The essay hereby focuses and shows us about the ever changing world of globalization and its influencing factor mainly technology. It allows us to visualize the nature and purpose of nation state and transnational corporation and contradictory relationship between them. It describes what nation state and transnational corporations are and problems or tensions between them in this ever changing world. It tries to show how globalization influences nation state and transnational companies and at last it tries to show the influence of global institution and significance of corporate social responsibility in nation state and transnational companies.
Everything is globalizing nowadays. We are living in the era of globalization but what does globalization means?
Globalization can be defined as the inevitable integration of markets, nation states and technologies in a way that enables individuals, corporations and nation states to reach every part of the world quickest and by cheapest means. In simpler world it means the exchange of products, information from one nation to another nation or person to person and making the world smaller. As a result of globalization we can communicate with each other while living in different parts of the world.
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It’s the act or process of globalizing, the state of being globalized especially the development of an increasingly integrated global economy marked especially by free trade free flow of capital, and the tapping of cheaper foreign labour markets.
Globalization can be influenced by many factors like governments, politics, environment etc. but one of the main influencing factors for globalization is technology. Technology plays a vital role in globalizing the whole world. Technology means the things or devices created by humans so as to make our daily life work easier and effective. Technologies like communications, transportation, and information technology has been the major factor for globalizing today’s world. With communication one can communicate within a company or organization or between two big corporations easily and more effectively. It has made possible whole scenario of talking face to face from two different nations. If one has to travel then there are lots of transport facilities to go here and there. Transportation has been one of the key factors which are being rising rapidly. People are travelling through trains, buses, cars motorcycles for their work and daily day to day work. Nowadays big corporations CEO’s even travel by plane for their meetings and dealings. Nowadays every company run through computers. Without computers and information technology companies cannot do even the simplest task. Companies use latest software and technology in order to be one step ahead of their competitors. Without such technology companies cannot compete in this competitive world.
Nation state is a state that self-identifies as deriving its political legitimacy from serving as a sovereign entity for a nation as a sovereign territorial unit. (Source Wikipedia)
It’s a state consisting of autonomous state inhabited mostly by people sharing common culture, language and history. In addition it’s a state in which same type of people exist organized or orchestrated by either same race or cultural background. Generally most of the people share same language and also share same set of cultural values. If there are multiple ethnicities number of religion are practiced and there will be different cultural norms and values within a certain territory then nation state does not exist.
Most countries do not fall in nation state category because there’s always some amount of immigrants but if there is low number of immigrants then it can fall under nation state but if there’s high number of immigrants then there can be different cultural values and norms and different religion being followed which no longer enable a country to be nation state.
Nation states mainly focus on to maximize the country gross domestic product by concentrating on maximization of quantity and quality of organization with employment opportunities. It tries to encourage the home grown technology to develop rather than focusing on foreign technology. Nation state tries to hold power to advance a fair return on local operations of TNCs through taxation policies. Nation state focuses on how to maximize the extent and aids of local supplier links. It attempts to avert the closure/scaling down of local TNC operations. Nation state attempts to develop a flexible, high-skill, high-earning Labour force.
One of the successful nation states is Singapore. Singapore is one of Asia’s great success stories, transforming itself from a developing country to a modern industrial economy in one generation.
During the last decade, Singapore’s education system has remained consistently at or near the top of most major world education ranking systems. A “tiny red dot” on the map Singapore has achieved and sustained so much, so quickly. From Singapore’s beginning, education has been seen as central to building both the economy and the nation. The objective was to serve as the engine of human capital to drive economic growth. The ability of the government to successfully match supply with demand of education and skills is a major source of Singapore’s competitive advantage. Other elements in its success include a clear vision and belief in the centrality of education for students and the nation; persistent political leadership and alignment between policy and practice; a focus on building teacher and leadership capacity to deliver reforms at the school level; ambitious standards and assessments; and a culture of continuous improvement and future orientation that benchmarks educational practices against the best in the world.
One of the failed nation states is Somalia. In Somalia, by contrast, almost all of the 9.5 million people are from the same tribe. They are ethnic Somalis, sharing a common language and loyalty to Islam. But they are all divided into clans, for example the Hawiye and the Darod. In turn, these large umbrella groups are divided into scores of sub-clans who are then split between hundreds of sub-sub-clans. These groups, each led by a warlord, fight for the scarce resources of an arid country. Continuous war among the clans and other parties has led this African nation into the failure of the government. Low gross domestic product, low Literacy rate and poor government have failed the nation and its citizens.
It is a complex organization. They invest in foreign operations have a central corporate facility by giving decision making, research and development and marketing powers to each individual foreign market. Transnational companies have their own scope and degree of interaction with the operations outside of the home country.
