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Disadvantages Faced by Multinational Corporations in Markets

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Due to invention of highly developed technology business community has more and more become a unit and as a consequence, global business is the present form of trade in this 21st century. Also due globalization concept there have been immense disregard to countrywide boundaries, the governments of many countries have had lower hand in domineering the stream of their economies and Multi-National Corporations are now not limited to only one particular nation as it was prior to the birth of globalization. This implies to inherent several advantages and disadvantages to large MNC’s when operating their business operations in the various countries they have invested in.

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It is for that reason that it is significant to recognize different approaches to international business that can be used in a business setting particularly for organization across cultures and across different personnel in an international setting in order to avoid unnecessary disadvantages. International business is now clearly obvious when individuals travel from one nation to another with no much complexity, for instance diverse nations have relaxed their rigorous travelling regulations to tolerate the desired time for trading activities to be carried out. It is also essential to look into how individual administrators can take full advantage of the sensible purpose of this concept to Multi-National Companies for example SmithKline Beecham, Coca Cola and BAT Companies among other multinationals firms. However, it should be noted that MNC’s does not only face drawbacks because of being global but also they succeed as it will be discussed in this paper.

Introduction

Global interactions have different perspectives depending on its global nature, how it impacts individuals and perspectives that such people have about this concept. Some individuals define globalization as being that state where each and everyone in the society is a resident of that global society. To other people it refers to the issue of Multi-National Corporations taking advantage of poor nations to augment there financial bases through exploitation of human resource as well as the available raw materials in such countries. Such a reason therefore presents MNC’s with a disadvantage of being harassed through sanctions such as laws and policies that governs business operations in where they operate (Hill, 2005).

Disadvantages Faced by MNC’s in the Global Market

Although international business explains the ever growing economical, political, cultural, technological and social interaction, it has in the process resulted to immense inter-reliance between nations nowadays. It is for this reason that the global environment and expansion of globalization has incited a range of reactions and opinions all over the world. In the recent past anti-globalization objections have always emerged to be among the most controversial issue all over the world since many disadvantages have been attributed to such concept. However, the followers of globalization particularly large MNC’s are subjected to anti-immigration arrangements in Europe and the United States; for example, resistance to the elimination of trade obstacles and hostile response directed against western cultural sway in several countries. (Joseph, 2001)

Nonetheless it should be noted that, anti-globalization activists frequently gain from globalization aspect and yet they are against it e.g. from the use of internet innovation, global markets and worldwide interdependence. Thomas Friedman had to assert the following about globalization;” We are now being touched by people who have never touched us before, we’re competing with individuals who we have never competed with before, and fortunately we are collaborating with people we have never been able to collaborate with before” (Friedman, 1991) such expressions clearly depicts the behaviour of large firms investing in third world countries; for instance SmithKline Beecham investing in Somali

To a scholar known as Noam Chomsky global interactions does not lead to prosperity and he asserts that; “it is a term of propaganda used conventionally to refer to a certain particular form of international integration that is (not surprisingly) beneficial to its designers, Multinational corporations and the powerful states to which they are closely linked” (Raskin and others, 2002). This indeed has been the greatest obstacle that multinational firms face since both local and international markets feel that MNC’s such as BAT Company have only interest at there activities thus exploiting them in one way or another.

International business management is understood as a complex concept that has brought much controversies world wide. Research indicates that globalization have little harmony in regard to what it is and whether it is a new or an old idea. Therefore globalization implies a process of aggravation of political, economic, and cultural interdependence amid the different actors within the global system. We also find that globalization is more systematic in the economic field where it signifies a process of intensification of national economies with the purpose of developing the capacity of the global economy to work as a unit (Kegley, 2004). However, this has not worked out since large MNC’s have been driven out by ill motives of only developing their capacity but not that of the common individual in any local market or international market that they invest in.

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This integration comes with certain socioeconomic conditions as well as policy mechanisms. Therefore, understanding international interactions necessitates the description of the underlying context that makes it viable, as well as the institutional set up and policy frameworks that promote it. MNC’s therefore have been disadvantaged by the fact that host governments sets stringent regulations of conducting business thus making it difficult for large firms to carry out there trade operations in such countries. For instance; BAT Company is subjected to stringent rules in both domestic and international markets; e.g. introduction of smoking zones as well as strict rules of advertising its products thus affecting its marketing activities which in turn leads to reduction in market share (John, 2000).

