Role of States and the Multinational Corporations 

Subject: Business
Type: Compare and Contrast Essay
Pages: 8
Word count: 2100
Topics: Management, Business Ethics, Finance


The multinational corporations are the industrial companies, which have wider network of subsidiaries and branches. The headquarters of multinational corporations are in one country and the partial operations are controlled by other countries. The headquarters of the transactional corporations are in the United States. This study will highlight the role of states and the multinational corporations for attracting the business of automobile companies. On the other hand, how the states are associated with the multinational corporations will also be described in this study.

Main factors affect the relative bargaining positions 

Bargaining position is associated with the situation of the parties to exert influence over each other. In this section, the factors, which influence the relative bargaining position of Multinational Corporations and state operating companies, will be discussed. 

Figure 1: Influential factors for affecting the bargaining positions

Influential factors for affecting the bargaining positions

(Source: Moran, 2014)

According to Detomasi (2007), the factors affecting the bargaining position of the multinational or the transactional corporation and state-operating organisations are dependent on the specific circumstances. In order to attract the automobile industry in the territory, the state owned firms have better opportunity compared to the multinational corporations. Akhtar and Oliver (2009) cited that the control over the natural resources, states have more power and control compared to the Multinational corporations. Due to the least geographical concentration on the natural resources, this superiority of states occurred. 

The attracting power of both the Multinational corporations and the state operators with the territories is different. In order to attract the automobile companies, the multinational companies aim to engage collaboratively. Although, MNCs do not have the power on the natural resources, Goerzen and Makino (2007) argued that MNCs have been playing a major role in the export of goods. As a result, it can be inferred that by accelerating the export rate of the automobile items, the Multinational Corporations can improve the GDP growth rate of the country. For example, Ford manufactures the motor cars not only in the domestic country, but also in India, Japan and in Western Europe. As a result, the multinational companies are participating in globalisation. On the other hand, multinational corporations have a larger amount of capital in their account, with which they can attract the attention of the automobile companies to expand their business (Taylor and Thrift, 2012). Furthermore, apart from the control on the natural resources, the state operators have competitive advantage in the supply of larger number of domestic labours to the automobile firms, whereas the multinational corporations need to be dependent on the domestic labours or on the labours of host country. In case of hiring labours from the domestic country, the MNCs need to provide a higher amount of wages to the employees in the different countries. The domestic labours charge lower cost for their remuneration compared to the employees of other countries. This will have a direct effect on the manufacturing cost of the automobile industry and the cost of the items will be increased. 

In the opinion of Heidenreich (2012), in order to attract the automobile industry, multinational corporations have control over the global production network than the states. As a result, the automobile firms can explore their business successfully with the help of stronger network in the manufacturing and production. On the other hand, in case of imports of raw materials from the other countries, the MNCs have more power than the states. Nonetheless, the multinational corporations do not get the government incentives, whereas the states have the opportunity and the power to attract the automobile industry. . 

Is the relationship between multinational corporations and states antagonistic or cooperative?

The multinational corporations are looking for new markets for increasing the growth rate and the profitability statement. Taylor and Thrift (2012) opined that the multinational corporations help the states in the growth of the economy as well as the standard of living of the states can be improved. The technological transfer between the multinational corporations and the states will be increased, therefore, in case of attracting the automobile firms, states will get the power. It is known that for successfully expanding the business of automobile firms in the domestic market, the companies need efficient technology. This characteristic of Multinational Corporation is cooperative towards the domestic firms. 

On the contrary, Jensen (2008) argued that sometimes the multinational corporations try to dominate the states by executing monopolistic control. In case of attracting the automobile firms, if the multinational corporations reduce the price of the raw materials in which they are playing the role of monopolists, the automobile firms would like to purchase the items from the MNCs. In addition, the states need to reduce the prices of the products for surviving in the market. From this point, it can be inferred that the Multinational corporations would compete with the states. 

It is known that Foreign Direct Investment (FDI) is the key expression of multinational corporations. According to Filippov, (2010), foreign direct investment helps the domestic countries in the increase of their productivity by helping them in their export and growth. As a result, the domestic countries can attract the automobile industries by improving the manpower and by increasing the cost effectiveness. However, in order to increase effectiveness and secure the position in the states, the multinational corporations would hire domestic labours for the operations of automobile industry by paying higher wages compared to the states. Cuervo-Cazurra et al., (2014) cited that the demand for the skilled labours is higher and they are hired by the multinational corporations, after that send them to the abroad. As a result, the states have suffered from the problem of availability of educated employees. The discrepancy in the wage rate also leads the employees to be engaged in the multinational corporation and the MNCs can attract the automobile firms towards them. 

Goldstein (2007) opined that the inward investment of the multinational corporations to the states help in the balance of payment situation. With the help of this investment, the import promotion and the export promotion of the sates can be improved. On the other hand, the profitability of the multinational corporations will be treated as local taxes and this is the major source of revenue of the government of domestic nations. 

