International Business in Emerging Markets

Traditionally, large corporations were located in the developed world and the market in the developing world was considered too fragile for the corporations to venture in. Most of the large corporations had their base in the developed world with no regard for the developing markets and especially sub Saharan Africa (Jain, 2007, pp 17). Then, developing countries, majority of who are located in Africa were considered unviable for large corporations. However, the emergence of China over the years set precedence for future business interests. With the largest population in the world, the country could not just be assumed due to the potential market that it presented.

The vastness of the natural resources in the developing world is the main reason for the change in the perceptions in terms of international business. Over the recent past, many discoveries have been made in continents that were before then considered ‘dark continents’. In addition, the high and steady levels of growth in the developing countries opened the developing world to the outside world and thus the scramble for the market (Pacek, 2012, pp 85). It is in order to assume that currently, majority of the business in the world is now been done on the back of the developing world. It is hard to not find an international corporation that has no branch in the developing continents of Asia and Africa. In fact, some of the emerging international corporations have set their headquarters in the developing world to tap into the unexploited market provided in these countries.

Globalization is a concept in which the world is brought together in the exchange of skills, knowledge, goods and human capital. The concept is facilitated through international investments and trade. The backbone of globalization is the emergence of the powerful tool that is information technology which leads to the integration of countries and companies on a global scale. Through globalization, countries and businesses are able to learn from each other and facilitate one another in conducting business. Globalization has led to the eruption of business brands that command an international following. In addition, the people all over the world have the benefit of choosing the best products among a range of different products from different countries of the world.

Essentially, the growth of international brands of business or the multinational companies is driving the growth and development in emerging markets in the world (Marinov & Marinova, 2012, pp 47). The large amounts of capital that the corporations invest are driving development at a scale not seen before. Today, it is possible to locate an American brand in stores in Africa and other emerging markets in the developing world. The high market potential in the emerging markets is the main factor that encourages the multinational corporations into the previously untapped markets. Multinational companies have the ability of pulling investments in the countries where they set base and thus bringing development along with them.

The emerging countries represent about 150 countries with an estimated population of 4.6 billion people. With these large figures, emerging markets are the most important destinations for multinational corporations whose hunger for growth cannot be satiated by the developed markets. India and China are the largest emerging markets and perhaps the most important due to the population that they hold (Zou, 2011, pp 86). Combined, the populations of China and India surpass the 1.4 billion mark representing almost half of the emerging market share in terms of population. The interest in these emerging markets has grown tremendously over the recent past with every multinational corporations scrambling for a share of the pie that is the emerging market.

The concept of globalization is important in shaping the world views and restructuring of the commercial, cultural and communication sectors of the different world economies. Regardless, globalization has the importance of integrating the many aspects and making the world a one-stop shop for all. The advocacy for free markets and the opening up of new markets makes it be seen as the expansion of capitalism in the world. It advocates for the global division of labor and thereby distributing political and economic power to areas that had no such power before (Cohen, 2007, pp 63). The change in the global politics over the recent past is a characteristic of globalization which influences that international politics.

There has been growing debate over the advantages of globalization to the developing countries based on these assertions of westernization. It has been argued that the new global business environment is predominantly structured based on the interests of the developed world that is made up of the Western countries. This has led to an argument among the scholars from the developing world and indeed some from the developed world that globalization is less beneficial to the developing markets than it is to the developed world. Countries like China, which is the largest communist country have been transformed by globalization and now encourage capitalistic investments in their countries. The international economic policy of China has for instance changed from a country that blocked foreign direct investments to one that is the largest recipient of the foreign direct investments (Rugraff & Hansen, 2011, pp 115). The contrast is made much larger by the fact that China accounts for half of the foreign direct investments committed to the developing world.

Viewed differently, globalization is the epitome of wickedness and is the leading factor why Africa is ailing today. The concept is built on the basis of exploitation where the rich exploit the poor by using the raw materials to grow the rich further thereby widening the gap between the rich and the poor. The main notion for globalization is the widening of markets for products that are in most cases produced in the developed countries; never mind that the raw materials for these products are sourced from the developing world. Globalization therefore seeks to remove all or at least most of the national barriers on movement of international capital (Mok & Tan, 2004, pp 27). The introduction of information technology is an important platform in realizing this goal. The aim of globalization is to remove all the imaginary territories in the world and the homogenization of values, ideas and cultures to conform to one set.

