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Multinational Companies and Global Imbalances

Examine the opportunities for multinational companies to shift resources around the world and the implications of this for nation-states

Why Multinational Corporations shift Resources

A multinational company refers to a firm whose business operations are spread out in more than one country. For the last two decades, there has been a new shift in international trade behavior that has led to a rise in global political and economic interdependence. Instead of being involved in the purchase of resources from other nations and then selling them the finished products, the multinational corporations can now invest in foreign nations directly. This enables them to be involved in the full process of production ranging from raw material extraction and manufacturing to distribution to customers. Most of the global resources are controlled by multinational corporate networks.

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Firms in the United States and other foreign nations choose to go global due to several reasons. The first is to enlarge their markets. Saturation in a company’s domestic market paves way for its better growth in foreign economies. Therefore, the overseas market is getting penetrated by such as Coca-Cola and MacDonald’s. Larger markets are imperative in that they help to cover overhead costs which result from the complexity of the products and the exorbitance of the development. Secondly, most corporations decide to go global because raw materials are available in foreign nations. For instance, most of the oil companies based in the United States have subsidiaries in foreign nations that help them to sustain their business operations (Ehrhardt and Brigham, 2009, p. 589).

Thirdly, it is to look for new technology. There is plenty of diverse technology in other countries and no single country is self-sufficient technologically. Leading scientific and design ideas that are relevant to a company’s operations make it to traverse borders in search of such technology. For instance, office copiers invented by the Japan-based Fuji Xerox was introduced in the United States based Xerox. Fourthly, there is a need to enhance production efficacy. Most companies are moving away from high cost to low-cost countries in a bid to minimize production costs. For example, high production costs in Germany have caused BMW to shift its assembly plants to the United States. Moving labor costs from one nation to another has very important effects on the labor costs within the nation (Ehrhardt and Brigham, 2009, p. 589).

Implications for the nation-states

International economic interdependence has been caused by the great world trade. This has seen an exponential rise in the movement of people, goods, and services (Kincheloe, 2006, p. 348). A job oriented rivalry between the rich and poor nations has emanated due to the ability of most companies to shift their production activities to low-wage regions. There is also a reduction in international trade barriers that have been caused by regional trade agreements such as NAFTA leading to most nations having common interests. Investors have swiftly shifted with their resources and funds across the world due to liberalization within both financial markets and the exchange of currencies. Due to shifting service jobs to low wage regions, multinational corporations can make colossus gains. This stiffens their competition with countries that form low wage zones. Challenges are facing contemporary urban education that has come up due to these global changes.

The locational shift of industrial development throughout the world is due to the desire for global economic development. In this regard, less developed nations have companies in cheap labor market locations that are challenged to compete effectively in conventional industrial operations with their counterparts from more developed countries. The developed nations have the potential to shift the resources into a production that is based on advanced technology (Blazyca, 2003, p. 159). After the Second World War, the planners in charge of industries in Scotland identified the electronics industry as one that could substitute the conventional sectors that had declined. It was argued that the technical and engineering labor in both Europe and the United States was offered at rates higher than that offered in Scotland. The Scotland local tertiary education could see the continual supply of this labor through the long term provision of relevant engineering education by the nation’s universities and colleges. Governments in the United Kingdom and further have promoted the recognition of Scotland industry as a location for whose industry is based on high technology.

Multinational companies have assumed ownership of much of the Scotland electronic industry for several years after the Second World War. There are several purposes that multinational companies may be seen to serve. They are used to transfer technology from one place to another, they help in the transfer of skills to local workers from foreign ones, and they are role models when it comes to both new and more efficient types of industrial structure (Blazyca, 2003, p. 159).

Both intricate communication networks and emerging market opportunities enable multinational firms to move their services and production to regions that are more advantageous globally. Rather than governments, it is multinational and international organizations are responsible for the economic activity in nation-states. Therefore, to be able to improve their relative advantage in the world market, nation-states are supposed to compete continuously (Hall, 2004, p. 52).

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Fish multinational firms

Considerable consolidation has been taking place in the fish industry for the last two decades. The amalgamation of various fish companies has led to the development of several subsidiaries that comprise that are involved in different departments of operations. For example, a parent fish company can be used to catch, process, and market fish. The nature of business for a company changes whenever their operations are vertically integrated. This is due to the larger conglomerates managed to be far away from where the resource is exploited. Employment may be affected by this change since the company may opt to move its operations to regions of lower labor costs. In other regards, the company may carry out each of the various operations such as catching, processing, and distributing from different nations. For example, various Korean companies carry out different purposes regarding fish business from different countries. Fish is caught from Russia, processed in China (due to its low labor costs available in China), and distributed to the United States and China.

