virtual marketplace (Adams, 1965). To harness the best out of international opportunities entails more attractive tax frameworks, more capital invested in research and development and greater stress on training and education. Industries should group into clusters that promote excellence to develop global niche markets.
The impact of the new international economy is all encompassing and is not merely restricted to economic boundaries. Its influence can be seen in all aspects of our lives ranging from the way in which we interact with one another to how we are educated and perform our social obligations. For instance, sectors that lead the information revolution such as banking, e-commerce, public services and education enable users to access information, products and services from a global marketplace at the click of a mouse. Never before in human history has change occurred at such a lightning speed and with such profound implications that reverberate throughout the globe. It can be said that the information and communications technology revolution have made distance and time inconsequential, and new technology continues to push boundaries and limitations further away (Cravens & Piercy, 2006) . It is nothing short of a Brave New World.
Due to the negative impact of globalization, governments around the world have instituted legislature to contain and mitigate the harmful effects TNCs may cause. For example, the government of Malaysia has placed restrictions on the opening hours and location of foreign-owned hypermarkets to minimize their impact on small and petty traders. Various forms of protectionism and trade barriers have caused TNCs to adapt their operations in the countries that they operate. This is because there are numerous problems of implementation which may adversely affect a country’s attractiveness as a place to do business. However, governments and people are still wary of them. This is why TNCs need to engage in corporate social responsibility to prove that they benefit the community as a whole, or in other words, to legitimize their activities. TNCs need to prove that they contribute to the community in which they operate and are sincere in their efforts to improve it and not siphon off the country’s riches and flee to other places that provide lower operating costs.
As mentioned earlier, owing to the scale and scope of TNCs, whatever action taken by them will impact the environment and the lives of many. For example, the petroleum and mining industries cause widespread damage to the environment either through accident or negligence. Any negative impact will ultimately affect the TNCs the most. Lawsuits can arise as a result of harmful activities that could potentially run for years and ruin the TNCs financially and in reputation. Therefore, TNCs in high risk industries would actually be acting in their best interest by minimizing their impact on the environment. As a start, TNCs should at least clear up oil spills or fill deadly mines which are caused by their activities. Many large industries cause rampant air, water and in some cases, sound pollution. The increased emission of greenhouse gases has contributed to global warming.
Through globalization, companies that are in the same industry but based in different countries are linked together through alliances or coalitions. As a result of these alliances and coalitions, international policies and agreements play an important role in maintaining good relationships among companies. Also, international alliances foster closer bonds among companies which in turn strengthen a particular industry as companies cooperate to come up with new strategies (Johnson, Scholes & Whitting, 2005). Another positive impact of globalization is that organizations mature and improve as a whole in their attempts to deal with problems on a more global scale. The organization structure needs to be streamlined so that it is adept to identify and respond to challenges. This is done by altering levels of hierarchy and control, linkages and reward structure. Consequently, we can surmise that development goes hand in hand with globalization. Companies need to innovate, improve and formulate new strategies and work methods to better cope with changes in the operating environment so that they can function effectively. Therefore, it is imperative that the organization is modified and possibly restructured so that it can cope with an increase in workforce and operating processes that characterizes a transnational corporation. Two good ways of adjusting a company are restructuring and remodelling.
Another major impact of globalization is the formation of formal relations between governments and corporations. Transnational corporations need to negotiate with governments to decide on how and which markets to enter. Corporations need to make negotiations with governments and comply with the legal, political and social environment in the country they wish to enter so as to ensure a harmonious relationship between the government and the company. Indeed, understanding another country and its government well can prove to be advantageous to the company. Building good and meaningful relationships with governments will help a company to have long term presence in a foreign country.
Finally, globalization promotes the competitiveness of companies within the same industry. A transnational corporation is well poised to compete with companies of similar size as it can utilize its resources on a global scale. Participating in an international market is beneficial to a company because it is better able to meet the needs and demands of a wider public and this gives it a competitive advantage over its peers that operate domestically only. This is a matter of perception as stakeholders such as suppliers, would prefer to engage with firms that have a global outreach.
TNCs should take the lead in environmental issues by investing in technology that minimizes the destruction and degradation of the environment of which they are sometimes the main culprits. They should find ways to reduce their carbon footprint and engage in community activities such as planting trees, adopting a forest, cleaning up polluted water supplies and protecting mangrove swamps.
In the area of safety and human rights, TNCs often fall short of society’s expectations. Issues like contamination of food products, excessive levels of lead in children’s toys and faulty cars will negatively affect the sales of a company. Likewise, cases of lax safety precautions and accidents at mines or the use of child labour to manufacture shoes will tarnish the reputation of any TNC. Many customers will recoil from purchasing items that have been made by children who are forced into slavery while human rights groups may protest against labour exploitation of workers in factories.
Based on this discussion, one can infer that business management and globalization are concepts that are symbiotic in nature, when placed in the context of transnational organizations. A firm must formulate strategies that allow it to jump on the globalization bandwagon, strategies that endow it with the ability to better cope with the challenges and problems that it faces. Furthermore, formulating international market strategies permit a transnational organization to collect appropriate and extra information pertaining to its target markets. Such information is extremely useful when a company develops new products and services to cater to the needs, wants and demands of its target customers. Companies are motivated to become globalized for a number of reasons.
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