Introduction
Multinational cooperation must retain a strong presence in their homeland. Basing my argument on, first, the role they have to play in their country, two, the historical dimensions of their past and the rules of offshoring, thirdly, the level of development in the investing country, such as learning and experience, technology and capabilities and the possible use of power to control them and fourthly, the domestic political situation. Is there a secure business environment, what is the political outlook of the country? Such questions need answers before making an offshoring decision.
Multinational cooperation has a duty to maintain a strong presence in their home. This is not only for the benefits that will result from their internal location such as tax, employment, and welfare. We should look at how the offshoring affects the homeland’s economy. Analysis from these perspectives will be for the internal investment as Harry Moser keeps it. Looking at cooperation’s long-term and short term profitability it will be unprofitable to base our investment decisions on factors such as labor rate among others (Bhagwati, Blinder & Benjamin, 2009). However, the final decision is for the company to decide whether to maintain royalty to their country all to the global economy.
Going global however provides the company with cheap labor which as a result reduces the costs of production making the company more competitive and makes high profits. On another perspective, going global creates stiff competition to other local companies and the possibility of them not growing and these would mean poor performance and may end up in closure over time. Other factors such as the legal system may or may not encourage the development and expansion of external companies.
Retention of a strong home presence will benefit the home country government, shareholders and the company itself. We do not question their business right to invest offshore but we urge them to bring and retain their businesses home. Political leaders are pleading with the offshore companies to come home with various economic reasons that will benefit the country. Employment will not on result in better economic performance but also result to better welfare, reduced crimes and other indirect benefits (Finance: the second pillar 2013).
Firms located at home will increase the national income through taxation of the firm licenses and of its workers. On a country’s reasoning, it will be profitable when the firm invests within to create employment and therefore be able to provide a better national economic bargain. This will make it develop further and be able to meet its domestic expenses. It will also benefit the society within it location with the provision of unskilled labor and other welfare activities.
As Harry Moser say, multinational companies have a duty to retain a strong presence in their home country for two reasons. First, it is in the interest of their shareholder to invest in their country and second, it is a quid pro quo for the special benefits such as limited liability that they derive from their charter. Shareholders want to make profit from their investment; however, it is in their interest to see the development of their country flourish (Finance: the second pillar 2013). If a country has a business friendly environment, they would first be of the opinion for a domestic investment before outsourcing.
How then will outsourcing be non-profitable to the firm? According to Harry Moser, cooperation is too much concerned with the cheap labor available in the less developed countries to notices the indirect losses associated with such moves. In so doing, they ignore other important factors such quality labor, travel and warrant costs that go into the overhead silos, long-term risks opportunity costs, which makes up to 20% or more of the total cost (Bhagwati, Blinder & Benjamin, 2009). Most MNCs judge their output based on purchase price variance. Such unconsidered decisions result to the firming making minimal profits.
Based on practical observation of MNCs behaviors, in their excess focus on offshoring manufacturing, they make suboptimal decisions reducing the long term return to their shareholders. Therefore many MNCs fully maximize returns for shareholders if they maintain a strong presence. These behaviors include:
- Incorrect computing current period costs.
- Ignoring a whole variety of medium-term risks.
- Ignoring long-term disastrous risks related with shifting their presences overseas. These include the decline in American economy, military and technological strengths.
On top of the direct negative effects on their incomes, MNCs extreme offshoring secondarily harms their shareholders welfare. Seeking regular illusory savings by offshoring and other short-term tactics, they cost their stakeholders and the public by worsening their employment, wages and government revenues and expenditure.
Multinational corporations clearly have a responsibility to enhance shareholder return and obey relevant laws and regulations. Accordingly they have a duty to maintain a strong presence in their home country. The declining presences is because of shift if attention to less developed countries and offshoring (Wilkins)
Abroad venture is good for America: unless it is a result of altering tax policies that lead to overinvestment ultramarine. He continues to say that asking MNCs to have an existence at home and funding or forcing them under threat of drawbacks to do so, makes little logic unless you claim that this presence produces some externalities. He goes on to question if Moser is right to ask that MNCs investing overseas should be obligated to give a quid pro quo for the profit they received from their home country by retaining a solid presence in that country
The world seems to have flattened in economic terms. This is due to the development in technology that makes the world economy appear to be a global village. This encourages offshoring and many companies go for it but we should also examine the effects and the possible outcomes of such moves. A change in political leadership or laws in such a country can affect a company that has its location. This aims to promote local industries and therefore the international companies are vulnerable to exploitation. This gives a good reason for the MNCs to stay at home. (World is spiky).
MNCs strong presence at home is boosted by the culture of it country, rules and regulation that are supportive to local investments and a well-known local market. Outsourcing on the other hand provides a situation where the MNC is vulnerable, as it has no adequate information about the market and culture of the host country. The laws of the host in comparison to the protection offered at home minimally protect it. A government always tries to create a friendly business environment so that local industries are well protected from external competition. There is also provision in the law of cooperation that protects infant industries from exploitation by the already established ones. Outsourcing lifts these benefits living the MNCs vulnerable from exploitation and less protected. There are no adequate outlined laws that shield offshoring corporations apart from those from world administrations. (Wilkins).
Conclusion
In conclusion, Moser, Prestowitz and president Obama are asking for policies that are increasingly happening (Bhagwati, Blinder & Benjamin, 2009). To conclude the debate, anyone who believes in business profit maximization should accept that it is indeed in the interest of the shareholders, company to therefore maintain a strong presence in their country at least to the proportion of their sales in that country. We do not question the rights that permit offshoring but rather ask the MNCs to make better informed decisions before they set off; putting into consideration such aspects as overseas versus home and long-term project versus short term.
It is documented by Harry Moser that approximately 60 % of companies make offshoring decisions based on rates of labor, ex-works price or land price, ignoring 20% of much more including quality, regulatory violation, intellectual property theft and most of all reputation damage which erodes shareholders values (Bhagwati, Blinder & Benjamin, 2009).
Finally, it is evidently clear that a strong presence in the home country should be maintained and the government should for that case provide an amicable business environment which will in the long run create more employment therefore enhancing welfare and national income among other benefits.
Work cited
“Political Institutional Change, Obsolescing Legitimacy, and Multinational Corporations: The Case of the Central America Banana Industry. Management International Review, 2012.print.
Bhagwati, Jagdish N, Alan S. Blinder, and Benjamin M. Friedman.Offshoring of American Jobs: What Response from U.s. Economic Policy?Cambridge, Mass: MIT Press, 2009. Internet resource.
Hasting. "Finance: the second pillar." Web.
Hasting. "IPE Theories and TRade." Web.
Hasting. "The Comparative Method: MNCs." Web.
THE WORLD IN NUMBERS. (n.d.). The World Is Spiky Globalization has changed the economic playing field, but hasn't leveled it. Retrieved from file:///C:/Users/user/Downloads/World%20is%20spiky.pdf
Wilkins/ Florida International University, M. (n.d.). Multinational Enterprises and the Varieties of Capitalism, 638. Retrieved from file:///C:/Users/user/Downloads/Wilkins%20on%20varieties%20of%20capitalism.pdf
