THE IMPACT OF MULTINATIONAL CORPORATIONS TO THE CURRENT ECONOMICAL

Transcription

1 Finances - Accounting THE IMPACT OF MULTINATIONAL CORPORATIONS TO THE CURRENT ECONOMICAL ENVIRONMENT Lect.. Ph.D Goag r Daniel Prof. Ph.D Domni oru Sorinel Assist. Ph.D Student Vîn toru Sorin University of Craiova Faculty of Economics and Business Administration Craiova, Romania Abstract: The prospects for organizational development of the entities group are perceived in the contemporary period as a direct effect of the globalization process of the world economy, assuming a distinct form as a result of multiple changes in the configuration of the international flows of foreign capital, technology, human resources etc., expressed at the level of economic relations between states. JEL classification: M41, F23. Keywords: multinational corporation, economical environment, development, integration strategies. The formation of an economic entity of the group is perceived as an economic real importance which competes with the individual entity one, meaning that we focus our attention concerning the generally adopted acceptance and stated under network capitalism, represents only another way of expressing the economic truth. Corporate groups express such reality ever more present in the contemporary international business environment, even in the Romanian one, and processes of their formation have a considerable scale and they have reunited a diverse range of economic sectors where they act. Progressive upward trend is maintained by large industrial, commercial, bank (sometimes with an organizational structure and functional composites), listed groups. Organizing group traditional entities is appropriate because, first, under structural managerial and operational aspects, an adaptation to the global competition environment configuration for the purposes of adoption of competitive decision-making systems in terms of addressing potential fluctuations produced on international markets. Analyzing the impact of the investments promoted by multinational corporations in various areas, regions or countries, we may conclude with the hypothesis that the amplify effect of the world trade on the national economies gives such organizations a unique opportunity, resulted in the following formal approach: the multinational corporation can be viewed as a form of economical and social organization of the group entities with industrial, commercial, financial, banking or diverse profile, at which we can identify a number of specific features. Diversifying the operations globally undergone by multinational corporations, with indirectly impact on how the reporting is done through the annual consolidated financial statements, it offers the possibility of surprising some general trends4 concerning the premises of their work. Thus, can be considered "multinational corporations" in general, the companies which pursue direct foreign operations, regardless of size and weight of these activities. We can name as "multinational" only 49

2 Revista Tinerilor Economi ti (The Young Economists Journal) those entities in which the degree of transnationalization of their activity passes a certain threshold (a certain representation of the foreign subsidiaries, a general measure of foreign markets that the company operates, the share of total turnover, of profits or of realized production on these markets, etc.). The multinational corporations sphere can scope more restricted, being rated only companies which, in addition to previous features, are added a strong integrated management structure either at the company leader level, or at the foreign subsidiaries with strategic values of global guidance. An important role, in particular in terms of how their operation is reverberated on the provided information by consolidated financial statements, have also the adopted decision-making mechanisms, which manifest a number of operational criteria of investments involved, such as: related entities criterion; managerial/organizational criterion; decision-making criterion. If the decision systems are highly flexible and nearly impossible to identify, particularly as a result of the complex practiced management, the configuration of branches and organizational require a distinct separation, as a result of particular functional assimilation manifested between the corporate entity and implantation savings. Thus, all subsidiaries specific to group entities can be highlighted so as to allow the formation of a detailed picture of what is to be subjected to the consolidation process and, implicitly, by reporting through the annual consolidated financial statements: specialized branches, whose activity is oriented towards the production of components needed to obtain a final product for which the local demand is weak; diversified branches that produce and sell on existing local goods markets in the country of origin of the entity-leader; distribution branches, whose business is only locally marketing products made by the corporation in another state or geographical area. Group entity opportunity seen in this organizational manner is highlighted once more through the diversity of forms that the multinational corporation manifests, thereby confirming the evolutionary hypothesis of the economic and social progress made in the contemporary period both at world level, and at the scale of each national state. Thus, the presence of foreign capital in various host countries confirms the systemic organizational configuration of multinational corporations, manifesting in the hypostasis of some economic and social entity, often a group entity. We can consider therefore that the macroeconomic balance has as foundation the structural and functional balance of each organization of this kind, while the smooth structural, management and operational functioning is in full agreement with the stability of the entire global economic system6. This perspective addressed by the multinational corporation and identified in the emerging sub factor market hypostasis, gives the corporate organizational entity the institutional framework designed to allow its structure a permanent adaptation to changes in the factors level with particular impact on it. These aspects confers the group entity an orientation generated by the mechanism of global economic system. In this respect, we feel that all operations of the group entity have as purpose the creating of added value for the whole systemic structure. 50

