Globalization and the MNC
Globalization refers to the process where businesses or organizations acquire international influence as they begin to operate on a global scale. In the 20th century, globalization was defined by three distinct aspects; historical process, cultural process, and leveled playing field. The leveled playing field aspect is associated with international migration, the balance of payments, and technological transfer as the fuel for globalization in the 20th century. Multinationals (MNC) were established due to the leveled playing field aspect as businesses owned in-home countries could then invest in host countries. This paper will focus on levelled playing field, including international standards and access to markets as it discussed globalization and the relevance for today’s multinationals, as well as contemporary challenges……… Don't use plagiarised sources.Get your custom essay just from $11/page
Britain’s Industrial Revolution
The great divergence saw Britain transform and become wealthy in Europe. Britain’s industrial revolution was a success due to its uniqueness during the 18th century. During this period, Britain was transforming its institutions thanks to the constitution. New trade networks were also being established, and the higher literacy levels contributed to the region’s innovation and invention. Britain also had vast resource endowment, including its canals and coal. Chapter 3 of Colli’s book on Dynamics of International Businesses discusses the first industrialization process and the factors that fueled Britain’s industrial revolution. Colli discusses the essence of technological advancements in transforming communication and transport hence facilitating an industrial revolution in the region. According to Colli (2016, p.65), technology and communication innovations eliminated the need for intermediaries as entrepreneurs started investing abroad to replace the competencies developed at home in other promising markets. Revolution gave rise to factories that replaced labor with machinery. Transportation, on the other hand, was also advanced, and technology to generate energy was mature hence allowing for the diffusion of railways through Europe to South and North America and eventually to Asia. The industrial revolution in Britain, therefore, plays a vital role in promoting globalization by linking Europe to the world and vice versa.
Allen’s theory of Induced Innovation
According to Allen (2011), Britain had high wages as well as relatively low energy costs and capital compared to regions like China, which had high energy and capital costs, but low wages. Labor-saving inventions were, therefore, induced by the relative factor price structure that Britain had, while China derailed back with labor-intensive innovations. In the long-run, the price and wage structure of Britain stimulated technology demand as incentives were put in place to substitute energy and physical capital for labor. High imports from east Asia were also recorded as Britain had a large luxury consumer goods market, thus stimulating product innovation. Allen’s theory tries to explain how Britain’s industrial evolution occurred; however, no mechanism exists linking the economic environment to the inventive process. Other critiques of Allen’s theory include Humphrie’s, who argued that mechanized factories in Britain were introduced due to the high supply of low wage female and child labor rather than to cut costs of production by substituting cheap capital and energy for the expensive labor.
Globalization in the 19th century
Globalization started to take shape during the 19th century as few migration restrictions were enforced hence allowing the movement of labor both voluntarily and involuntarily (slave trade). Imperialism also fueled globalization as barriers to cross-border flow of knowledge, trade, and capital was removed forcefully. Capitalism, the adoption of liberal policies, and lack of international wars also favored globalization. Transport and communication technologies resulted in the creation of railroads and steamships, as well as telegraph hence revolutionizing businesses in the UK. Cross border investments by multinationals also favored globalization. The industrialization of Britain played a major role in globalization as the region was the largest manufacturing company in the world by 1800. Growth in the scale and numbers of MNC also favored globalization and was driven by the exploitation of the region’s natural resources and flourish of international trade.
Development of MNC during the Belle Epoque (1880-1914)
The period between 1880-1914 saw a steady increase of multinationals that facilitated the globalization process. Both the US and European investors had the desire to control available raw materials in regions like South America and Asia, particularly oil and mining. The investors also desired to export technologies like gas distribution, electricity, and public transport to regions with little opportunities in domestic markets. Freestanding companies involved entrepreneurs financing their activities abroad with the capital collected in their home markets. Technological advancements were the main advantage of MNC, but soon, marketing and branding became vital. Frequent stock market bubbles and bank runs, however, resulted in minor and major financial crises. Gold standards also led to conflicting effects as gold would occasionally flow out of the British economy.
