Multinational corporations and their global operations

Multinational Corporations

Globalization has a considerable effect on the way businesses are being carried out. With the tremendous growth spurred by technology and development of new business models, we see an increasing instance of corporate outsourcing. This shift is observed in the manufacturing sector also as many multinational corporations are relocating their production centers to offshore locations that offer cheap labor and material costs. The result is the loss of thousands of jobs to foreign countries. The NAFTA agreement has furthered this trend towards offshore manufacturing. The manufacturing sector which employed more than 19 million in 1979 now employs only 14 million, indicating a huge fall.[Clyde Weiss].While increased productivity due to technology may be ascribed to part of this decline, there are also significant concerns about the impact of closure of local manufacturing plants and their relocation overseas. Let us have a brief overview of this emerging practice and the implications for the developing as well as the developed countries.

There is definitely a drastic shift in the manufacturing sector with an increasing number of profitable companies moving their manufacturing plants to cost effective locations in the developing nations. China and India, among other Asian countries, are the major destinations for U.S. And European multinational corporations. While India has received a bulk of it in the service sector, China has attracted huge FDI in the manufacturing sector. Since the early 1990's the FDI in China has been at a steady growth rate, largely helped by the increasing number of U.S. companies shifting their manufacturing plants to the industrial eastern China. As a measure of Chinese competitive force in the market, Mr. Dan Kuhns, president of Selflock Screw Products states, "Wal -Mart buys $12 billion worth of Chinese products a year. If it were a country, it would be China's eighth-largest trade partner" [Walt Shepperd ] It is not surprising, then, that China created an economic landmark when it surpassed the U.S. As the largest attractor of FDI in 2002, which was estimated to be around 30$ billion. A staggering truth is that between October 2000 and May 2001 more than 80 U.S. multinational corporations announced the shifting of their production centers to China. The result was the loss of 35,000 manufacturing jobs in the U.S. [Ben Vickery]

Carrier Corporation, the worlds leading air conditioner manufacturer found the relocation of its manufacturing plants in Syracuse to China and Singapore irresistible even though the state offered $210 million dollars as incentive package. Companies also justify their relocation citing their extended customer base. In 2002, IBM Corporation sold its hard disk manufacturing unit to Japanese-based Hitachi laying off more than 1500 employers. This was followed by the sale of more than 80% of its PC business to Chinese-based Lenovo Corporation again resulting in huge loss of local manufacturing jobs. Though, the PC giant enjoying more than 5% of the worldwide PC market, has transferred more than 10,000 of its employees to the new manufacturing location in China, the 1.75 billion deal, marked the end of a saga of its manufacturing presence within the United States. [Associated Press]. It is also a plain fact that more and more of manufacturing jobs in the textile and food processing industries are moving towards Mexico, China or India. Cornell university researchers Kate Bronfenbrenner and Stephanie Luce have confirmed the steady outward movement of high end manufacturing jobs to offshore locations in developing countries. Every year, Mexico gains more than 1,40,000 manufacturing jobs as more and more U.S. companies are attracted by the cheap labor costs, which as statistics from the U.S. department of Labor indicate, is less than 2.5$ per hour. [Clyde Weiss] Motorola is another successful American company planning to invest in new production plants in foreign locations. With the mobile market slated to grow more and more in the Asian region, the company decided to build a comprehensive manufacturing base in India. Thus Global customer base and regional cost considerations are driving more and more companies into productive and at the same time cost effective eastern locations.

There are significant implications of the continuing relocation of manufacturing sites to foreign locations. It is not just the low end manufacturing jobs that are being shifted abroad, but even the high end manufacturing positions. As per a report from Kate Bronfenbrenner and Stephanie Luce, (Cornell University) the lost jobs are, "more likely to be good jobs, with full health care and pension plans, making the costs of these production shifts to workers and communities even higher." [Clyde Weiss ]. There is a negative side to this trend, as the lack of manufacturing expertise in the local workforce would directly affect technological innovation, which would have a considerable impact on our national security among other things. As Mr. Bob Baugh, the chief director of the American federation of Labor puts it, "The loss of American manufacturing jobs -- from the front line to the highest level technical engineering research and development -- means this: The next innovation, next generation of ideas, next investment, next new product, will all be made in another country," [Clyde Weiss] The loss of expertise in the future is a significant and completely overlooked aspect of this emerging development.

For the companies though, the reduced costs and highly productive labor market available in the eastern destinations present an attractive and competitive option in the global market. It is to be borne in mind that globalization forces businesses to adapt to the changing scenario. While global presence means more business scope, the effects of local economy in terms of the price determination are also to be considered. Hence, to have a good share of this dynamic business market, competitive prices and quality standards are indispensable, which is what is luring multinational companies to relocate their manufacturing bases to economically attractive foreign countries.