Globalization of multinational activities: meaning and debate Essay

There are many definition of the globalization. For example, the International Monetary fund consider globalization of multinational activities as â€Å"the growing economic interdependence of countries worldwide through increasing volume and variety of cross-border transactions in goods and services, free international capital flows, and more rapid and widespread diffusion of technology†. (Dowling 2005) There is one more definition given by the International forum on Globalization. According to it globalization is â€Å"the present worldwide drive toward a globalized economic system dominated by supranational corporate trade and banking institutions that are not accountable to democratic processes or national governments†. (Wright 2001) But first of all globalization promotes cultural diversity and division of labor. Immanuel Wallerstein stresses that globalization of business can’t be understood separately from historical events. Lots of definition ensue the debates concerning roles of governments, companies and individuals in increasing national welfare in the context of globalization. Globalization of multinational activities has not only economic aspect but also political, cultural and technological, because they are closely connected with each other. It means that changes in one aspect are followed by changes in others. These aspects of globalization are considered key points to people’s quality of life and social benefits. (Debrah 2004) The economic aspect of impact involves trade, migration and investment opportunities. Globalization of international trade suggests more available access to goods and services which were never seen before. Due to this process people are able nowadays to buy a wide range of services and goods. International investments take place through foreign direct investments. It means that multinational organizations invest directly the assets in foreign companies or investments take place by purchasing and selling the financial assets of other foreign companies. Due to globalization independent migration suggests that individuals can find employment in spheres where the companies have labor shortages. But free migration is criticized, because it can lead to destruction of native industry and loss of jobs. International investments are also criticized, because if to accept such financial scheme the country can loose economic sovereignty and â€Å"may be forced to set policies that are contrary to its citizen’s interests or desires†. What is more important is that international companies investing in country or company can receive too much economic and political power. It is admitted by critics that migration is like exploitation of workers from other countries. (Baolian 2004) The political impact of globalization is creation of international rules and institution to deal with trade, human rights and international environment. New global institutions for regulating multinational activities are World Trade Organization, Euro currency and North American Free Trade Agreement, etc. central question is if government can control the economic activity of world companies. Globalization is also characterized by cultural global ties i. e. new ideas and concepts about trade and media throughout the world. However global cultural ties are not always favorable as they may cause constrains for companies. One more point about globalization of business is the significant change of technologies, transport and communication. Nowadays transportation costs have been reduced significantly because of technological advances which make foreign markets freer for trade. It was counted that billions of dollars in different kinds of assets and/or currencies are exchanged every day with the help of electronic means. It is seen that globalization spreads the developing and appearing of new multinational activities es. (Baolian 2004) Globalization: impact on multinational activities Globalization is sometimes described as the main cause of disturbances and changes in the world. Actually the term â€Å"globalization† is the shelter for collective effect and the changes. Globalization is the total changes taken place in the factories or storefronts which are seen in the spheres of economy, multinational activities and lifestyles. It is a matter of fact that this process was caused by four significant forms of capital flows throughout the global economy and multinational activities’ spheres. It is necessary to mention these four important capital flows: 1. Human capital involving the processes of immigration, emigration, migration and/deportation. 2. Financial capital including debts, equity, aids, credits, lending. 3. Resource capital means resources of energy, lumber, different minerals resources and metals. 4. Power capital suggests security forces, armed forces and different alliances and unions among countries (Wright 2001) It was mentioned that most difficulties and stresses confronted in the general affairs of multinational activities and interactions between them can be revealed in the four mentioned capital flows. It means that globalization has great influence on these flows and is able to direct them. Globalization also affects telecommunication and travel modes and they have become cheaper. As the result they have become accessible to more people, domestic and international companies. As for cultural and political friction they â€Å"can thus be explained as arising from the difference in opinion between two or more parties about the origination, treatment, timing, ownership or value of one or more of the capital flows†. (Wright 2001) The impact of globalization is constant and inevitable. And the process of globalization was inevitable. And there appears a question: why? The main reasons of such globalization influence in the word are: advantages of low labor costs need of vertical and horizontal division of labor, great number of untapped markets, and legislation in foreign countries. It is seen that the mentioned points provide international companies with lots of profitable opportunities. It is a common knowledge that globalization of multinational activities is first of all significant expansion of regional and international markets, international laws, cultures and values. It is possible to say that globalization describes the expansion of politics from narrower area (local, regional, national) to broader horizon of international area and thus the whole planet. It is obvious that the impact of globalization is