Sample Business Studies Research Paper on how can Globalization Help Private Companies Develop Strong Relationships with the Government?

Abstract

Globalization refers to the continuous process of integration and interconnection of states, markets, technologies and firms. As an international phenomenon, globalization is fast dimming national borders especially with most multinational corporations operating seamlessly across country borders. The phenomenon has seen an increase in trade and foreign direct investment levels across the world as either a cause or effect of increased interdependence of world economies. At the center of globalization are multinational corporations, whose operations transcend national borders to presence overseas. Often, MNCs are private equity companies that operate in the international market, thanks to globalization. Many governments, particularly low-income economies try to position themselves within the competitive global market as better candidates for establishment of MNC operations in their countries. The scramble for MNC operation within a country is largely due to the benefits to the host country’s economy that come with MNCs’ operations within the countries. Despite the scramble and putting measures in place to have a host country seem viable for MNCs’ operations, there has been a lot of finger pointing between host governments and the private entities (MNCs) over the operations, treatment, profit reparation, and a host of other issues. Over the years, the issues have caused bad blood between private entities and host governments. This bad blood has seen many MNCs folding their operations, an action that has denied the host countries the much-needed foreign direct investment, income for the citizens, technological expertise and trickling, as well as economic growth. With globalization, however, there is hope for a mended relationship between governments and private companies to a level of developing strong relationships.

How can Globalization Help Private Companies Develop Strong Relationships with the Government?

The world is fast becoming a global village thanks to globalization. As an international phenomenon, globalization is fast dimming national borders especially with most multinational corporations operating seamlessly across country borders. Ideally, globalization refers to the continuous process of integration and interconnection of states, markets, technologies and firms (Barkema, Baum & Mannix, 2012). The phenomenon has seen an increase in trade and foreign direct investment levels across the world as either a cause or effect of increased interdependence of world economies. At the center of globalization are multinational corporations, whose operations transcend national borders to presence overseas. The presence of their operations in foreign countries, however, presents challenges, especially in relation to government policies, which sometimes are hostile to the MNCs. Often, MNCs are private equity companies that operate in the international market, thanks to globalization.

However, there are state-owned MNCs that also go beyond their borders to operate in the international markets. Beyond state corporations operating away from their borders, many governments, particularly low-income economies try to position themselves within the competitive global market as better candidates for establishment of MNC operations in their countries. The scramble for MNC operation within a country is largely due to the benefits to the host country’s economy that come with MNCs’ operations within the countries. Most important, however, is that the ability to have multinationals operate across country borders is an attribution to globalization. Despite the scramble and putting measures in place to have a host country seem viable for MNCs’ operations, there has been a lot of finger pointing between host governments and the private entities (MNCs) over the operations, treatment, profit reparation, and a host of other issues.

Over the years, the issues have caused bad blood between private entities and host governments. This bad blood has seen many MNCs folding their operations, an action that has denied the host countries the much-needed foreign direct investment, income for the citizens, technological expertise and trickling, as well as economic growth (Kapsstein, 2011). With globalization, however, there is hope for a mended relationship between governments and private companies to a level of developing a strong relationship. This paper will look at how globalization can help private companies develop strong relationships with governments for the betterment of both the citizens and the private companies.

Literature Review

Globalization Defined

According to Barkema, Baum & Mannix (2012), globalization globalization refers to the continuous process of integration and interconnection of states, markets, technologies and firms. Barkema, Baum & Mannix (2012) further enthuse that globalization has come as either a cause or effect of increased volumes of trade and foreign direct investment across the world, which have consequently led to closer interdependences within the world economy. Noteworthy is the fact that there is no single universal definition of globalization. Cuterela (2012) highlights this fact by giving more than 10 definitions of globalization from different scholars. One of the definitions argues that globalization refers to a deeper understanding of the world and a further perception of the world as one huge whole (Cuterela, 2012). A different definition on the other hand, sees globalization as the sum of the processes through which the world population incorporates into a single world society (Cuterela, 2012).