The concept allows for the expansion of trade by limiting the restrictions that existed before between enemy countries. To achieve this objective, globalization banks on the emergence of large multinational corporations that is able to dominate over large spheres of the globe. In so doing globalization encourages greater liberalization and openness in the international market. The effect of this pattern is that domestic companies are forced to conform to international brands that use technology on a large scale. Globalization is tantamount to a global economy that is controlled by large international corporations that operate without barriers of national boundaries and economies (Tiplady, 2003, pp 68). The effect of this concept in Africa is that it international goods and other factors of production inflate the local markets and may outdo that local products.

In addition to the many advantages, globalization improves international trade and investment through the specialization of production. This is made possible through the division of labor between different regions and countries in the world. However, the impact of this specialization is that trade is largely concentrated in the developed world. This concentration is despite the fact that trade among the different nations is on an increase on average. This is accentuated by statistics from world trade such as the one in 1992 that showed 56% of the trade to have been done among the developed countries (Bae & Richardson, 2005, pp 117). In the same year, about three quarter of the imports was from developed countries. However, there is reason to celebrate globalization as evidenced by the increasing trade between developing countries.

In the concept of globalization, the specialization of skills is an important characteristic of the international trade. The international division of labor is patterned in such a way that developed countries focus on high skill production of goods and services. On the other extreme is the low skill production in the developing world. Normally, the developing countries are involved in the trade of raw materials that are rarely processed. This fact makes the countries to lose most of the product’s value as majority of the processing is done in factories in the developed world. The uneven distribution of the processes of production between the developed and developing countries has the latter in bad shape as they have to grapple with little development. The farms in the developing world are made to produce raw materials for factories in the developed world (Davies & Nyland, 2004, pp 86). It is common to find raw materials from Africa for example make products in the Western nations and the same products sold back to Africa at exploitative prices.

The concept of globalization is undoubtedly an extension of capitalism to the rest of the world and has its base on the exploitative forms of capitalism. In essence, globalization, in its current form, cannot exist devoid of parasitic exploitation with the host being the developing world. In this respect, the developed world continues to develop on the backs of the developing world. Globalization as extended to the world has the nature of exploiting African resources while developing little of the continent’s countries (Wu, 2006, pp 59).

In the hope of attracting development, the developing countries have banked on the use of direct investments from the foreign counterparts. Driving this trend of development are multinational corporations that are in thousands all over the world. To the developing countries, multinationals provide a hope for development and prosperity. On the other hand, the rich resources in the developing world provide a guarantee of returns on the investments by the multinational companies (Stephenson et al., 2002, pp 69). However, despite the hype about the investments, most of these international countries have their base in countries considered to have industrialized recently such as Malaysia, India and China. In fact, only about 4 % of the total foreign direct investments are in Africa with a majority of 95% going to the top ten countries in the developing world.

There is increasing value in the multinational corporations and especially the share ion the developing world. Today, about one third of the total value of multinational corporations is in the developing countries. The interests of these international companies are in sectors such as mining, oil and gas, manufacturing and services. The increase in the growth of the service sector is due to the increasing and steady growth of the middle class in the developing world that drives the demand for services such as banking. The distinction between multinational corporations and other businesses is in the fact that the former have control over factors of production many countries. Ideally, multinational corporations are just normal businesses with subsidiaries in multiple countries (Lofdahl, 2002, pp 108).

The impact of multinationals in the emerging markets is huge and diverse. Both parties benefit from the rewards of foreign direct investments ion that the multinational companies get profit while the countries get development. The development is occasioned by many avenues, one of which is through employment of the citizens in the specific country. Developing countries are keen on attracting multinational companies due to the volume of job creation that the companies impart. In addition, the multinational companies stimulate economic growth in the countries and eventually leading to massive employments of the people. Generally, the employment created is both in direct and indirect and cannot be overlooked. The new production facilities employ a lot of people to help in the processes thus forming part of the direct employment. Indirect job creation is occasioned through the indirect links that multinational companies have on the economy (Markovic, 2012, pp 197). For instance, the establishment of production companies may stimulate demand in the service industries thus creating more employment. The advantage of employment is not just the financial gains that the individuals and the government gain from such programs. Rather, there is also the exchange of skills, knowledge and technology making the individuals much more competitive in the long run (Nigh & Toyne, 1999, pp 105). Majority of the African economies have gained from increased establishment of multinational companies in the mining, banking, telecommunications, and petroleum sectors of the economy.

