Businesses, Investment and Globalization

Companies are organizations that act commercially, both outside and inside a State. That is, their activities can be carried out both nationally and internationally. Multinationals companies “are incorporated or unincorporated enterprises comprising parent enterprises and their foreign affiliates. A parent enterprise is defined as an enterprise that controls assets of other entities in countries other than its home country, usually by owning a certain equity capital stake” (UNCTAD, 1996, p.219).  The main precursor to growth or decline in a country’s economy is business. In this context “the multinational enterprise (MNE) was initially the main agent in foreign direct investment allocation, driven by opportunities for global market exploitation, the pursuit of advantageous localizations, and the need to rival the sourcing efficiency of its competitors” (Bolívar, Casanueva & Castro, 2019, p. 696).

Organizations have advantages and disadvantages in their activities. Hymer (1976) affirms that “a firm with advantage over other firms in the production of a particular product may find it profitable to undertake the production of this product in a foreign country as well” (p.25-26). When they obtain the benefits of  carrying out their production outside their home country, that is, they acquire assets and so on, they are known as a transnational company. These companies also have an advantage over their competitors who are not. “MNEs have the alternative of licensing to exploit their knowledge, but internalization is a way to avoid the disadvantages of external markets or to preserve the advantages of controlling their assets” (Vecino, 2006,p.07).

Alternatives And Problems

Some countries lack resources to help maximize the growth of their businesses. Addison & Heshmati (2003) state that “when the country lacks the necessary human and managerial capital, it may try to develop these itself (through public programmes for example), but this can be prohibitively expensive for the poorest countries” (p.03). This is very much the case in developing countries, which are prone to poverty. So, there is an alternative for companies through Foreign direct investment, which “is the largest source of external financing for the developing countries […]. The potential benefits of foreign direct investment include the creation of more skilled jobs, the introduction of technology and innovation and better access to international markets” (UNCTAD, 2017,p.03).

Interconnectivity is a key point that brings together all the features of today’s world. One of its main benefits is that “the increasing gravitation of global financial, economic, environmental, political, social and cultural processes” are brought to those of a regional, national and local nature. This understanding emphasizes the multidimensional nature of globalization” (CEPAL, 2002, p.18). It also develops in different ways, in which one can see disadvantages and advantages. This is why countries take these characteristics seriously. Ballabriga (2014) affirms that “the increasing liberalization of trade, labor and financial flows along with the ICT development have made the external sector of countries in increasingly important since the early 1980s” (p.43).

Haskel & Westlake (2018) affirm that “one of the most troubling and widely talked about trends in economics at the moment is secular stagnation: the fact that business investment is stubbornly low despite every indication that it shouldn’t be” (p.91). This situation does not only affect one country, but the whole bloc that is represented in Europe. The new challenges faced by the old-world bloc are social, political and environmental. “New investments are not only needed to energize the EU economy but also to tackle the long-term challenges that threaten Europe’s welfare and prosperity. These include loss of competitiveness, climate change, dependency on scarce and critical natural resources from outside the Union” (Bergamaschi, Gaventa & Holmes, 2015, p.2-3).

References

Addison, T. & Heshmati, A. (2003). The New Global Determinants of FDI Flows to Developing Countries. United Nations University (UNU), World Institute for Development Economics Research (WIDER)

Ballabriga, F. (2014). The world economy of the early twenty-first century: globalization and the great recession. McGraw-Hill España

Bergamaschi, L., Gaventa, J. & Holmes, I. (2015). making the investment plan work for europe mobilising investment for europe’s climate and energy union. E3G.

Bolívar, L. M., Casanueva, C. &Castro, I. (2019). Global Foreign Direct Investment: A network perspective, International Business Review. 28, Issue 4, 696-712

CEPAL. (2002), Globalizacion y desarrollo. Cepal

Haskel, J., & Westlake, S. (2018). Intangibles, Investment, Productivity, and Secular Stagnation. In Capitalism without Capital: The Rise of the Intangible Economy (pp. 91-117). Princeton; Oxford: Princeton University Press.

Hymer, S. (1976). The International Operations of the National Firms A study of Direct Investment , MIT Press.

UNCTAD (United Nations Conference on  Trade and Development). (1996). World Investment Report 1996: Investment, Trade and International Policy Arrangements (New York and  Geneva: United Nations), United Nations publication, Sales No. E.96.II.A.14.

 UNCTAD. (2017). Promoción de la inversión extranjera en los Objetivos de Desarrollo Sostenible. Junta de Comercio y Desarrollo. Conferencia de las Naciones Unidas sobre Comercio y Desarrollo

Vecino, C. (2006). Foreign direct investment in Latin America. Universidad Industrial Santander