really great and considerable. Due to the globalization processes occurring in the world international and domestic markets become now standardized, mostly because they are interacting, influencing and in such a way combining with ex-rivals from different parts of the world. (Sparrow 2004) Globalization is positive, because there is an increasing competitiveness of multinational activities. Nowadays the national markets are too saturated and companies need new flied of action on a larger scale. The next fact is that globalization of business aims at gaining economies of large scale. It means that investments, administration, production of goods and services, marketing and advertising will be equally distributed among many countries. As the result the expansion costs will be significantly reduced. The last point witness for globalization is that nowadays consumers have globalized preferences and product markets have to correspond. It means that international markets have to be also global. (Sparrow 2004) Globalization of multinational activities and economy was enabled by the series of factors. Highly developed technology gives the possibility for computing power to reduce the costs of transactions and information gathering. This push is intensified by the Internet, because it is global and rather cheap. Modern communications provide the access to available information in the whole world. The importance of communication and Internet has significantly increased, because they are useful for people’s communication. It is a matter of fact that the barriers to international trade and business are falling and becoming more standardized. The important forces were GATT (General Agreement on Trade and Tariffs) and WTO (World Trade Organization). Due to globalization many countries deliberately reduced their trade barriers, removed barriers to direct foreign investments, and liberalized trade control. Governments of many countries believe that such measures will promote and assist national welfare, economic growth and developing of multinational activities. It is necessary to notice international finances and rapid capital flows. Nowadays technology developments assist banks and other financial establishments in funding foreign expansion, setting new affiliated offices and providing investment opportunities in the whole world. (Dowling 2004) The possibilities of the globalization are: 1. To set economies of large scale, because Internet and communications are global by nature and they are cheaper than other media. 2. Multinational activities are more credible and people believe if it is successful in many countries, its quality is good as well. 3. It is easier and quicker to introduce new production line with global international brand. The main strategies of international globalization are to consolidate comparative advantage, to develop honest competency, to develop global way of thinking, to globalize competency of international companies and to integrate countries. But it is known that the demand of globalization is to think globally, but to act locally. It is a matter of fact that international organizations used to deal with restricted markets and it is hard for them to deal with new global perspectives. New global economy tries to get rid of static organization and to change them by new organization more suited for new globalized economy and new globalized world. (Sparrow 2004) â€Å"Over the course of the past decade, in many countries (especially in the developed world), savers have increasingly diversified their portfolios to include foreign financial assets (foreign bonds, equities, loans), while borrowers increasingly turn to foreign sources of funds, along with domestic ones. While flows of this kind to developing countries also rose sharply in the 1990s, they have been much more volatile than either trade or FDI flows, and have also been restricted to a narrower range of ’emerging market’ countries. † (Sparrow 2004) It is a matter of fact that the number of international transactions dramatically increased during last decades. Economies of many countries became internationalized as their GNP increased due to international exchange of goods and services. It was mentioned that â€Å"increasing economic integration among nations, some scholars argue, has dramatically reduced the barriers between national economies, undermining the autonomy of national governments†. (Dowling 2004) The positive and negative sides of globalization Globalisation has caused many problems for business executives and the government. However, many people support this process. The supporters of globalisation state that globalisation is inevitable and can’t be stopped anyhow. They even argue that globalization can make the world rich. Speaking about four factors of production (labour, land, entrepreneur and capital) we can’t but mention that in the process of globalisation two or three factors must cross the borders. If a company invests in another country, it will receive dividends from that country. There is a flow of these factors of production through multinational corporations. Modern companies try to respond to the emerging open market opportunities, and for the aim of winning better market share and higher profits, have to pay their attention to the globalization and the need for creating large multinational corporations. A bright example of such changes may be represented by the German Hoechst chemical company, which at the beginning of the year 2000, admitting the rapidly changing positions on the chemical market and understanding the new accents on the global cooperation and production, decided to take this step and create a new structure. Through the 2001 and 2002 it has sold twelve of its businesses in Germany for being no more profitable, and has bought four new pharmaceutical firms outside Europe. Hoechst in Europe was the pioneer of such drastic changes in the multinational management trends. Though the Hoechst’s labor force in Germany was decreased almost twice, it became possible to increase the sales over the US continent from 6 to 33 percent of the market share by the end of 2002. These actions could be viewed as an example of new innovative approach to the company’s management. On the other hand, and as Mockler (2002) puts it, ‘such actions were contributing to unrest and uncertainty in Europe’. (p. 12) The topic of multinational management should be discussed though the real life examples and it would be appropriate to note a company which was able to master the issues of multinational