MNCs and Foreign Direct Investment (FDI)
Foreign Direct Investment (FDI) refers to investments made by individuals or firms from one country into businesses in other countries. Institutions like the International Monetary Fund (IMF) and United Nations Conference on Trade and Development(UNCTAD) are in place to provide statics on foreign investments in developed and developing countries (Colli 2016, p.43). FDIs can either be in terms of greenfield investments or acquisitions, depending on the context. MNCs engaged in greenfield investments by establishing new ventures in foreign countries by constructing facilities from scratch. Acquisition, on the other hand, involved MNCs purchasing or leasing current production facilities and launching new production activities. The choice of FDI would depend on the nature of MNCs as first time firms would opt for acquisitions to minimize uncertainty, while established firms would opt to take part in greenfield investments. Today, MNCs are still fueling globalization as they set up investments abroad either based on acquisitions or greenfield investments. The relevance of today’s MNCs can also be seen as they advance technology and communication due to extensive R&D being carried out by individual firms.
MNCs and the Challenge of Culture
The establishment of MNCs was challenging to some extent since distance becoming a limiting factor to their success. O’Rourke states that distance was a challenge to MNCs as it made it hard for them to build effective cross-border organizations. Barlett & Goshal (1989), came up with strategic requirement for industries to best ‘fit’ across border. The duo proposed the multinational model, international model, global model, and transnational model. In the first place, the multinational model involved companies managing their business portfolio in national entities considering local autonomy. Companies transferred several skilled personnel and start-up capital by recruiting labor from the same regions and social groups. The international model involved a hierarchy of managers who monitored and coordinated operations hence transferring marketing knowledge and technological capabilities abroad. The global model was based on economies of scale and centralized decisions. Responsiveness to customer preference took place when economies of scale appeared to be more modest compared to national market size. Lastly, the multinational model aimed at achieving responsiveness and innovation simultaneously thanks to the integrated network of distributed interrelated capabilities and resources.
Contemporary Challenges to Globalization
With a depiction of how globalization came to be during the 19th century, especially in Britain, we now take a look at contemporary challenges to globalization based on one of O’Rourke’s history literatures. O’Rourke (2019), discusses contemporary challenges to globalization from a broader perspective. O’Rourke uses three economic history literatures to illustrate contemporary challenges to globalization; the literature on links between warfare and trade, the literature on interwar protectionism, and the literature on anti-globalization backlash of the late nineteenth century. The essay shall focus on the literature on the anti-globalization backlash of the late nineteenth century. Anti-globalization backlash of the late nineteenth century particularly concentrated on migration and trade. During the late nineteenth century, narrowed commodity price gaps increased agricultural prices and manufactured goods prices in the New World and Europe, respectively. European agricultural prices were lowered while manufactured goods prices were also lowered in the New World. Price shocks were beneficial to abundant factors, while scarce factors were hurt in the process. British workers benefited from falling transport costs as British landowners were hurt in the process.
The nineteenth-century immigration pressured local US labor markets as higher immigration rates were related to supplemented across states in the US with higher native-born out-migration rates. Today, immigration in the US from 1990-2006 affected native wages decimally but reduced the wages of initial immigrants in the region. In the UK, immigration from 1997-2005 reduced the wages of UK workers that were native-born below the twenty percentile wage distribution (O’Rourke 2019, p.13). Evidence shows that immigration has fewer effects today compared to 100 years ago due to modern minimum wage bills. Immigration creates losers and winners among existing immigrant workers and the native population as the wages of low-skilled natives are reduced.
Conclusion
In summary, the paper has illustrated the relevance for today’s multinationals by looking back at the industrial revolution of Britain and the role it played in promoting globalization. The advancements in communication and technology were key to enhancing Britain’s industrial revolution as it connected Europe to the New World. With time, Britain’s multinationals started taking shape thanks to entrepreneurship and the interconnection between countries. Today’s MNCs have promoted globalization by establishing firms abroad and engaging in FDIs, which create employment opportunities for people in the respective countries as well as raise revenue to the respective governments. Contemporary challenges of globalization are also present, and they include trade and immigration challenges as native-born workers, especially those with low-skilled wages, are affected by immigrants.
References
Allen, R. C (2011) The British Industrial Revolution in Global Perspective (Cambridge: CUP)
Colli, A 2016, Dynamics of International Business : Comparative Perspectives of Firms, Markets and Entrepreneurship, Routledge, London. Available from: ProQuest Ebook Central. [31 March 2020].
O’Rourke & Hjortshøj, K., 2018. Economic History and Contemporary Challenges to Globalization. NBER. Available at: https://www.nber.org/papers/w25364 [Accessed March 31, 2020].