Perhaps the most interesting, and perhaps the most wholly inclusive definition, is the one fronted by Giddens Anthony. According to Anthony (1991) in the book “The Consequences of Modernity”, “globalization can be defined as the intensification of social relations throughout the world, linking distant localities in such a way that local happenings are formed as a result of events that occur many miles away and vice versa” (p. 64).  This definition sees globalization as an unlimited phenomenon, which cuts across the world borders. In the very least, Giddens (1991) looks at globalization as a phenomenon that does not start and end at one point, but rather one that incorporates the whole world despite the economic, political or social might of a said region or country.

Worth mentioning is globalization as a dynamic force linked to different levels of existence in the world. Local, national, regional, and on a wider scale, global levels all have an interconnection in reference to globalization. Cuterela (2012) enthuse that through globalization, it is possible to make connections between social and economic relationships and networks, all residing in the local and national spheres on the one hand. On the other hand, however, these connections crystalize on a much wider scale within the regional and international interactions (Cuterela, 2012). Globalization, thus, starts at the local level, spiraling through the national and regional levels to the international level, which is its mainstay.

Perhaps in agreement with the foregoing statement, another definition of globalization look at the phenomenon as the shrinkage of the world, shortening of distances, and coming closer of things (Cuterela, 2012). The shrinkage, shortening and closeness thus increases interaction between people; one from a remote part of the world with another, thousands of miles away, but with the sole purpose of reaping benefits from this interaction. Although the aforementioned definitions are not the sum total of the definitions of globalization, they are enough to highlight some of the main factors of globalization. Most important is that globalization refers to the increased interconnectedness among the people of the world enabled by technology and advancements in transport and communication towards the end of the last century.

Drivers of Globalization

            As a global phenomenon, globalization has, and continues to affect the lives of people across the world. The rate of information generation and consumption thanks to advances in information and communication technologies and transportation are just but a few of the aspects that show the reach of globalization in everyday human life. Curious, nevertheless, are the factors behind the sustained rate of globalization.  Schuh (2007) contends that the most important driver of globalization is cost. In explaining cost, Schuh (2007) informs that many companies are looking to reduce their cost of production and increase their profits. The move is especially common among western companies, which see the low wages and fewer restrictions from poor economies as avenues for reducing their cost of production. Moreover, many of these poor economies, in light of the benefits that come with the MNCs’ investment, try to outdo each other by passing policies favorable to the MNCs. Thus, with an opportunity to save on wages, less stringent rules on health, safety and environmental impact of their activities, many MNCs have moved their production overseas to save on the cost of production.

            Currently, most western companies are increasingly facing a crunch in talent due to population decreases. The decline population in most western nations acutely hurts any prospects of getting talent from home. The search for talent abroad, consequently, is a diver of globalization in the 21st century. Many companies and governments are branching into the international market to scout for talent (Schuh, 2007). Moreover, talent is becoming increasingly necessary as competitive advantage in the competitive technology segment forcing many MNCs to look for talent in the international market.

A search for market for goods and services is yet another driver of globalization. Currently, emerging markets are proving to be ripe markets for goods and services. The emerging markets bursting population, growing middle class and improved purchasing power makes these viable markets for most MNCs. Moreover, the bulk of the western market has reached maturity and saturation especially in technology, and therefore the need to look for new markets (Schuh, 2007).

Perhaps the main driver of globalization is advances in technology and transportation. Increasingly advances in technology make it easier for people to communicate, conduct business and even make friends (Batra, 2007). The advances have made it possible to communicate instantly with people thousands of miles away, in addition to the possibility of running companies without necessarily being present at the location. Even more is that transportation technologies have made transportation from one place to another faster. There are planes, vehicles and even bullet trains that make transportation easier, faster and comfortable allowing easy movement of people from one place to another around the world.