The other factor that is found to be affecting this international concept enhanced by MNC’s is the predomination of capitalism and the free market economic system. Research indicates that conflicting economic frameworks and visions has not be compatible with the processes of making a common economic space. Under this we find that lack of competition between various economic visions has been described one of the leading factor for globalization which has faced immense criticisms from host countries where MNC’s like SmithKline Beecham, Coca Cola among others have been facing in both local and international markets. (Mead, 2004)

Several policy instruments have been created to act as mechanisms of globalization; this is after the establishment of the acknowledged underlying conditions. There has also been creation of fresh multilateral institutions with the restructuring of the older ones so as to manage and promote the mechanisms of globalization; a few key examples include the International Monetary Fund (IMF), The World Trade Organization (WTO), and the World Bank. The policy mechanisms developed in harmony with a neo-liberal ideology that is also stated to be fostering globalization; disengagement of a nation in economic activities regarding to the regulation and institutional changes like trade barriers restriction, privatization, and capital mobility liberalization are some examples of these mechanisms. Under this we find that many developing nations, the World Bank and IMF through their sponsored programs have been against the adoption of these globalization mechanisms thus hindering the activities of MNC’s. (Sheila, 2004)

Research indicates that there is growing debate about the reality of globalization with two arguments arising; that globalization brings prosperity and that globalization brings impoverishment. Those who argue that it brings prosperity are the proponents while the later are opponents of this concept. Those who oppose globalization cite some issues associated with the growth of this concept and include; nations which are poor are always disadvantage for example countries who rely on agricultural products and their domestic markets having experiencing competition from Multi-National Corporations in same industry which force the local firms to offer there commodities at cheaper prices thus leading to making of loss by such firms (Held and McGrew, 2002).

The other issue is that of exploitation of employees of foreign origin by utilizing them as labour and paying them fewer wages and salaries on the work done. Also MNCs may subject such workers to working for long hours with less pay. Such a situation particularly in poor countries like in Africa has led to escalation of poverty levels since such workers may not be able cater for their basic needs. Globalization has also led to sudden shift to service work from manufacturing processes; this is because of the service provision being considered cost effective particularly when viewed from the aspects of offshore employees and such workers shifting to service industries. Such scenario particularly in Africa and some Asian Countries has led to increase in economic gap between the unskilled and the skilled employees (Snarr, 2004).

There is also an argument that globalization has resulted to growth of contingent jobs in that many MNCs like the BAT and Coca Cola Companies are now favouring the recruitment of part-time or contract based workers thus saving costs that they have could incur on the recruitment of full-time employees. Such scenario have led to job insecurity since the workers will not receive benefits like pension benefits when they will retire thus making life difficult particularly for the old in the society. Globalization has also led to weakening of labour trade unions in that many firms are set up in different parts of the world and there have also been an increase of unemployment rates meaning that there exist surplus of workers in many modern economies. A good example is in the U.S where firms can replace the employees at will since the existing unions have limited powers to protect their workers. (Tehranian, 2001)

Large MNC’s further who operate both locally and internationally has brought some disadvantages what is commonly referred to as impoverishment and they include the following; globalization has led to dumping of a lot of products in the local market which are not of quality. This concept has also led to realization of worldwide ordinary market and at the same time to introduction of financial markets which is integrated and thus can lead to many crimes such smuggling of products. Globalization has also resulted to non-enhancement of international relations between nations due to activities by MNC’s. Such MNC’s may exploit the locals thus causing disharmony between host nations and the country of origin of the MNC’s (Mellahi, Frynas and Finlay, 2005).

