Relationship Between Multinational Companies and Globalization
In today’s world, it is a concrete fact that the world has become globalized. While the world is becoming globalized, the multinational companies got affected by this shift towards globalization and a connection has been formed between multinational companies and globalization which, in other words, means that the multinational companies has become globalized too. Globalization and multinational companies cannot be considered in different context; multinational companies are like the products of globalization. This paper will introduce what is meant by the phrase ‘multinational company’ and it will touch upon how the multinational companies have now become globalized.
What is a Multinational Company
To start with, a multinational company is the type of organization that has its assets and runs its operations in at least one country apart from its home country, which is where the company was first founded (Lazarus, 2001, 1). A multinational company has an office or a base in one or more other countries but usually the other offices or bases of these kind of companies are connected to a head office which is in general located in the home country of the company (Business Dictionary [no date]). As the multinational companies operate in different countries, they have a chance to get expanded throughout the whole world. Thus, in that case very big multinational companies which operate in every continent in the world and in a high number of countries today have more financial resources than many small countries. The main goal of a multinational company is to increase the shareholder wealth and to increase the stakeholder wealth.
What is Globalization?
For the case of multinational organizations, globalization means interacting between the people and organizations from different countries in all over the world. The multinational companies enter the other countries in many different ways. These ways are firstly exporting and importing, secondly licencing, where the multinational company gives the local companies to produce their goods (Dezembro, 2008, 8), thirdly franchising, where the company gets fee from local investors and sells the rights of the brand and gives consultancy and lastly joint venture, where two or more companies get together in order to found a new company and the originating companies all have rights on the new company. Via using these ways in order to serve in various countries, multinational companies face some advantages and disadvantages which both result from globalization.
Pros of Globalization on Multinational Companies
To start with the pros of globalization on multinational companies, firstly, and most importantly, the companies can now aim a greater demand. If these companies were not able to run their operations in various countries, their target market would only be in their home country and the extend of this market would not eventually be getting considerably wider in time. So, for the sake of globalizations, multinational companies can now serve in the whole world and there are not unpassable restrictions for them. Secondly, multinational companies usually do not have rivals in the countries where they launch their facilities. The local rivals usually are not able to compete against the multinational companies. This is because the multinational companies have access to superior technology, managerial and entrepreneurial skills and more access to research and development. This issue can be exemplified in the context of Turkey, where Le Cola is not even a rival for Coca Cola or Pepsi. On the other hand, the multinational companies may face some disadvantages which are too brought by globalization. Even globalization lets multinational companies to enter new countries, the rules and regulations of new countries would be too challenging for the multinational companies. A big company may be having control and power that they can use towards their government but a big multinational company may not be allowed to use its power and control over the host country. This may have very negative results for the multinational company in terms of their production in the host country and also the sales. Secondly, even globalization seems to connect the whole world to each other, there are still great differences between countries. This may result in very hazardous situations for the international companies because the high gaps of culture, tastes and etc. between the countries may end up with decreasing sales for the multinational companies in that host country which means the loss of profit.
To conclude, globalization and multinational companies should always be approached together as multinational companies are the products of globalization. Thus, multinational companies and globalization are strongly attached to each other and while the multinational companies are running their operations in a different country, they should be aware of the fact that globalization does not always favor multinational companies but it may also be harmful for the company.
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