Impacts of multinational firms in world economy

Résumé du document

Nowadays, there are about 65 000 Multinational Firms (MNF). A firm is called multinational when it realizes Foreign Direct Investments (FDI), like the creation, or the repurchase of a production plant, or the creation of a subsidiary. Thus, a FDI represents a capital transfer. Moreover, all companies which own at least one subsidiary abroad can be considered multinational firms. The increase of the number of these international firms in the last few years is proof of constant globalization. The discovery of raw material in foreign countries and the necessity of finding new markets for products that are difficult to export, were the first reasons for the development of MNFs. Since 1980, increasing FDIs are the main factor that has spurred globalization due to the wave of liberalism. Thereafter, researches on the reduction of labor costs as well as the proximity with local demand became the priority. Now, more and more companies organize their production on a global scale and thus generate increasing trade through exchanges between their subsidiaries.

Extraits

[...] Little by little, the two partners have created a brand which is today the first one in the world. Nike profitability is about 7.3 billions $ and has 36% of the world sport market. We can say that is a multinational because of different characteristics: First of all, Nike produces 99% of its production in foreign countries especially in Asia; Nike delivers a license only to the best producing companies in Asia. Being a Nike's subsidiary is extremely complicated in terms of production and profitability; Nike's profitability in foreign countries is about Nike invests every year about 300 millions $ in the subsidiaries which represents important FDI; Nike's head office is located in the United States, precisely in Beaverton in the Oregon. [...]

[...] Then, a new problem created by MNF, but now from the developed countries side, is that relocation has to be following by professional training in order to train unskilled workers in North countries but also for managers. Because their jobs have been relocate because of a cheaper labour force. These relocations could lead to a massive unemployment and a major lack of qualifications. Lastly, the growing share of MNF in global economy reduces a lot the place and the activities of small and medium companies in the globalization. In the future, we could have a global economy led by MNF becoming bigger and bigger, and medium companies becoming smaller and smaller. [...]

[...] Moreover, and obviously, this strategy creates employment for a lot of people, more than in Asia and south of Italy. C. The unfavourable impact of Nike on the world economy Some other aspects of the economic impact of the multinational company in the world are more negative. Actually, in 1998 Nike was criticized by international press because of social aspects which are included in the economic aspect. More especially with the Michael Moore movie Big which denounced children work in Indonesia? [...]

[...] Those countries are rather dependant of work that those firms offer to people in those countries. This dependence created a subservience of the subsidiaries which accept all the conditions of the firms. Moreover, a new consequence appears the fact that Nike educates people to occupy directly important responsibilities but because people live in developing countries, it costs less money than an equivalent employee in Europe or USA. This phenomenon leads to the decrease of employment in Europe and to the increase of unemployment in developed countries. [...]

[...] Moreover the intra-firm exchanges, i.e. exchanges between subsidiaries of the same MNF and exchanges between MNF, represent the major part of world exchanges. Foreign Direct Investments are very useful for the development of employment in countries where the labour force is cheaper. These exchanges energize the global economy and especially with FDI which are the main factors to the development of developing countries. This is a great asset for the dynamism and the balancing of the global economy. In a context of globalization, we can say that MNF organize their production on a global scale. [...]