Following are the term that are distinct and has a specific meaning which defines the scope and degree of interaction with their operations outside of their “home” country.
International companies are importers and exporters; they have no investment outside of their home country.
Multinational companies have investment in other countries, but do not have coordinated product offerings in each country. More focused on adapting their products and service to each individual local market.
Global companies have invested and are present in many countries. They market their products through the use of the same coordinated image/brand in all markets. Generally one corporate office that is responsible for global strategy. It emphasises on volume, cost management and efficiency.
Transnational companies are much more complex organizations. They have invested in foreign operations, have a central corporate facility but give decision-making, R&D and marketing powers to each individual foreign market the role of international trade in the economies of the world. It includes all the attributes and characteristics of international, multinational and global companies.
One of the examples of transnational would be MacDonald’s fast food chain, American based food chain. It has been serving approximately 68 million people in more than 34000 locations worldwide. A McDonald’s restaurant is operated by a franchise, an affiliate, or the corporation itself. The corporation’s revenues come from the rent, royalties and fees paid by the franchisees, as well as sales in company-operated restaurants. McDonald’s revenues grew 27 per cent over the three years ending in 2007 to $22.8 billion, and 9 per cent growth in operating income to $3.9 billion.
Relationship between Nation state and transnational corporation
The relationships between TNCs and states are, in fact, far more complex, contradictory and ambiguous than the popular view would have us believe:
[They are] both cooperative and competing, both supportive and conflictual. They operate in a fully dialectical relationship, locked into unified but contradictory roles and positions, neither the one nor the other partner clearly or completely able to dominate.
This quotation captures the essence of the intricate relationships between TNCs and states: they contain elements of both rivalry and collusion. On the one hand, there is no doubt that the fundamental goals of states and TNCs differ in important respects. In ideal-type terms, whereas the basic goal of business organizations is to maximize profits and ‘shareholder value’, the basic economic goal of the state is to maximize the material welfare of its society.
Some of their main conflicting objectives could be as follows:
On performance basis TNC focuses on to maximize profit and shareholder value whereas nation state more focuses on the nation’s gross domestic product growth. Nation state emphasises more on maximising quality and quantity of employment opportunities.
On technology basis TNC tries to gain access of all the necessary technology that is required for the work whereas nation state tries to give more emphasis on the home rooted technology.
For controlling and functioning TNC locates headquarters and other high order functions to fit optimal pattern of the firm’s overall operations whereas nation state maintain indigenous headquarter and tries to attract and retain key operation of TNC.
On responsiveness TNC retains flexibility to move profits in best manner in its structure. It tries to maintain flexibility to adapt the geographical structure of the firm’s production network to meet fluctuating conditions. TNC maintain flexibility to use the labour force as required. Whereas Nation state tries to maintain power to gain a fair return on local operations of TNCs through taxation policies. Nation state focuses on to maximize the extent and benefits of local supplier linkages and prevent the closure/scaling down of local TNC operations. Nation state attempts to develop a flexible, high-skill, high-earning labour force.
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On the other hand, although their relationships may be conflictual in certain circumstances, states and firms need each other. Clearly, states need firms to generate material wealth and provide jobs for their citizens. They might prefer such firms to be domestically bounded in their allegiance but that is not an option in a capitalist market economy. Indeed, many regard TNCs as important extensions of their state foreign policy. For example, in addition to ensuring control of key natural resources,
American political leaders have believed that the national interest has also been served by the foreign expansion of US corporations in manufacturing and services. Foreign direct investment has been considered a major instrument through which the US could maintain its relative position in world markets, and the overseas expansion of multinational corporations has been regarded as a means to maintain America’s dominant world economic position.
Conversely, TNCs need states to provide the infrastructural basis for their continued existence: both physical infrastructure in the form of the built environment and also social infrastructures in the form of legal protection of private property, institutional mechanisms to provide a continuing supply of educated workers, and the like. TNCs, in particular, look to their home-country government to provide it with diplomatic protection in hostile foreign environments.
(Source: Dicken 2011, p. 222, 223)
Some of the problems facing by nation state and TNC are the tax havens, transfer pricing and many other policies both legal and illegal. Billions of dollars are prevented from being taxed; the much needed money would have helped the developing nations or host countries in order to provide important social services for their populations.