The governments in the developing countries and the economies at large also stand to benefit when multinationals lay foot in the emerging markets. The revenue sourced from taxing the multinational companies is a surplus for the local economy. The producers are required, in law, to pay tax levies and thus contributing to public finances. In addition, the individuals employed to work for the multinational companies are also taxed thus making the impact much more meaningful. The volume of income among the multinational companies means that tax from these companies is usually highly significant. Majority of African countries that highly depend on taxation for their development have reported increased growths from the entry of multinational corporations.

The entry of multinationals in any economy improves the country’s balance of payment position. Investments from the international companies present a direct influx of capital into the country therefore increasing the GDP of the country. Moreover, the investments are likely to lead to export promotion and the substitution for imports. This means that goods that were previously imported can now be manufactured in the country for the local market. The surplus from this production can then be exported to other countries thus improving the returns to the country.

Despite the many theoretical gains from multinational investments, the reality is always different, at least in some countries. It has been reported that foreign direct investments coupled with globalization are to blame for the dismal performance of some African countries in terms of development. The basis for such assertions is in the fact that globalization presents a competition between the developed powerhouses and the poor developing countries that have little control over factors of production. In any such tussle, the strongest is bound to win while the weakest ends up being weaker. The developing world is just a ready market for the developed countries in the concept of globalization. Although globalization results in significant growth of the developing world, there is little evidence to show that such developments could not be achieved without exploitation of the developing countries’ resources (Pacek, 2012, pp 48).

Firstly, there is the possibility that the long term impact of multinationals in a country reduce the development as a whole. Jobs created in one region of the host country may increase competition thus driving away local businesses. The effect of this is the domination of the local market by the international brands thus leading to collapse of local businesses. Globalization monopolizes international markets to the advantage of the established multinational corporations and at the expense of the local business that have little capital to compete with the international companies. Capital flights in the form of repatriation of profits to the multinational home countries may undermine the gains acquired from the multinational corporations.

The uncertainty with which multinational companies conduct their business is also a cause of worry for the developing and emerging markets. The large international brands are dynamic in nature and could close down their investments without warning. Countries with economies that are highly supported by large foreign multinational sectors are much more vulnerable with high levels of uncertainty in the long run. To entice the multinational companies into staying, the local governments usually have to part with many benefits such as grants and tax relief for the companies. In addition, some of these multinational companies are partly owned by the respective foreign governments and could be used to extend the interests of those governments in the host country (Rutgraff & Hansen, 2011, pp 158). For instance, the companies could be used to slow development in the host countries in a bid to reducing competition for certain products. Moreover, the host countries face uncertainty in the time of war and conflict because they have little control over the multinational corporations.

Another disadvantage of multinational companies is the control they have over the local economies. The fact that they can shift the locations of their productions at any time gives them economic flexibility. In addition, the companies can thus exert control over the host local nations especially where they are major wealth creators and employers. The host countries could be held in eventual blackmail as the international companies threaten to withdraw their capital every time there is a conflict between the two. For instance, attempts by the local government to improve the conditions of workers and their salaries may go against the interests of the multinational companies.

Transfer pricing may also result from multinational corporations in their bid to reduce the tax liability. This concept involves the reduction of profits in countries that have high tax regimes and increasing the profit in those that charge less tax (Cohen, 2007, pp 69). The fact that these companies have many branches in many countries gives them the right to alter the taxes they pay to the governments through such measures. The price structure can be used to achieve this whereby a company in one country sells raw materials to a subsidiary company in another country. The price of these raw materials could be altered to change the profit achieved in the two countries. Normally, the profit will be maximized in countries that charge less tax on profit and minimized in countries that charge more. Ultimately, the multinational corporations end up paying less tax than they would have otherwise paid if they had remained honest.

The other implication of multinational corporations is the detriment of the environment in the host countries. The main focus of these companies is the exploitation of the natural resources in the developing world. Many times, the extraction of these resources is done in a way that is insensitive to the environment in the host country. The control that these corporations have over the local goivernements allows them to continue exploiting the environment with impunity. Many of the benefits from direct investments are therefore substituted with the disadvantages that these multinational companies exert on the local countries.



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