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Harmonization of economic policies in Both local and International Markets

Reports show the major reasons, in regard to globalization, that explain the harmonization of economic policy with neoliberal ideologies. One of the reasons is that globalization would be close to impossible to think of convergence of national economies into a common space controlled by hegemonic power through which countries are not prevented from exercising their powers such that they single handily design economic policies in line with their specific circumstances (Stiglitz, 2002)

The second reason is the identification of the underlying shift stands for a change in power balance amid the social classes in support of capital at the world level. This change coupled with the United States hegemony has resulted into a condition suitable for the integration of capital’s goal of the world economic system. The goal involves trade and capital flow liberalization as well as labour markets deregulation keeping in harmony with the interest of capital. Consequently, capital flow liberalization across borders coupled with technological development has reinforced the increased capital’s power by allowing it the power of mobility. In contrast, the capacity to organize and maintain pooled bargaining by labour has been shaken by deregulation of the capital mobility, labour market, and technological changes. (Gill, 2002)

In consideration of the acknowledged underlying shift and globalizing mechanism, a more comprehensive definition of globalization could be; a process of aggravation of interconnectedness amid national economies where it aims to create a single economic space and largely aligning with the capital’s interest, led by a hegemonic power and supported by different policy instruments and institutional frameworks (Hodgetts, Luthans, and Doh, 2006).

Controversy also mars the factors that promote globalization. Obliviously, technological development has contributed to the intensification of interdependence. However, it is not substantial to claim that technology, by itself, would precipitate globalization. For instance, it is unclear whether capital mobility would be achieved due to technological advances alone; development in communication coupled with capital flows deregulation have improved capital mobility (Cullen and Parboteeah, 2005).

Implication of Culture to MNC’s

International marketing occurs when firms or organizations plan and conduct transactions across international borders in order to satisfy the objectives of both local and international consumers and the organization as well. International marketing has not been effective since successful marketing policies have not been adopted by MNC’s and has led to decline in market share and thus decrease in profit level. Efficient and effective marketing strategies or policies however, should be adopted to fit the unique characteristics of each international market. Before an organization embarks on international marketing it must consider the cultural environment that is involved in business activities.

The organization e.g. BAT or SmithKline Beecham firms engaging in international business must consider cultural values that will vary from one country to another. Because firms operate in highly uncertain environment where conditions may be ambiguous, contradictory, and subject to rapid changes in the market. Culture is said to be a system of values and norms that are shared among a group of people and that when combined together it comprises a design for living that is culture is the way of life (Mellahi, Frynas and Finlay, 2005).

It is important for any firm that wishes to go international to understand fully the concept of culture and how this cultural environment will affect its business undertakings. To many writers culture is the central core for any marketing policy. This is because as firms thrive to explore new markets customers of different cultures are involved and thus the marketing policies of each and every firm has to meet the demands and desires of the diverse cultures. For instance, before Coca Cola markets its drinks in different nations it must first conduct a survey to establish the likes and dislikes of the customers in any market they venture in.

There are many reasons as to why culture should be considered by the marketing managers when formulating policies and include the following: Since international marketing is concerned with exploring new markets in different countries there is need for the marketing managers to understand fully the social structure of the target market. Social structure is a basic social unit that individuals live in and how they do things is defined by this structure. Marketing policies should be formulated with particular consideration of the target market desires and wants. Organization’s products and services should be designed in such a way that the social culture would prefer.

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Social culture is also very important in that some communities are subdivided in to categories that will help the firm to market their products and services efficiently. For example in Japan the social status of an individual is usually determined by the standing of the group he/she belongs to. This stratification of the society affects the operations of any business dealings. Many people from different cultures perceive them selves in terms of their backgrounds thus shaping the way they relate in respect to other classes. This in turn may lead to what is referred to as animosity between the classes or strata thus making cumbersome for the entire management of an organization and particularly the marketing managers to achieve co-operation between the employers and the employees especially if they come from diverse culture, thus affecting the business activities of the organization which may lead to low productivity (Barsoux and Schneider, 2003).

The other reason as to why culture forms a central core of marketing policy is that of religion. Religion is a system of shared beliefs and rituals concerned with the sphere of the sacred or the supernatural and it usually affects the way of carrying out business and especially international marketing. According to latest research ethical systems consists of moral principles that are used to shape and guide behaviour and thus affects business activities. Over the world there are various religions that includes Christianity where it is estimated that about 205 of the worlds total population profess this kind of religion, Islam is another system which has about one billion followers, Hinduism which has around 500 million followers and believed to be the oldest religion, Confucianism which has around 150 million followers in Japan, china, among other Asian countries, and Buddhism which is reported to have 250 million adherents especially in India (Hodgetts, Luthans and Doh, 2006).