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Are the relationship between states and multinational corporations static or changeable?

Relationship between the states and Multinational Corporation is not permanent. It is noted that the multinational corporations have been playing a major dominating role in the world economy. 

Firstly, in order to increase the growth rate and the level of profitability, the multinational corporations like to expand the business in other markets. As a result, it can be inferred that the multinational corporations will expand, where the economic position of the domestic country is favourable. Bondy and Starkey (2014) mentioned that new domestic economy provides opportunities in the growth. Henceforth, it can be mentioned that if the economic position of a country will start to decline, then the multinational corporations will like to move their business to the other countries. It is noted that the multinational corporations are not concerned to improve the economic position of the countries. More specifically, it can be stated that the developing or the emerging domestic nations get the opportunity to boost up their economy after entering the MNCs in the market (Goerzen and Makino, 2007). From this point, it can be interpreted that the relationship between the states and the multinational corporations is changeable. 

Secondly, for preventing the competition in the domestic market, the multinational corporations will like to move to other countries. It is known that higher competition will reduce the market share and the profitability earning in the domestic market. Additionally, the economies of scale of the country will also be increased. Therefore, the multinational corporations will like to expand in such a country, where these can play the role of monopolists and can control the market. In addition, Cantwell and Mudambi (2011) opined that the multinational corporations would like to compete with the states, where the performance of the state firms are very poor compared to the multinational corporations and the MNCS will get the opportunity to successfully explore their business. On the other hand, the government of the states will also like to give permission to the MNCs, so that they can boost up their economy by making the business successful. The foreign investors also like to invest in their businesses. This is the evidence, how the multinational corporations compete as well as cooperate the state owned firms. 

In the opinion of Giuliani (2008), the multinational corporations of the developed nations interfere in the political affairs of the developing or the emerging nations. In the name of cooperation, the multinational corporations bribe the political leaders of the domestic nations. The domestic nations can get the opportunity to participate in the international trade and can improve the balance of payment. Nevertheless, Zah et al., (2007) argued that the domestic suppliers of the nations would be affected with the rise in the imports. 

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Role of state owned enterprises in automobile industry

The automotive industry is a larger industrial as well as economic force across the world. The developing countries are willing to invite the automotive companies in the nation for increasing the economic performance. Therefore, the state owned enterprises are playing a major role in this industry. 

The state-owned enterprises play a major role in the supply of natural resources. These firms mainly supply steel, plastics, rubber, aluminium etc. For example, some state-owned nations such India, Japan, Turkey are the major suppliers of steel. These countries have the comparative advantage in the supply of steel. According to Gallagher and Muehlegger (2011), steel is accounted for 80% weightage of average cars. Therefore, it can be inferred that if the automobile firms expand their business in these countries, then they do not need to export the raw materials or other essential sources from outside. This is the major advantage of how a developing nation attracts the automobile company towards the country. It is known that the car manufacturing companies are looking to the price of the raw materials. Moran (2014) added that the fall in the steel price is favourable to the manufacturers of automobile industry. However, the government of the developing countries has decided to ban the over usage of steel for the car manufacturing. For example, in case of the business expansion in India, the car manufacturers need to take the permission from the Bureau of Indian Standards. 

On the contrary, Detomasi (2007) argued that for manufacturing cars, raw materials are not sufficient. Apart from this, the automobile companies need the implementation of higher technology during the manufacturing and the production process. For example, Tesla 3 in United Kingdom has implemented to produce and sale the first electrical cars across the world. As a result, innovation and technology have been playing a major role in the automobile industry. This technological upgradation is not possible in the comparatively less developed countries or in the developing nations. However, in order to import technology to the emerging countries from the developed nations, the state owned enterprises require to bear the transport cost, which has a direct effect on the manufacturing process. From this point, it can be inferred that the state-owned enterprises are not playing the role in the automobile industry. Conversely, for implementing the technology in the manufacturing process, the automobile companies also need to recruit efficient employees, who have enough skills and knowledge. Akhtar and Oliver (2009) cited that the automobile companies like to hire employees from the developed nations. It is assumed that the employees of the developed nations are more skilful compared to the developing nations. As a result, it would not be benefitted to explore the business of automobile industry in the developing nations. Apart from this, the car manufacturing companies require to implement advanced computer aided design, in which the multinational corporations of the developed nations have competitive advantage compared to the state-owned firms. This is the other reason behind the state-owned enterprises not playing any prominent role in the automobile industry.  


States has the competitive advantage on natural resources, with which it can attract the automobile companies to expand their business. Therefore, the developing countries supply the raw materials such as steel, rubber, aluminium to the automobile company. After the analysis, it can be observed that the Multinational corporations are technologically updated and an automobile company needs to use modern and innovative technology apart from the supply of natural resources for successfully running the business. On the other hand, this study has highlighted the relationship, the dependency between the states and the multinational corporations.

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