Discuss the acceptance, rejectionist and assertive pragmatist perspectives on the impact of MNCs from the viewpoint of the home and host country
...ass lecture as data base, identify and evaluate specific factors that contribute positively or negatively toward the attractiveness of your chosen country’s climate. Performing a rigorous country analysis is essential for any company that intends to invest in a developing country. While this type of economy usually offers attractive growth opportunities for multinational companies it also poses serious threats even to wary investors. The factors to be reviewed in a country analysis depend on the type of project the investor has in mind. For example, if a company wants to build a manufacturing facility whose products will be exported, the local market dynamics and purchase power have a smaller impact on the decision making process. On the other hand, if the investing company plans to sell the products locally than the status of the local economy will be defining for the investment. This essay provides an overview of the risks encountered by a multinational company that wants to open a manufacturing facility in Venezuela. More precisely, it analyzes the most relevant elements of the demographic, economic, political and cultural dimensions in Venezuela and their potential impact on our project. With a population of 25 million people, predominantly urban, Venezuela offers an attractive labor market. Besides unskilled workers abundance, the country has also a largo pool of educated people representing an attractive skilled workforce supply for our multinational company. The minimum salary is $211 for urban workers and $189 for agricultural workers and the employer must pay overtime, social security and severance pay. Still, we can confidently say that Venezuela is a source of cheap labor for our client. On the negative side, the revised Organic Labor Law regulates that the number of foreigners an investor can hire cannot be more than 10% of total workforce and their pay cannot exceed 20% of total payroll. This limitation will affect the ability of our company to bring in expatriate managers in top positions. The economy of Venezuela is recovering after negative GDP growth rates and a slump in 2002 determined by the aborted presidential coup and by the oil strike. Experts are forecasting an 8-9% GDP growth by the end of 2004, mainly behind increasing oil prices. Venezuela is the fourth-largest oil producer in the world and the fourth Latin American country in terms of income per capita ($ 4,000/ capita). However, because of inequitable wealth distribution, 80% of the population lives below poverty line with disastrous purchase power consequences. Additionally, given the current political situation consumers’ confidence is at an all time low. Other issues of the economy include inefficient bureaucracy, widespread corruption and strong public sector influence. Because of the populist orientation of President Chavez, most of the petrol revenues are spent on subsidies. Money is spent on inefficient companies instead of being directed towards productive venues which would fuel future economic growth and limit country’s excessive dependence on oil. To make things worse, politicians ensure their votes through the patronage. Different interest groups are lured with money taken from the deep pockets of the state treasury. Given all these, Venezuela poses a great market risk if the firm were to sell its products locally. Additionally, the undiversified economy structure puts Venezuela at high risk for future “booms and boosts” which would increase significantly inflation and devaluation, thus affecting negatively the assets of our multinational client. The political situation is unstable in Venezuela. President Chavez is a notorious figure who, contrary to the expectation of many, was allowed to continue his term after a controversial referendum in October 2004. He runs the country from a populist platform but the result of his ruling so far is a 20% increase in the number of poor people. His support has decreased considerably, not only with the elites but also with the working class. Some of his unpopular measures include the centralization of power and the infiltration of loyal supporters in Congress. Democracy has been weakened considerably under President Chavez and as a result we can expect more political turmoil in the future resulting in strikes and mass demonstrations. Although Venezuela allows profit repatriation and has no history of expropriation, the leftist orientation of President Chavez coupled with his special relations with Cuba do not guarantee the continuation of these policies. From a cultural perspective, Venezuela would offer a pleasant environment for expatriates and their families. The population is hospitable and diverse. As in many Latin American countries, people in Venezuela consider work as a means of support and not as a goal in itself. In terms of business relations, punctuality is not important and family matters precede everything else. Unfortunately, crime is at its highest levels since President Chavez is in power. Fueled by extreme poverty and high unemployment rate, theft and kidnapping for ransom money are widespread and foreign nationals are favorite targets. Additionally, the border with Colombia is an area with frequent armed clashes between drug smugglers. Hence, our managers in the multinational subsidiary would have to face an immense security risk. After performing this analysis we recommend that our client does not pursue its project in Venezuela. In spite of the apparent economic recovery the country poses a political threat that is practically impossible to hedge. Even if our company were to export 100% of its output and thus bypass the local gloomy market, the political risk and the lack of personal security make this project a highly risky investment. Essay #3 Discuss the evolution of International Political Economy since 1945 from the perspectives of the South. Consider the South’s role in institutions through which the international economy operates and the South’s relationship to the integrated global economy. Comparatively speaking, has the South been a successful participant in the evolution of global economy? Describe the South’s impact regarding international policy in the areas of trade, environment, aid and monetary issues? In which issues has the South been most influential and in which issues the South has been least influential? Why? The North consist of the developed, industrialized countries of Western Europe and North America, and the less developed countries (LDC) of the world (regardless of whether they are geographically located in the Northern or Southern hemisphere) comprise the South. is made up of the industrialized nations that were first to develop and have grown to be relatively rich. The south nations were the poorer, less industrialized nations of the world, many of which are former colonies of north states. By the 1950s, many of the former European colonial empires and territories began to disintegrate and new nation-states emerged in their place. By the end of the 1950s, many of the former colonies became independent and many more were on the entrance of a new international order shaped by the Cold war between the United States and its democracy allies (First world) and the Soviet Union and its allies (Second World). As these new nation-states began to shape their respective national identities, it appeared that the long-standing colonial domination of the West had come to a close. Politically, the Third World had been born. Many of these newly formed nations confronted pressing and complex economic, political, and social problems that made it difficult to create truly sovereign national institutional structures. The primary concern of the newly created nations was the economic development dilemma – the lack of economic prosperity. The stark of economic differences and disparities between the developed and less developed countries became the defining feature of what later became known as the North-South dilemma. For the LDCs, economic development has been crucial as a means for ensuring sustained political development, independence and cultural identity. The economic success of the developed countries provided a strong rationale for some LDCs to follow the footsteps, or at least adopt market-oriented prescriptions for economical development. The emergence of new international institutions like the IMF, the World Bank and GATT, whose role was to coordinate international trade, symbolized the expanding significance of the market in the world economy. These institutions were largely controlled by the developed countries. Recognizing that individually, LDCs were unable to exert significant influence on the international system and its institutions, a number of countries attempted to promote a collective identity. The heads of state from LDCs initiated a dialogue among themselves that subsequently led to the formation of the Non-aligned movement, which served three main purposes: to be the LDCs political arm for addressing initiatives against remainings of colonialism, to be their vehicle for positioning themselves outside the sphere of the Cold War scenario, an to promote the interests of the LDCs. Frustrated by their meager success, increasing number of LDCs turned to their membership in international organizations to foster Third World solidarity and momentum for change in the international political economy. In 1964, UNCTAD was established by the 77 LDCs that became known as the G-77. The G-77 sought to make UNCTAD a mechanism for dialogue and negotiation between the LDCs and the developed countries on trade, finance, and other development issues. Through UNCTAD, LDCs were gradually able to secure some concessions and preferential treatment - a Generalized System of Preferences (GSP) – for their exports to developed countries. Another organization that was created among LDC was the OPEC, which helped to generate attention to Southern concerns in 1973 when they embargoed the oil shipments of the developed countries and motivated and significant incr...