With diversity of religion systems international marketing has become difficult to be carried out because of the differences that are involved between religions. For example, Islam religion is viewed to be receptive to international marketing and it is said to be favouring market based systems of conducting businesses. This religion always allows free enterprise, legitimate profits through e-commerce and trading activities. The Hinduism on the other hand is said to believe in reincarnation and thus does not encourage entrepreneurial activities like the Protestants. So marketing policies formulated by marketing managers should consider the diverse religion before going international. This way the organization can be able to meet the needs of their potential customers (Adler, 2008).

The other reason why it forms a central part of marketing policy is that of language. Language differs in different countries and organizations should consider this aspect before going international. For example any organization such as BAT Company that wants to go international must address the issues such as translation, non-verbal communications, and personal skills among others. Language is very important in business dealings as well as communicating with the different markets. The marketing policies should be such that the element of language barrier is solved, for example if an American organization would wish to diversify to china; the organization should ensure that the workforce especially the marketing managers should be equipped with Chinese language in order to meet the demands of their customers.

Another main reason as to why culture forms a central core of the marketing policy of any firm wishing to go international is that of education aspect. It is evident hat formal education imparts knowledge, conceptual, mathematical skills, values, and standards to people which affects the way of conducting businesses. With particular regard to international business differences in education will give some organizations competitive advantage because the availability of skilled and educated workforce will be a major boost. If the marketing managers are highly skilled and competent as compared to that of other firms they will be able to come up with viable marketing structures and strategies that will foster survival and growth of the business. It is also argued that education determines the promotional materials that may be used in a particular market and thus the organization can respond to challenges brought about by globalization for example introduction of new technologies.

The other reason as to why culture forms a central part to marketing policies is that of material culture which is considered to involve tools, work of arts, and technology that is used in international marketing. A sound marketing policy should consider channels of distributions and advancement of technologies that will boost the organization’s goals. For example, the marketing policies formulated should provide direction on utilization of new technologies like that of e-commerce to improve the efficiency of the firm operations. This is cost effective and also saves time of the firm which can be used in generation of more income (Hofstede, 2004).

As Cateora and Ghauri (2006) state that ‘for the inexperienced marketer, the similar but different’ aspect of culture creates an illusion of similarity that usually does not exist” is a statement that shows that the concept of culture is significant and the managers of firms need to fully understand it so that they can increase their productivity. Culture varies from one country to another and marketing strategies and policies should be formulated in such a manner that it does not contradict the way of doing things or living by the target population (Thomas, 2008).

In essence, international business has more and more disregarded national restrictions and several businesses have opted to go international in scope which in the process has encouraged workforce diversity which in turn has had both negative and positive effects on multinational companies both locally and domestically. The realism and reality of the concept of globalization can be practical when diversity in workforce is taken in to account; for instance firms like SmithKline Beecham Company have in vested in different countries and in the process recruiting different persons from different cultures to work in their various plants all over the world. This implies that MNC’s have deprived the locals’ job opportunities in such host countries where they have invested.

Conclusion

Considering the ongoing analysis, globalization does not just involve intensification of worldwide interdependence precipitated by technological advancement and market forces. Rather, it is a global view modelled by capitalistic and predominant power that envisions establishing a global system which in the process serves the interest of MNC’s who have sufficient capital over the local firms. Capitalism has an inbound tendency of globalizing. However, it is not often described by the degree of adherence to the liberal principles that globalization represents. In his analysis, E. M. Wood describes globalization as a new manifestation of capitalism which is much pure, unchallenged, unadulterated, and universal, than ever before thus giving advantage to large MNC’ like Coca Cola Company to exploit the local and small medium companies in host countries. (Capra, 2002)

The bad financial situations experienced in various nations have left the proponents of globalization particularly large MNC’s with shaken confidence. For instance, The World Bank, in contrast to the 1980s minimal state dictum it supported, now appreciates the significance of the role of each country in correcting and protecting the aspects of market system. Furthermore, there has been an increasing understanding that uncontrolled financial flows, more so from developed nations to emerging economies, can cause immense instability. Some advocates of globalization have acknowledged the relevance of Keynes’s scepticisms on financial mobility in current global set up. The notable terrorist action in the United States of 11th September, 2001 raised the issue of the wisdom in embracing globalization. However, in spite of the draw backs and the shaken confidence, the proposition for globalization is still strong (Bello, 2002).

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