A substantial percentage of production is regulated by integrated companies. Consumers can obtain fish cheaply due to the economic efficiencies enhanced by large vertical integration and the presence of fair market competition. In New Zealand, both transfers of quotas and concentration of fish firms have led to the distribution of great harvests within several national processing plants. This has also increased employment to the natives during the fishing period (Taylor, Schechter, and Wolfson, 2007, p. 65). In Norway, the central location and the consolidation of white fish into some companies led to the shutting down of various fish processing plants along the Coastal region.

Namibia loses its revenue from fishing to some large fishing conglomerates that use Namibia’s companies to maximize their profits. This impedes the small home-based fishing companies from getting into the fish sector. Normally the locals end up losing their property rights especially when multinational companies get into a nation and use transferable quotas to regulate access to the resource (Taylor, Schechter and Wolfson, 2007, p. 65). Larger companies have more capital than the locals that is needed to go for quotas available in the market place.


The opportunities that motivate multinationals to spread their operations globally are the availability of raw materials, improved communication network, larger markets, high technology, and low costs of production. The implications for nation-states are the creation of employment for the natives, increased rivalry, and in some cases collapse of local firms. Additionally, multinational companies have led to the removal of international trade barriers, exploitation of resources in nation-states, and increased international economic interdependence.

Explain the US and Chinese position on global imbalances and the role of the G20 in resolving this issue

The Chinese Position on Global imbalances

The second Bretton Woods norm requires both deficit and surplus nations to share responsibility in the adjustment of global imbalances. However, China and the majority of other surplus countries have not expressed a high degree of willingness regarding this. Although the Chinese indicate having accepted this through their willingness to respond to the 2005 – 2008 RMB reevaluation, it may be argued that their main drives for this policy were not international but national (Foot and Walter, 2010, p. 114). Although most Chinese leaders concur with the fact that there should be increased flexibility in exchange rates as a medium term goal, this may not directly relate to the recently emerged global imbalances. The response given by China regarding the role played by global imbalances in contribution to the 2008 – 2009 global recession has revealed a lot in this respect. Most Chinese leaders have publicly disputed that regarding the fact that the crisis may have been caused mainly due to global imbalances and more specifically, China’s large surplus.

They view the cause of the crisis to have mainly emanated from poor fiscal risk management and regulation in the developed nations. Most China officials and economists attribute high savings to virtue whereas deficits are attributed to debt-driven over-consumption and slack fiscal control (Foot and Walter, 2010, p. 114). Therefore, global imbalances and more emergent financial recession are seen to have been mainly caused by debt-driven over-consumption and slack fiscal control. Towards the end of 2008, China dismissed any suggestions that could see the renewal of RMB appreciation. China then maintained that its decision not to devalue the RMB when its exports declined and the immense financial stimulus to national investment and growth was its main role in the global economic recovery. China maintained this position during and after the yearly bilateral surveillance process with the International Monetary Fund in 2009. This was despite expressed views from the International Monetary Fund and other executive Board nations that China was supposed to contribute to global adjustment and fiscal regulation by further appreciating RMB (Foot and Walter, 2010, p. 114-115).

The tricky part with China’s stand was that a greater portion of its large financial stimulus was chiefly focused on generating investment. This is likely to contribute less towards local consumption and increasing the incentive for excess export production. It is rather likely to lead to a rise in overcapacity levels that already exists in some sectors. Another difficulty with China’s position was that even after the dollar started to weaken against other major currencies during the end of the first quarter of 2009, it persisted with its pegging policy. This for another time led to devaluations in the currencies of most developing countries.

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At the beginning of 2010, some Chinese representatives saw and expressed the need to go back to the policy of gradual appreciation against the dollar. This is after they had observed a rapid increase in asset prices and the reemergence of consumer price inflation. The PBRC governor asserted that part of China’s measures to fight the global crisis was the return to a fixed dollar peg that had occurred in mid-2008. During June 2010, just a day to the G20 summit, China accepted to enhance the flexibility of the RMB exchange rate regime, although the PBRC governor had previously disputed this. Therefore, the debate for and against the restoration of RMB appreciation became more balanced while the Chinese authority became flexible on the issue and at the same time has been expressing willingness to combat international criticism on its exchange rate policy (Foot and Walter, 2010, p. 115).

