Impact of the Global Financial Crisis
Abstract
Increased globalization integrates the world markets for goods, services as well as labor. In that respect, the occurrences in one market have significant effects on the other markets. Thus, there increase in concern over the effects that aspects such as the global financial crises have on corporations’ performance and operations as well as on the labor market. The analysis focused on identifying the global financial crises’ impact on multinationals and the labor. In its findings, the analysis identifies that corporations with high dependence on credit are greatly affected by the crises unlike those with less need for credit financing. That is because they have to cut back on their operations with the lack of funds. In addition, the crisis affects the cost of borrowing hence the consumption patterns that reduce demand for goods and services in turn reducing multinationals’ production. On the other hand, the global financial crises have also been identified to have significant effect on labor as firms seek to cut down their production, as well as cost. Those effects were experienced during the 2008 financial crises where increased job cuts marked the global labor market.
Introduction
Globalization is increasingly integrating the world thus market forces being more interdependent. In that respect, events in one region or economy have an effect on the other economies and markets. That has an implication on business and other economic factors such as labor. In that view, this report presents an analysis of the global financial crisis implications on multinational corporations and labor (Rana, 2007). To achieve the objective, the report provides an overview of the global financial crisis, its impact on multinational corporations’ operations and performance as well as the impact on the labor market and dynamics.
The 2008/09 financial crisis was noted as the worst crisis since the Great Depression. The crisis marked the latest evolution phase of the financial markets with radical financial markets deregulation that began in 1970s. The evolution took the form of financial and economic cycles with deregulation accompanied by rapid innovation in financial systems and processes hence stimulating financial booms that mainly ended in crisis. Governments and other authorities respond to the crises through bailouts that seek to allow expansions to begin. In effect, financial markets have increasingly become larger, and more threatening to society, corporations and systems forcing governments to enact even larger bailouts (Elio & Massimiliano, 201000). The process culminated in the greatest global financial crisis that was deeply rooted such that unprecedented interventions by governments mainly failed to contain it. In that respect, the crisis itself and the response actions have had great effects on markets for labor as well as operations and performance of the multinationals (Elio & Massimiliano, 2010). The current global financial crisis has some important common elements with the previous
Impact on multinational corporations
The non-financial corporations interact with banks and financial institutions every day for the purpose of financing their operations, as well as future investments. Thus, they are directly affected by the financial system’s health (Goodhart, 2008).
Research has indicated and argued there to be a strong correlation between the financial markets and the general economic performance (Winter, & Yusuf, 2007). Utilizing variation in the external financial dependence in all sectors for identifying the effect of financial growth on economic growth and corporations performance, economic research documents that the sectors with relatively more need for external financing tends to develop disproportionally faster in more financially developed and stable markets (Kose, 2006). On the other hand, the sectors and businesses are the most affected by financial markets instability. (Neumark & Wascher, 2007). Subsequent work has the measure of financial dependence for investigating business cycle ‘s effect on different corporations and industries. Particularly, there is an argument that in the times of scarce and expensive credit, sectors and corporations that have less need for credit tend to reduce economic activity in much less value compared o hose with greater need for credit. (Keller, 2013)
The global financial crisis was caused by collapse of economic ideology of free market forces and had the potential for escalating to unmanageable proportions for countries with a case the Nigeria Financial System ha was dominated by banking sector operations. (Kalemli-Ozcan, Papaioannou & Peydro, 2009). The risk of global economic crises heightened with the global aggregate demand falling while commodity prices collapsed (Junankar, 2014). Because the global market is inter-related, Nigeria banking system was vulnerable. In such cases, If the situation is not addressed, it snowballs into a worse case for the banking system and other business that depend on the system for financing as well as for the entire economy (Dell & Raghuram, 2008). A study examined effects of global financial crises on Nigeria banking system. I revealed that global financial crisis had caused depression to Nigerian capital market as well as a drop quality of credit extended by the banks for purpose of trading in capital markets, greater loan-loss provisioning, liquidity tightening with exchange rate risk, slower growth rate of the banks’ balance sheet as a response to the crisis as well as higher provisioning that lead to lower profitability for multinationals among other effects (Braun & Borja, 2004).
Impact on labor
One of the leading indicators for US economy outlook is the mass layoffs; that is defined as number of instances when companies lay off minimum by individual firms is about 50 workers. The layoffs closely relate to business cycles, but also happen after events such as the hurricane Katrina or he 9/11 (Kumakura, 2006). Those short-term spikes are a reflection of adjustment that firms take. The large and one-time shocks are not considered as key indicators of systemic increase in unemployment rate or indicators of general economic downturn. (Neumark & Wascher, 2007) However, a potentially persistent spikes occurred inSeptember 2008 when there were mass layoffs that rose to the highest level since the 9/11. Data for October showed that the mass layoffs remained near a record high, and the layoffs in manufacturing industry even increased during the month of October (Mizen, 2008).The pattern could have been a reflection of a one-time adjustment on employment in the industries that were directly affected by global financial crisis, with an example of the finance as well as construction industries that were greatly affected. In addition, that could have also been a sign of the global financial crisis effect through increased cost of external finance that affects economies at large (Artis, Fidrmuc & Scharler, 2008)
Conclusion
In view of the analysis, it is clear that global financial crises have wider reaching effects on multinationals as well as on the labor market. That is because the crisis affects corporations’ access to credit as well as the economic growth that determines their products and services demand. On the other hand, labour market is affected as the corporation seeks to lay off workers owing to reduced market demand and production, that owes to the increase in cost of borrowing and access funds that could drive consumption as well as investment that could have spiked labour demand. In conclusion, global financial crises have an adverse effect on both labor and the multinational operations as well as performance.
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