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Politics and Public Administration
POL 208
Wayne Petrozzi

The Role and Impact of Transnational Corporations Shirel Kats Krafman 500 571 357 Ryerson University Wayne Petrozzi POL 208-031 Term Research Paper th March 4 2014 The Role and Impact of Transnational Corporations 2 As dramatic as the rise of global interdependence, the impact and role of transnational corporations, also known as multinational corporations, are clouded by the many ideologies and priorities of people in different countries.Apart from their size, transnational corporations are largely prominent in the global equation. In particular, they hold the capacity to influence other powerful corporations and governments. Transnational corporations act as a catalyst by inducing change in the worldwide social, political and economic state. They also continue to be the centre of debate in arguments regarding the advantages and disadvantages of their borderless operations.As a result, transnational corporations are held to high concern when it comes to their presence in a diverse society, underlying control in the political world and role in the handling of global economic problems. th The 17 century was the first time the world experienced, under what was defined as, a transnational corporation. By definition, a transnational corporation is any company that “is registered or operates in more than one country at a time” (Chandler & Mazlish, 2004) and the East India Company fit the description perfectly. Founded in 1600 under Colonial India and headquartered in London, England, the East India Company maneuvered trade through the sale of basic commodities in different regions within the Indian subcontinent, Chinese dynasty and Eastern Europe under the British Crown. “Early trade was often characterized by the difficulty of transacting across borders.” (Kogut, 2001). Navigating borders were among the many constraints businesses wishing to venture across borders faced in an era without proper transportation means. Seeking profitable opportunity, access to a new consumer base was a viable solution that offered businesses additional profit, facilitated new economic activity, and offered security against competition. “Migration encouraged contacts, new ideas, trade, international investment and technology transfers” (Chandler & Mazlish, 2004). East India Company pioneered a business survival strategy that integrated the current economy into the interdepending global system in place today. Transnational corporations are now faced with a divergent and growing business environment. Increasingly competitive and uniquely diverse, this modern business world has proliferated barriers that challenge these corporate giants. Globalization has enhanced technology to such sophistication and made worldwide communication so easily accessible that multinational corporations are now competing at higher standards with every development. However, as the current economy advances, expansion is not the only a requirement in order to maintain competitiveness. With an increased awareness of the affect of globalization, corporate executives are recognizing the impediments of language barriers and standardized marketing strategies. The massive growth potential in a foreign country is not to be jeopardized by homogenous products and promotional techniques. Identifying the product modifications needed to conform to foreign markets and attract their local customers became the framework for international marketing. Evaluated by foreign values, customs and the criteria of a unique market of consumers, it can be argued that, on the contrary, society is a force that has a substantial impact on transnational corporations. The relationship between developing countries and multinational corporations is often misunderstood and criticized the portrayal of the corporation’s financial superiority and the country’s “vulnerabilities and constraints, such as limited human capital and The Role and Impact of Transnational Corporations 3 productive capacity” (Stiglitz & Charlton, 2006) displays controversy. The pursuits of opportunities provoke questionable discussions on the intentions and actions of the transnational corporations. Firstly, transnational corporations have a nation of origination, usually “That of the parent company, regardless of the nationality of affiliates, licensees or junior partners… [and] there will be a flow of funds from the firm as a whole to the citizens of the country of the parent company. This involves, among other things, a movement of funds away from the economies in which the subsidiaries of the multinational are operating.” (Singer &Ansari, 1988) The true nature behind expansion into developing countries lies in the company’s goals and ability to stimulate both the host country’s struggling economy and the company’s operations. Nevertheless, the contributions and policies of political entities are what draw corporations into a developing state. Typically lacking stability, these countries consist of minimal government policies, uncontrolled regulations, and poverty. Disputes over exploitation emerge with the consumption of inexpensive raw materials and labour provided by these developing nations. The belief that there is an unfair distribution of resources and manipulation of labour force is a speculation built on the presumption that improvement of living standards and economic growth would be in existence without the transnational corporation’s presence inside the country. The truth is “Nation-states are in a difficult situation in terms of their response to labour standards and practices are in a difficult situation in terms of their response to labour standards and practices. Case studies show the apparel industry created 42 million jobs in developing countries. However, concomitant with the government support were bans on unionization and restricted workers’ bargaining power, further lowering wages” (Habib-Mintz, 2009) While instances where existing governments faced corporation’s threat of withdrawal from the developing nation influenced political decisions and resulted in leniency in regard to human rights and labour standards, mutual economic gain is the notion behind entering a developing country. Ethical approaches to undermined laws and regulations would be to apply the morality used in their originating country, but that would be ineffective in lowering operating costs. Globalization is highly prevalent in nations that are integrated into this unified world. One of the few organizations that have the capability to foster interdependence and spread of information to include developing nations are transnational corporations. Their role in encouraging economic activity, augmenting growth and maximizing potential among developing nations and poverty- stricken individuals is their absolute impact. Although this planet as a whole faces a variety of world issues, one key segment to discuss when evaluating the impact of transnational corporations is their environmental footprint and whether or not capitalistic companies are accommodating towards the welfare of the environment. Transnational corporations are faced with trade-offs between their corporate objectives and effect on the environment. Each constraining decision The Role and Impact of Transnational Corporations 4 crucially challenges a corporation’s prosperity and sustainability. Corporate social responsibility is the internal instrument controlling a company’s response
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