The problem of transfer pricing
When a company adds facilities in another state or even worse, when it goes international it suddenly must contend with the complex process of transfer pricing. Key element of transfer pricing is the presence of a buyer-seller relationship between units of a single company. Although owners and managers may not think of one location as selling services or parts to another unit, the various taxing authorities whether state or national may impose that view. Under such circumstances, a company has to determine the monetary value of the goods or services and treat that amount as sales revenue of the selling unit and as a cost of the buying unit. A danger a company will want to avoid is being whipsawed between the taxing authorities of two jurisdictions that is, having its sales revenue from a single source taxed in two jurisdictions because of overlapping or conflicting tax rules. In most states, companies compute taxable income by using the federal income tax rules as the starting point; however, in determining the portion of their net income subject to tax by each state, companies typically use allocation and apportionment formulas which, unfortunately, vary from state to state. The two common approaches to setting and revising transfer prices are to apply cost-plus and market-based procedures. While cost-plus prices have the appeal of simplicity and ease of calculation, be aware that cost-plus transfer prices can provide exactly the wrong incentive for the producing unit.
One of the examples of tension between nation state and transnational companies is tax issue of Starbucks franchise in UK.
U.S giant coffee maker paid just 8.6 million of corporation tax in UK over 14 years. According to the investigation by news agency Reuters found the firm had paid nothing in the last three years. Starbucks UK reported losses so did not have to pay corporation tax, but told investors that it was “profitable”.
“We have paid and will continue to pay our fair share of taxes in full compliance with all UK tax laws, as we always have,” Starbucks said.
According to the Reuters investigation, Starbucks generated £398m in UK sales last year but paid no corporation tax. It found Starbucks had made over £3bn in UK sales since 1998 but had paid less than 1% in corporation tax.
There are many factors that affect the actions of nation states and transnational corporation. Nation states and transnational corporation rely upon different and various factors. As we know states and TNCs are affected by globalization as we are living in a world of globalization. There are many global institutions that are being formed in order to bring stability and order in this global market. What are global institutions?
Global institutions are the organizations that are being formed for the economic development, maintaining the trades and overcoming the barriers between the nations, and focusing or dealing with the labour issues. There are various global institutions for the aid of world economy like World Bank, United Nations, international monetary fund, World trade organization. The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business. Global institutions play vital role in nation state and transnational companies actions. Like WTO monitors on the national trade policies which definitely affects nation states action as nation state main objectives is to maximize employment opportunities using its own locally rooted technologies. Transnational companies also get affected as it has to do business or trading in the nation states. There might be some trade disputes between the nation state and transnational companies which can solved with the help of world trade organization. World trade organization acts as a forum for all the trade negotiations which eventually affects the TNCs and nation state as they also have to trade. World trade organizations or global institutions help in the technical assistance and training labour forces which is the main objective of TNCs and nation state. As they also try to develop and retain flexibility to use the labour force.
Civil society organizations – also known as non-governmental organizations (NGOs) – are critical actors in the advancement of universal values around human rights, the environment, labour standards and anti-corruption. As global market integration has advanced, their role has gained particular importance in aligning economic activities with social and environmental priorities.
Civil society organizations have been an integral part of the Global Compact since its creation. Their perspectives, expertise and partnership-building capabilities are indispensable in the evolution and impact of the Global Compact.
Civil society organization plays a huge role in the action of transnational and nation state. As transnational main motive is to earn profit which eventually may cause the violation of human rights, environmental damage, child labour for cheaper labour cost. CSO comes whenever there are such problems regarding human rights and child labour.
So transnational companies and nation state has to plan or implement their strategies considering CSO so that they don’t violate the human rights.
Corporate social responsibility is the responsibility of the organisation regarding the social activities like environment, human, society in order to make them safe and secure. CSR is about how companies manage the business processes to produce an overall positive impact on society.
The World Business Council for Sustainable Development in its publication Making Good Business Sense by Lord Holme and Richard Watts used the following definition.
Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large
Example of corporate social responsibility
Greenopolis & recycling
Greenopolis was developed to serve as an educational tool to teach people how to be more environmentally sound as they go about their daily lives. The goals for the Web site are summed up in its tagline: “Learn, Act, and Reward Together.” Greenopolis was created by, and is wholly owned by, Waste Management Recycle America, but operates independently. Last year, Beth said, they took part in a Social Media Breakfast in Houston.
Greenopolis has a presence on several social media sites, offers a daily look at some interesting metrics (Total tons of WMRA recycled: 5,367,009), offers on-street recycling kiosks and has a rewards program (Think Green Rewards earned: 4,074,988) that lets people cash in points for small items. “You get points for blogging, they use the community to create content and they license their logo to qualifying organizations like the Green Housekeeping seal of approval,” Beth said.
The relationship between the nation states and transnational corporation are changing and complex and ambiguous but they need each other too. The transnational companies are becoming more powerful than the nation states in majority. There are some nation states which are also highly developed but in majority transnational companies are more powerful and significant tool for globalizing the whole market economy so nation state is not completely dead but transnational companies are becoming more and more powerful day by day.