3 Finances - Accounting Under organizational aspect, its operations are completed in an investment cycle, whose objective is the redistribution of benefits accruing from various areas, regions or economies of implantation, to the main structural elements: employees (in the form of wages, profit shares, etc.); national states, where the corporation carries on business (in the form of required levies); holders of capital (in the form of interests distributed to holders of domestic equity, in this case creditors of any kind); shareholders (as payable dividends); corporation itself, in the purpose of self financing for development and implementation of international investments. Surprising the group entities through its basic form of manifestation, the multinational corporation, we can see its world behavior confirming the great interest in achieving an optimal combination of an increased efficiency of use of production factors in order to increase the global productivity, particularly through the use of low sale prices, faster reimbursement of assimilates funds in their various financial hypostases, increasing payable to shareholders dividends and increasing opportunities for self-financing of new investment programs alike with the organizational structure in expansion. The manifestation of group entities in the current global circulation of goods and services justify the appropriateness of this kind of organizations, in terms of complex decision-making system. In essence, we find that the degree of organization of the decision-making group entity system is in direct proportionality relationship with the volume of information received from the competition environment and the one related to the implantation economies and inverse proportionality with the maximum decision entropy. In this context, we join the opinion that the opportunity of the group structure is given also by its great adaptability, its management being continuously applied to finding solutions to enable the correlation of actions and human resources, material and financial to the continuous fluctuations of the economic and social world climate. From this perspective, the need for legislative and operational support of some global organizations like multinational corporations (as is the case of Romania) is justified by the fact that they meet some goals of the human society. In this sense, the group in general, the multinational corporation, in particular, as an organizational entity with emerging character, serves the entire society and simultaneously contributes to improving the conditions at all levels of economic activity. The amplification at the global economy level of some phenomena such as regionalization and globalization helps to increase the impact of activities carried out both by the subsidiary companies and also by the multinational corporation as a potential manifestation form of group entities. Analyzing everything through the opportunity prism of these structures, we can see that it is increasingly common the situation in which a subsidiary owned by foreign capital (case of multinational groups) contributes to a greater extent to increase the professional training degree of local labor, in research and development activity or increase of productivity in the respective field compared with the share represented by any local entities, which is why we consider that also for the Romanian business environment, such a solution would be of real help on the line of insuring a constantly changing, sustainable trend. We argument the earlier statement with the example of multinational U.S. corporations, which have increased 5 times the investment made abroad in research and 51

4 Revista Tinerilor Economi ti (The Young Economists Journal) development activities compared with those in their own country, while a more significant share of total expenditure of this kind in U.S. is carried out by specialized subsidiaries belonging to some corporations of foreign origin. In this way, the groups in general, multinational corporations, in particular, fructify all benefits found in the recipient economies, with the possibility of ensuring a balance through an accounting system sufficiently available for selection of financial possibilities for their future expansion and that will, once again, ensure timely and honest information through the annual consolidated financial statements. In the purpose of minimizing the impact of high tax and customs rates, the transfer pricing mechanism involves also the meaning of bank charges applied to ensure the "brand names" and maintain the performance standards required by management centers in investitional fluctuating environments. Keeping the same ideatic register, but through the prism of prospects and development of group entities opportunities, we can see that at the beginning of this century, their global expansion is done through complex strategies (Table no.1), which facilitate multiple forms of transnationalization of activities, such as sub production or international subcontracting, also other forms of relationships between companies. Table no.1 Consolidated expansion strategies of group entities OBJECTIVES OF THE CONSOLIDATED EXPANSION PROCESS Market selection Products and services Activities localization Marketing Competitive advantage MULTINATIONAL SYSTEM According to their potential in terms of revenue and profits Products and services adapted to the local needs (1) Value creating chain is located partly or entirely in the host country (2) Multinational corporation has in most cases, productive units in the host states, but the strategic functions are concentrated at its head office (3) Dispersion of activities: the entire ensemble of operations presents geographical integration at the level of each host state. The marketing message is adapted for each host country. Resulted from the product differentiation 52 WORLD SYSTEM According to their potential contribution to the globalization of the multinational corporate profits Standard products that require a minimum of local adaptation (1) Decomposition of the value creating chain and locating production units so as to receive the most favorable conditions possible (2) Production units are specialized and dimensioned to serve markets bigger than the one of the state or region in which the implantation takes place ( 3) Ensemble of activities presents geographical integration at regional or global level Uniform system of dispersion and propagation of the marketing message at global level for the same product, even if the brand is different. Resulted from quality and delivery terms. One of the trends manifested at global level is the strategic alliances advanced by leader corporate, meant to encourage the establishment of some cooperation in order to penetrate on the markets that advance high costs of implantation as a result of scale economies.