management. The talk will be about GE, a company which is now one of the most advanced and highly innovative corporations in relation to management approaches and structures. Its ex-CEO Jack Welch is known all over the world for having put the quality of the company management, and thus the quality of its operations to another, much higher level. Understanding the huge perspective of the global company through the period of Welch’s being GE’s CEO he has implemented one of the most prominent and successful management systems in the world. His main idea was to work though the principle of ‘creative destruction’, which was later used by other multinational companies. (Rugman & Verbeke 2003, p. 29) ‘The objective of the GE’s management strategy was to stretch the potential of the firm, even though this firm was very large. To fulfill these tasks it was necessary to apply the abilities of defining strategic guidelines which channel and stimulate innovative and entrepreneurial actions without inhibiting often unstructured individual initiative’. (Mockler 2002, p. 15) GE has become the multinational company with the ability to adapt to the changes and to implement the latest innovations into its operations. Welch understood the necessity of these innovations, and meeting these challenges, the company turned them into its assets. GE is one of the brightest examples of the multinational companies, which were able to adapt to the rapidly changing technologies and management theories. As the core problem of the multinational corporations is to work through different cultures and traditions, which is almost impossible at times, the role of management must not be underestimated in relation to such global structures. Management provides such company with clear structure, understanding of problems and challenges and gives the clear picture of its market position. GE made it possible for each worker to understand his role in contributing into the general process of management. Namely management has made this company one of the most successful in the recent years. The opponents of globalization argue that globalisation does not bring back more returns as the returns that go out. They argue that for example, a company likes British Telkom, which went abroad because of internal problems with its multinational business. However, these examples can’t spoil positive judgment about globalization. We have many examples of companies that were on the virtue of collapsing but now they are performing very well after going international. Why do others think that globalisation is not useful? In this article â€Å"Will globalisation make you happy† Wright R. (2000) argued that globalisation makes human beings happy but unfortunately they are pursuing things such as power and money which does not bring everlasting happiness. He asks the question, â€Å"does money bring happiness? †. Wright writes that survey carried out in many countries, both rich and poor and confirms that poor relationships are the source of unhappiness and there is no happiness in richness. In the same survey, it was found that a nation is fairly comfortable with a standard of living that is lower than what the average human being thinks. Changing of Employee relations Also a lot of needs appear concerning the changing of employee behaviour in order to provide effective employee relations. There a lot of important work to be implemented by managers and employees itself. (Harris et al) Most people work and live in familiar environment, in the surroundings we were brought up or places similar to this. Accordingly, people that we meet, work with and entertain, are similar to us, due to the fact that they have the same ethnic context, similar viewpoints and religion, the same framework of values, and the same language, that we speak. (Harris et al) Effective changes of behavior starts with detailed interpreting the terms under which the individual is involved into behavior that needs to be changed. It is necessary to understand his motivation in these or that circumstances. Understanding these aspects will make the process of motivating the person easier and predictable. For instance, many supervising managers suppose that speaking foreign languages during working process is the evidence of employee’s laziness, disrespect and desire to detract from the work. But in fact many employees use another language while attempting to perform some information related to their work more accurately. Sometimes it may be the evidence of stress or tiredness, or just an attempt to make the process of communication faster. (Harris et al) One important aspect of making successful cross-cultural interrelations is to be considered. Building up mutual understanding and successful communication demands self-assessment. Each employee should clearly understand and evaluate the styles he or she uses in various situations, and to what degree. (Harris et al) Ability to appreciate other people is significant for successful cross-cultural communication and cooperation. Each person should be aware that it is important to find time to pay attention to other people, to understand and evaluate their style and behavior. For instance, within a definite firm, manager staff members may represent a wide range or personal styles: â€Å"with regard to completing reports, one team leader may require pages of details, and the other leader wants only bullet points of information†. (Harris et al, p. 89) As regards to such peculiarities, cultural and language differences do not matter. Professional manager should realize that the problems of cross-cultural relations affect many spheres of business and economy, for instance, marketing, both domestic and international. It is necessary to take into consideration that, for instance, USA culture consists not only of native culture. Foreign culture of the state is made up not only by foreign citizens. American citizens now may have foreign origin, for instance, Indian, Chinese, Canadian, Australian or Russian. That is why understanding foreign cultures is important for the workers in any sphere, even if they deal with domestic consumers and companies. For those who have business relations with foreign customers of companies such skill is compulsory. The process of globalization and changing conditions of the world market made all spheres of business and finance a cross-cultural phenomenon, which demands that managers on all levels must be aware of cultural differences and means of establishing successful relations to succeed in the market. (Harris et al)