Homogeneity in the World and its Influence upon the Decisions of the Multinational Companies - Essay Example

Homogeneity in the World and its Influence upon the decisions of the Multinational Companies Introduction The economic behaviour exhibited by a firm is determined by its values and these are its very essence. Accordingly, several researchers had employed cultural values to study international collaboration of business concerns. The acceptability or otherwise of conduct is determined by standards prevailing in a specific culture, and these tend to vary from culture to culture. Furthermore, every culture incorporates methods for addressing the violation of social norms. The values pertaining to a culture are influenced by the environment. Thus, Hofstede defined cultural values as; the circumvention of uncertainty, power distance, individualism as opposed to collectivism, and masculinity versus feminism[Sch07]. Moreover, the cardinal features of culture are technology, organisation and language. As such, cultural disparities come to the fore in several ways, and the deepest depiction of culture is its set of values. The latter constitute the broad proclivities to exhibit partiality towards certain situations over others. On the other hand, norms denote the standards prescribed for values that are central to a category or group of people. Symbols and rituals associated with a culture provide superficial differences with other cultures[Sch07]. During the past two decades, several new stakeholders made their presence felt in the global economy. The contemporary situation is such that the developing nations apportion an increasing share of the global gross domestic product (GDP) and trade, this has been termed the high scenario. In contrast to this, the developing world could be deprived of its share in trade and enjoy minimal increases in their share of the global GDP. Some of the developing nations, notably India and China, have a major stake in the future economy and trade position, due to the diametrically opposed impact of the aforementioned scenarios[Fon14]. In addition, everyday life is witness to human diversity, and it has constituted an issue throughout history. Albeit, several nations have been proud of human diversity, there have been several nations, wherein such diversity has promoted legal discrimination, genocide, slavery and war. It is commonplace to discern ethnocentrism as the customary reaction to cultural diversity[Sti07].This entails judging the customs of other cultures on the basis of the cultural standards of one’s culture. International Trade Theories International trade theories analyse the trends and models of international trade with greater accuracy. The necessities of mankind and entrepreneurial interests tend to change with the passage of time. This, in turn, engenders changes in the importance of trade regions and in the international trade configurations. In order to describe and analyse international trade, several trade theories have been propounded[Vur13]. As such, several modern international trade theories have come to the fore, which incorporate government involvement, regulation and other significant issues. All the same, these theories include several assumptions that reduce their latent importance and contribution to international business. Some of the assumptions of these theories are; factors of production are static between nations, availability of perfect information regarding trade opportunities, and that the conventional imports and exports are the sole systems for transferring goods and services between nations[Mor97]. The comparative advantage theory, Heckscher-Ohlin theory, product life-cycle theory, new trade theory and Porter's theory of national competitive advantage propose the factors that are significant for international trade. For example, the theory of comparative advantage claims that differences in production are important. On the other hand, the Heckscher-Ohlin theory states that factor endowments constitute an important issue. According to the product life cycle theory, introduction of a new product is significant for international trade. The new trade theory argues that increased returns to specialisation and the first mover benefits are essential[Hil98]. As such, Porter claims that all of these factors are important, to the extent that they affect the four constituents of the national diamond. Comparative Advantage The principle of comparative advantage claims that countries import the goods that they have a scarcity in. By the same token, goods that are in surplus are exported. It has been contended by several scholars, such as Nachum, Dunning and Jones that this principle applies to foreign direct investment (FDI). Conceding or presuming such similar behaviour in trade and FDI, leads to the conclusion that a direct relationship is in place between comparative advantage and the structure of FDI[Ben091]. Nevertheless, this conjecture proves singularly unsuccessful in explaining part of international trade, especially with respect to explaining the determinants and patterns of FDI. It has been contended by Krugman that trade and FDI transpire between nations with similar industrial structure and abundance of resources. The activities of the multinational corporations (MNCs) indicates the resources to be found in abundance in those locations[Ben091]. From this an association between the comparative advantage of nations and the international activity of firms can be surmised. Absolute Advantage As contended by some scholars, notably Ricardo, absolute advantage constitutes a specific condition of comparative advantage. Thus, nations should import a few goods, despite enjoying an absolute advantage in manufacturing such goods. This can be justified on the grounds of opportunity cost, which denotes the diminished production of certain goods, in order to produce or to increase the production of some other goods[Vur13]. A nation derives a comparative advantage when it can produce a good at lower cost, in comparison to another country. As a consequence, a nation could become an exporter of certain goods, on the basis of enjoying a comparative advantage. Moreover, comparative advantage is of considerable help in describing trade patterns, as it transpires on account of differences across nations in technology or factor endowment[Vur13]. Economic Liberalisation Initially, economic liberalisation has gradually acquired significance at the international level. Firms with different technological capabilities