Role of Transnational Firms in The Global Economy

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A multinational or transnational enterprise is a large entity with operations in several states. Entire operational activities of a multinational may be outsourced due to cost factors or other strategic considerations. It is usually beneficial to produce in places where labor and taxation costs are significantly lower, or operate in the most profitable markets.

As with the laws of supply and demand, the hindrances created by imports fused with the inability of companies to satisfy national demand leads to a situation of shortages, that in turn induce price increases of products concerned. As a result, it becomes appealing for foreign corporations to descend in such a territory to capitalize on the high prices.

Multinationals must invade foreign markets to sustain growth, acquisition and the setting up of subsidiaries either for production and local distribution. And these strategic ambitions can be enhanced through a localized approach.

Trading between subsidiaries of multinationals account for a third of world trade, and exchanges between the parent companies of multinationals and their subsidiaries a further one-third of world trade. On the other hand, protectionist policies are designed to protect domestic companies (some of which will be under-performing) from foreign transnational competition.

As a matter of fact, the greatest share of global investments are made in a developed country to another developed country. Multinationals have been around for hundreds of years, and a good example is that of the East India Company, which was founded in 1602.

And the growth of some corporations has been so phenomenal their monetary power is comparable to states. Ford can be equated to Norway, while the Japanese Mitsubishi to Poland. It is also a fact that some of these multinationals enjoy a very influential role beyond that of a number of third world countries. Such organizations brandish a net worth that far exceeds the GDP of some developing countries.

They garner more power through strategic mergers and acquisitions, thus boost their singular influence. Multinationals are the vectors of the inevitable economic and financial globalization. International relations now revolves around triangular perspectives which relate to relations between governments to government and government to business.

Hence, power is not all about sovereignty, or territorial military factors, instead borders on a complex combination of economic and social orders, translating to an undeniable multinational power factor.

Even though, a corporation primarily fends for its own interests, unlike the state interests, thus the power of multinationals is often limited or specialized. Transnationals are creating their very own economic space, and their flexibility enables them to take advantage of differences in social or environmental laws.

 

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