Multinational businesses Essay Example | Topics and Well Written Essays - 2500 words

Multinational businesses - Essay Example (Veseth, 2010) This paper examines the phenomenon of globalization and analyzes the effect of the phenomenon by taking the example of a company (Coca-Cola). The paper is divided into sections on globalization and what it means as well as detailing the pros and cons of the process. Further, the issue of globalization in terms of whether it is consistent with economic theory is also examined. The other section is the case study of a company that has long been regarded as one of the prime beneficiaries of globalization and this section looks at the way in which globalization has benefited the company and the impact of the current recession on the prospects of the company. Globalization and the forces driving it There are many definitions of globalization depending on the way in which the phenomenon is viewed. For the purposes of this paper, it would suffice to state that globalization means the integration of markets across the world and the movement of people, goods and services across national boundaries. The phenomenon of globalization is closely tied with that of free trade and the theory of comparative advantage as proposed by one of the founding fathers of modern economics, David Ricardo. Whether the current practice of globalization is consistent with the economic theory would be examined in detail in the later paragraphs. (Bhagwati, 2004) If we examine the question as to what is globalization, we find that the term encompasses a broad range of activities that range from a) multinational companies seeking to setup operations in countries like China and India to take advantage of the lower costs of labour and the exchange rate differential that promotes exports from these countries to the Western world b) the free movement of people and ideas across countries in search of the best markets for their services because of the deregulation of the economies of the West as well as the East. (Friedman, 2005) The case for globalization seems pretty straightforward. I f a company enjoys substantial cost advantages in production because of wage and exchange rate differentials, then economic theory states that the company is better off producing in a country where the costs are low and selling in a country where the margins on its products are more. Hence, this simple notion of free trade theory underpins much of the discussion on globalization. Further, economists like Jagdish Bhagwati have shown that the countries like the United States gain in terms of having cheaper goods as well as outsourcing of jobs. The gains are in the nature of capital saved by relocating production and outsourcing functions that can be gainfully employed in the home countries for more productive purposes. The argument here is that the US gains in terms of moving up the value chain and investing in Research and Development while the activities at the bottom of the value chain like manufacturing can be done at lower costs. (Bhagwati, 2004) The case against globalization is that the process involves the movement of capital to the countries where costs are low and hence these countries build up huge reserves of foreign exchanges that lead to global imbalances in the way in which current account deficits in the US are