Globalization, Private Companies and the Government

The advent of globalization has meant that companies within a country do not compete amongst themselves. Similarly, governments are increasingly under pressure to improve their portfolio as viable markets for foreign direct investment (FDI). For this reasons, many local companies have had to improve the quality of their products given the competition that they face from MNCs operating in their countries (Douglas & Craig, 1989). However, even in pushing for more FDI, these governments must ensure that they protect the local companies given their role in economic development. Competing on a level field with MNCs requires that the governments put in place infrastructure, policies and resources that will enable the local companies to compete fairly with the often-liquid MNCs. Sadly, however, not many governments have sufficient budgetary resources to extend the infrastructure necessary for laying a fair ground for competition.

Inadequacies in government resources often extend to providing sufficient services to the public. Moreover, when the government extends the services, they are mostly of poor quality with limited coverage (Cuervo-Cazurra et al., 2014). Such situations are especially frustrating to not only the public, but also local companies and MNCs, some (MNCs) of which may withdraw their operations from the said country. Increasingly, however, globalization has led to pressures on governments and private firms to respond flexibly to the fast-changing world market if they are to stay relevant. Many government and private firms have risen to the occasion through public-private participation in providing excellent services in transport and communication system to help facilitate smooth international trade and investment. Such partnerships have been important in filling voids in countries whose governments are slow to respond to such demands. The partnerships are especially necessary for technologically intensive infrastructure and services necessary for improving economic competitiveness of a country.

Globalization and Development of Strong Relationships between Private Companies and the Government

Within the national and international context, globalization has opened the world to a huge market. The market opened to the new world, however, brings competition for customers. Both local and international companies operating within the national and international contexts have to scramble for the same customers. The need for investment from overseas has also had its impact on governments, which make policies and regulations favorable to MNCs, enticing them to establish their operations within these nations (Stevens & Lipsey, 2012). Initial entry into foreign countries requires close relations between the host government and the incoming foreign companies. Essentially, globalization helps in building a strong relationship between the two entities to ensure not only smooth operations, but also a close professional relationship (Stevens & Lipsey, 2012).

Through the close relationship, governments traditionally engage private companies in the formulation of policies that guide the operation of the companies within the country. In what is often called stakeholder meetings and through lobbying, private companies usually put in some input in the laws and policies under formulation by the government. The aim of the input and lobbying is usually to advance the companies’ agenda and interests in the law and policy-making process to ensure that the laws passed and policies established do not impede their operations. Moreover, private companies engage governments to ensure that the laws passed and policies implemented lay a level ground for healthy competition between local companies and MNCs. Such lobbying and engagement with the government is only possible through the pressure advanced by globalization. By creating competition for customers between MNCs and local companies, globalization creates a platform on which private companies can engage the government. Such kinds of engagement are a sure way to bring private companies and the government into a strong relationship (Vernon, 1979).

Development within a country requires a close relationship between governments and the private sector. It is perhaps this realization that has of late driven more public-private cooperation across the world. The realization that the government has to compete with others for foreign direct investment, while local companies have to battle with MNCs has created the necessity of cooperation between the government and private companies. According to Cuervo-Cazurra et al. (2014), such external pressures have prompted governments and private companies to develop close relationships to protect either party’s interests. The potential of such cooperation is immense including increasing competition and efficiency in provision of essential services, expanding coverage of the services provided, as well as reduction in delivery costs (Cuervo-Cazurra et al., 2014).

Rondinelli (2008) further argues that by globalization pushing private companies and the government into cooperation, it becomes possible to allocate risks optimally between public and private sectors, a move that apart from creating strong relationships between the two entities, also facilitates the distribution of risk to the entity well capable of managing it. Furthermore, Rondinelli (2008) argues, by involving the private sector, the government ensures that projects and programs pass commercial discipline and scrutiny, in addition to financial due diligence. Moreover, the fact that there is competition both locally and internationally through globalization ensures that private entities do not only compromise on quality, but also continue cultivating the close relationship with the government. Rondinelli (2008) further claims that through such cooperation, and with private companies in charge of such projects, the private companies are better positioned to manage efficiently the whole supply chain needed to provide goods and services in comparison with government entities.