The United States’ Position on Global Imbalances

The global financial imbalances can be summarized into three. First, there is a high Gross Domestic Product in the United States combined with huge deficits in the current account. Second, there is restrained economic development in Europe. It is impeded by inadequate structural changes and current accounts balanced position. Third, Eastern Asia experiencing high economic growth enhanced by international reserve accretion and large surpluses in the current account. Most economists from the United States assert that external factors are responsible for the imbalance within the current accounts of the United States.

They, therefore, conclude that these imbalances are not supposed to be fought by the United States leadership but rather from outside the United States. In the same vein, it is argued by others that there should be no cause for worry as long as there is strong and healthy productivity growth, as long there is proper growth in the Gross Domestic Product (GDP) of the United States, and as long as inflation can be regulated (Uzan, 2008, p. 9). They, therefore, maintain that any restrictive policy action by the United States will do a lot of harm to the global growth apart from negatively affecting the United States and other nations that rely on it for its strong domestic demand. Additionally, they suggest that if the United States keeps on attracting (that is foreigners acquiring the treasury tools of the US) the relevant capital inflows to fund their external deficit, it is because the good performance of the US economy and its assets motivates foreigners to do so (Uzan, 2008, p. 10). Certainly, faster growth in the domestic demand of the United States is the reason behind its current account deficit. The growth in the domestic demand of the United States is faster compared to that in Japan, Europe, and other developing countries.

The conventional perspective of global imbalances is founded on the concept that the unsustainable nature of the United States’ current account is caused by a buildup of external liabilities that may eventually result in a loss of market confidence. This concept is based on two assumptions. First, the adjustments initiated by foreign markets are less orderly than the ones induced by policy measures. Secondly, the ability of the main players to agree on the direction of the desired policy adjustments may cause financial markets to change their positions regarding the sustainability of the imbalances (Xafa, 2007, p. 15).

The Role of G20 in Addressing Global Imbalances

Since the global financial recession, the increasing activities of the G20 have buttressed the rhetoric of cumulative action problem solving and regulation. The global key economic policymakers have tried their level best. After an apparent passing of what seems to be another Bretton Woods, both expert consensus and political determination among the G20 members that will see the necessary reinforcement of the rules are lacking. If a change has to take place, then it will be gradual (Claessens, Evennet, and Hoekman, 2010, p. 203).


Both the US and China do not seem to accept to take responsibility for solving global imbalances. China agrees with the concept of having flexible exchange rates but remains non-committal to offering a solution to the current global imbalances. In the United States, the imbalances are a result of high GDP growth coupled with a large current account deficit. Most of the US-based economists suggest that the deficit in the US current accounts is due to external factors and hence the remedy is from outside the US. The G20 nations have been making efforts and have laid down some rules. However, the framework for the enforcement of these regulations is yet to be incepted.

Reference List

Blazyca, G., 2003. Restructuring regional and local economies: towards a comparative study of Scotland and Upper Silesia. Aldershot, England: Ashgate Publishing Limited.

Claessens, S., Evennet, S. and Hoekman, B., 2010. Rebalancing the Global Economy: A Primer for Policy Makers. London: Centre for Economic Policy Research.

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Ehrhardt, M.C. and Brigham, E.F., 2009. Corporate Finance: A focused Approach. Mason: Cengage Learning.

Foot, R. and Walter, A., 2010. China, the United States and World Order. New York: Cambridge University Press.

Hall, K., 2004. Literacy and Schooling: Towards Renewal in Primary Education Policy. Aldershot, England: Ashgate Publishing Limited.

Kincheloe, J.L., 2006. The Praeger Handbook of Urban Education, Volume 2. West Port: Greenwood Publishing Group.

Taylor, W., Schechter, M. and Wolfson, L., 2007. Globalization: Effects on Fish Resources. Cambridge, New York: Cambridge University Press.

Uzan, M., 2008. The macroeconomics of global imbalances: European and Asian perspectives. New York: Routledge.

Xafa, M., 2007. Global Imbalances and Financial stability. New York: International Monetary Fund.

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