in a particular industrial sector, or firms with different types of institutions in a specific region tend to respond differently to the competitive environment. The latter having been generated for the purpose of eliminating impediments to entry during the liberalisation period [Bha11]. The process of liberalisation produces asymmetric effects with some firms deriving an advantage, while others suffering a disadvantage As such, the South-South trade relations have promoted the advent of the developing countries in the international trade scene. In a dynamic economic and open trade environment, the growth of the developing nations in international trade would be promoted very strongly. In a morbid economic and confrontational trade policy environment, such growth would be extensively curtailed. [Fon14]. Furthermore, regionalisation in trade has been on the increase, and this is best illustrated by the outstanding growth visible in the intra-Asia trade. Global Competitiveness In addition, the contemporary situation in the world of business is characterised by a strong emphasis upon global competitiveness and the persistent disclosure of wrongdoings by business leaders across the world. The possibility of these factors being related exists, and indicates the emasculation of business communities and societies by the extant and unprecedented level of economic competition[Bey99]. Collins and Porras had come to the conclusion, on the basis of their study of prominent companies in several industries that the outstanding and most profitable companies were not preoccupied with the maximisation of profit to the exclusion of everything else. Thus, they discerned that several of the companies with excellent performance implemented principles that rose above pure economic pursuits[Bey99]. These principles, included serving communities, employees and society; manufacturing the best products; and garnering the satisfaction of customers. During the economic transformation of China, a special political environment had been in place. This facilitated the creation of significantly diverse political resources between the various regions and governments. As a consequence, private enterprises were compelled to transfer their headquarters, so as to be proximate to political resources. The applicability of a business model and political resources had a major impact upon the different procedures adopted by private enterprises to procure political resources. Enterprises with an outstanding capacity to optimise political resources found themselves actuated by the pursuit of political resources, at the time of deciding about the relocation of their headquarters. On the other hand, enterprises with a negligible association between their business model and political resources preferred to remain isolated in a metropolis[YeG11]. Impact of FDIs During the past quarter century, there has been a twenty-fold increase in FDIs. It has been disclosed by several research studies that the world economy is manipulated and controlled by the giant MNCs, which are frequently, larger than sovereign nations. In addition, the MNCs have achieved considerable influence on the economy and politics. Consequently, the power of the MNCs has proliferated to a tremendous extent, across the world. This has been attributed to their capacity to operate efficiently at the global level, a feat that has not been replicated by governments. The MNCs transfer information, money and people across the globe with little if any restriction. Their power and influence have reached the level where they can influence human rights in a nation. This effect could be positive or negative. In this context, Amnesty International has stated that there has been a mushrooming of commercial enterprises that operate across national boundaries[Sch071]. In this milieu, the economically powerful entities have the ability to influence policy profoundly, which in turn could have a major impact upon the human rights of large sections of the populace. Implications of Culture To a considerable extent, culture exercises a great influence upon the traits of market exchanges, including modes of entry, ownership levels and resolution of conflicts. This has been clearly established by the literature relating to international business. Upon subscribing to this view, it could be anticipated that marketing channel conduct in China, which would be significantly affected by Confucian norms and values, would be reliant upon personal relations and private networks to a greater extent to that obtaining in the US. The latter being a nation that is an exemplar of Western culture[LiS09]. All the same, a more detailed perusal of this issue proposes as follows. Despite the contribution of the cross-cultural perspective to the understanding of market exchange behaviours across nations, such exercise fails to provide a comprehensive explanation regarding the differences in market exchange behaviours between regions or nations that enjoy a similar cultural background[LiS09].In this regard, an examination of the diamond industry of the US, China and Hong Kong, discloses that in societies that are based upon the law, marketing channels are more liberal and have lower entry barriers[LiS09]. In addition, a greater distinction is drawn by the high-context cultures, in comparison to the low-context cultures, with respect to insiders and outsiders. The people raised in low-context systems have lower expectations than the individuals from the high-context systems. In fact, an individual hailing from a high-context culture expects his interlocutor to be aware of his problem, when he discusses some issue. As a consequence, such people do not express their point of view in a clear and unambiguous manner, and it is up to the interlocutor to make good this shortcoming[Jan10]. Conclusion This work concludes that the decisions of multinational companies are influenced by several features of the heterogeneous world. According to international trade theories; comparative advantage, absolute advantage, new product introduction, and improvement of returns are some of the important issues affecting trade. In addition, economic liberalisation, governmental policies, global competitiveness and cultural variations affect international trade. According to the above discussion, it can be surmised that, international trade, involving the decisions of the multinational companies will be influenced by a number of factors of the heterogeneous world. 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