5 53 Finances - Accounting The interdependences between the entity groups, created to keep them in the competitive race in a market in which the interest to achieve the global level has a privileged position in the overall of the operational objectives, reflecting the trend to amplify the strategic alliances and related investment strategies issues that we considered useful to remind further (table no.2). Table no.2 Investment strategies in the multinational corporation s management Strategy Operational features Minority participation Majority participation Recycling of surplus Mixed associations (Mixed-Joint Ventures) International associations (Joint- International Business Ventures) Minority purchase of the portfolio of some companies from the local, regional or global investment environment. Financial fructification of the strategic implementation process consists of: - the test of absorption capacity of the implantation market; - development of trade relations; - evaluating possibilities for local implantation. The operational implementation mechanism is specific to U.S. and Japanese corporations. Acquisition of the shares control package of some companies in rapidly expansion, medium-sized or large and with a strong position on the future implantation market of the multinational corporation. Financial fructification of majority participation resides in the following elements: the achievement of some economies of financial resources under investitional aspect; "the acquisition of specialized human resources; the benefit of a management board that specializes in identifying absorption potential of the local market. The functional character associated with implementing of this strategic guidance is in need of a network of correspondent banking company. The performance of banking and financial specialized operations means the need to run of the following programs, materialized as: portfolio investments; seizure operations of a part of the local markets; property investments; oriented activities toward the acquisition and building of banking companies in other states. Strategic implementation mechanism involves the creation of new corporations through participation in the associative regime of some local state-owned companies. Financial fructification of such a strategy also involves the creation of companies through the participation of government agencies, from economies of implantation in the form of concession of mineral existing resources, taking into consideration, financial resources allocated by the multinational corporation for the purpose of building the investment capital necessary to the absorb status. Adopting this strategic mechanism is carried out only in the corporate implantation situation in the poorly developed states. Worthy of note, in our opinion, is the role of the group of entities, which must provide for a permanent dynamic market, where the rising of achieving products costs and the harmonization of consume particularities on a global scale have proved increasingly stringent in the current context. Due to this, the implantation expansion abroad has generated a fructification of the competitive advantages of their subsidiaries, which induced changes in the global economy, following the adoption of some structural integration strategies (unidirectional, bidirectional and consolidated strategies) intended to strengthen their competitive position.

6 Revista Tinerilor Economi ti (The Young Economists Journal) Making an analysis of the arguments advanced by some specialists, is notable the giving of a main role to the lifecycle of products, meaning its impact on the degree of economic integration manifested in the global economy. Moreover, the international specialty of groups is based on technology transfer in preference to facilities with traditional factors of production (previously reminding of the external growth role). In this sense, we dare to consider that the hierarchy of the world economies is determined by the very establishment of the multinational group. If we look from the perspective of national economic systems, in the case of Romanian, we see that the groups of national or multinational entities become the main factor in ensuring a full correlation with the globalization process of the contemporary economy. This optic confirms the hypothesis of comparative international advantages, that the predominant position of the flows of investments is promoted by multinational corporations. Concluding and analyzing the opportunity of entities groups in this perspective, we feel that an economy in which a large number of developing countries become industrialized, generates concerns of competitive and technologic nature for the current large commercial spaces such as USA, Japan and the European Union. The direct equity investments flow to the developing states and the establishment of entities groups, together with the forms of cooperation between companies represent the primary factor underlying the sustainable development of the world economic system. REFERENCES 1. Frankel, J.A. Regional Trading Blocs in the World Economic System" Washington D.C., Institute for International Economics, Golding, P., Harris, P. "Beyond Cultural Imperialism: Globalization, communication and the new international order", European Community Studies, Kahler, M. "Regional Futures and Transatlantic Economic Relations" New York, in, Association and Council on Foreign & Relations Press, Levasseur, S. "L' Union eonomique ei monetaire europeenne" Polity press L'Hartman, Paris, Lipsey, R.E. "Global production system and local labour conditions. Paper for Conference on International Solidarity and Globalization" Londra, Sage Latouche,