While the foregoing statements highlights the role of globalization in forging strong relationships between private companies and the government back home, globalization equally works in forging the strong relationships between private companies and their governments even abroad. According to Bremmer (2014), globalization is especially important in building strong relationships between private companies and the government, to a point that the government negotiates on behalf of the company. BP’s operations in United Arab Emirates were in trouble after British politicians criticized the UAE government when it closed the offices of prodemocracy groups in 2012 (Bremmer, 2014). The aftermath of British politicians’ criticism was the exclusion of BP by the UAE government from the 2014 licensing of the largest onshore oil concession (Bremmer, 2014). The exclusion meant BP missing a multibillion business due to the criticisms. However, British prime minister’s promise of RAF fighters to Abu Dhabi as a show of Britain’s recognition of Iran’s security threat of UAE led to a quiet invitation of BP to an onshore oil concession bid (Bremmer, 2014). The British government’s intervention in the situation points to building a strong relationship between it and BP, as necessitated by BP’s global operations.

Globalization presents opportunities for private companies to develop strong relationship with governments. It is usually up to private companies to see the opportunities and seize them, and consequently build the relationship. For instance, while the film market is very huge in China, the Chinese government allows only a few western films every year into the country (Bremmer, 2014). Navigating such hurdles may be problematic for private companies wishing to tap into the vast Chinese film market. Adding value to the host government, however, presents an opportunity to build such a relationship. IMAX, an American film company offered help to Chinese state-run media in achieving global production standards (Bremmer, 2014). Such a gesture is difficult for the Chinese government to ignore in its decision on the foreign films entering the country. From the help, the Chinese government and IMAX have an especially cordial relationship, with the company operating more than 150 theaters in China, and has (IMAX) others in the pipeline (Bremmer, 2014).  

Globalization exposes local companies to competition from foreign companies some of which have economies of scale and can easily outdo local companies in the bidding process for projects offered by the government. While opening the market for competition may be bad news for local private companies, choosing to boost their value to the government instead of creating value overseas is an opportunity presented by globalization for forging strong relationships between the two entities. Bremmer (2014) and Rondinelli (2008) argue that private companies can lobby the government to view the sectors they operate in or products they produce as strategic. This way, the companies can easily lock out foreign competition or improve their profits by forging closer relationships with the government. A case in point was the allegations of NSA spying on European citizens. Seizing the opportunity, French and German telecommunication companies are on record pointing out their strategic value to their respective governments and consumers (Bremmer, 2014). The governments and consumers can easily act on such allegations, creating a close relationship with the telecommunication companies, which cutting out foreign companies.

Globalization is a phenomenon that is here to stay. As a global phenomenon, many see it as a gateway to global economic integration. True to this view, the 2008/09 recession that began in America sent shockwaves across the world owing to the interconnectedness of the world economy. As a phenomenon, there is no universal definition for it, each scholar having a different definition. Noteworthy however is that despite the divergent views and definitions, economic integration driven by advances in transport, communication and technology feature prominently in the diverse definitions. Among the drivers of globalization include production cost considerations, talent pool and consumer markets chiefly in the emerging markets. When correctly explored, globalization presents opportunities for private companies to develop close and relationships with the government. Private companies can take the opportunity presented by globalization through public-private partnerships/cooperation; lobbying for favorable laws and policies formulation; adding state value; and boosting local value through a claim of the strategic nature of the sector.

Through these methods, it is possible to forge stronger and close relationships between private companies and the government. Globalization singly provides these opportunities and it is the responsibility of the private companies to take the opportunities presented and forge close relationships with the government. Moreover, the changing nature of globalization means that more governments are looking to protect their local sectors and private companies at the cost of MNCs. It is at this time therefore that MNCs must also adapt to the changing nature of globalization if they are to survive the onslaught on the operations by the changing nature of globalization. At the same time, private companies should be on the lookout for opportunities presented by globalization and use them to forge close relationships with the government.

References

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