Introduction
Multinational Corporations are enterprises that manage the production or the delivery of services in more than one country. Multinational Corporations can also be referred to as International Corporations. According to the International Labor Organization, MNCs can be referred to as the Corporations that have their management headquarters in one country and then operate in several other countries. There are several multinational corporations across the world operating in different sectors of the economy. Some Multinational corporations have huge budgets that exceed the GDP of some nations. Big MNCs have powerful influence in the local economies and also play a very important role in the international relations and globalization. In this study we are going to base our analysis on Unilever plc which is a multinational corporation with its headquarters based in the UK. This corporation has several strategies that it has used in order to get customer satisfaction in different countries across the globe. MNCs play a very important role in the economies of the developing countries whereby they operate in.
Globalization on the other hand is the amalgamation of the world’s economic array through the removal or reduction of barriers to international trade. Globalization has resulted into the removal of hurdles like the trade tariffs, export fees and import quotas. This has played a very important role towards ensuring that there is free trade thus lowering the cost of doing business. Unilever for instance, has been able to reduce the cost of doing business hence an increase in productivity and profitability. Globalization has also resulted into regional integration whereby the company can be able to sell their goods to different market segments with a lot of ease without any form of restrictions being imposed on the company.
Since this MNC operates in different developing countries which do not have stable economies, exchange rates has greatly affected it operations in the following ways:
i. Increased trading in goods and services
ii. Movement of capital
iii. Financial flows
This Company has benefited from globalization as there has been allocation of resources which are consistent to the comparative advantage. This MNC is one of the leading MNCs across the globe and therefore enjoys a competitive advantage over its competitors. This has enabled it to increase its trading and therefore an improvement in its capital base. The capital flow across several countries has also helped the company to enhance its production base. The capital mobility has also enabled the total savings of the world to be distributed to different countries which have the highest investment potential. This company has been able to benefit from this initiative as more resources have been allocated to it thus enabling it increase in productivity.
The flexible exchange systems have helped the MNC to improve its market base as it achieves the following:
i. Independent Monetary policy – this helps the company to operate in a country without being affected by the monetary policy of other countries. Incase there is political instability in a certain country, only that country will be affected and such effects cannot infiltrate into another country whereby the MNC operates in.
ii. It also acts as a shock absorber as the company is able to deal with situations in different countries independently.
iii. The flexible exchange system has also helped the company to find a solution to the balance of payment problems thus automatically removing any disequilibrium that may exist in the balance of payment. This company has also been able to limit its operation to countries whereby they can easily get raw materials so as to minimize imports and increase on the products that they export.
iv. The flexible exchange system has also helped the company to conduct its operations without any kind of hindrance that may be caused by restrictions on international trade. It produces goods and sells them to consumers in different places across the globe as there is free trade which is promoted by the flexible exchange system.
The balance of payments will measure how payments will be flowing between the company and other players in the industry. It also reflects all the payments and liabilities which are to be received from foreigners or obliged to the foreigners. This measure is one of the major indicators of the status of the company with the net capital outflow. It also helps in giving s clear picture of the company’s performance in the international trade. The balance of payment of any company can be determined by the amount of export that a country makes compared to the amount of imports. The balance of payment also reflects all the financial transfers that a company makes. This is one of the major indicators of the company’s status in the international trade. Unilever has been able to have strong performance as a result of the balance of payments. This has been achieved through the company’s efforts to set up its branches in countries whereby they can easily get raw materials available. This has helped them in reducing the amount of imports but instead increase the amount of goods that they export to other countries. There are several fluctuations that usually occur in the foreign markets. Most of the fluctuations are caused by disequilibrium and lack of foreign exchange policies. Some fluctuations are caused by lack a change in demand and supply. In order for the company to deal with such fluctuations, the company has proposed a use of a balance of payments and having a strategic plan that helps the company in maintaining the flow of raw materials.
The products produced by the company are mostly exported to different countries. The company also imports some of the raw materials that it uses in the production of some of its products. This MNC has been confronted with a number of situations which has compromised the quality of services that they deliver and has also reduced their profitability. Some of the problems have been propagated by the fluctuations in the strength of major currencies across the globe. During importation a given product may cost far much more than the expected selling price for the product. In order for the company to have a stable inflow of raw materials and avoid the effect of the fluctuation in some local currencies, the company needs to embark on the usage of a given kind of major currency and avoid trading in the local currency. This will help the company against incurring losses as a result using local currencies with fluctuating value. The company has also embarked on the sale of shares as one of the major sources of finances. This has helped the company to acquire more resources which can help it in improving the quality of products that they produce.
One of the best ways of minimizing the negative impacts of the international business operations is through identifying financing opportunities and also formulating a plan of raw materials acquisition such that incase a given currency performs poorly against the major currencies, the company is not affected as a result of the difference in currency strengths.
References
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2. Jones, Ronald W. (1961) Comparative Advantage and the theory of Tariffs; A Multi-Country, Multi-commodity Model, Review of Economic Studies, 28(3): 161-175.
3. R. Dornbusch; S. Fischer; P. A. Samuelson (1977) Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods, The American Economic Review, 67(5): 823-839.
