International Business Analysis Essay Example | Topics and Well Written Essays - 2000 words

International Business Analysis - Essay Example Furthermore, given the reltively smll economic size of these economies, even smll mount of foreign investment cn ccount for lrge percentge of their totl investment nd therefore generte significnt impct. The spred of multintionl firms ws often viewed with suspicion nd mistrust in such countries, prticulrly in those tht pursued strtegy of import substitution. In this pper I will tke look t both positive nd negtive effects of multintionl firms on the economies of developing ntions. I will rgue tht such compnies through their ctivity provide FDI in the economies tht re still under development nd spek bout pros nd cons of the globliztion in frmes of multintionl firms. The concept of linkges will be discussed in order to understnd the link between the multintionl firm nd the effect interntionliztion on the economies of developing ntions. Multiple mrket forces re behind the observed growth of multintionl firms: reduction in costs of communiction hs esed the constrints on globl rtionliztion of production nd the informtion technology revolution hs creted mrkets for mny new products nd services. Incresed world trde in services hs further contributed to globliztion of multintionl firms since services often require suppliers to hve physicl presence in mrket. However, chnges in the mrket environment do not cpture the whole story. Policy inititives hve plyed centrl role: mny countries hve gone further thn simply removing brriers to inwrd multintionl firms nd hve tken more pro-ctive pproch towrd ttrcting multintionl firms to enter the mrkets of developing countries through the use of fiscl nd finncil incentives. This new, more fvorble, policy environment in mny developing nd formerly communist countries contrsts shrply with historicl ttitudes towrd multintionl firms in these countries. The recent wve of liberliztion of trde nd FDI policies suggests tht the optimistic view of multintionl firms seems to be gining the upper hnd. One mnifesttion of this trend of liberliztion is the prolifertion of bilterl investment treties cross countries: there now exist 1,513 bilterl investment treties mong countries, compred with fewer thn 400 t the beginning of 1990 (UNCTD 1998). Of course, the filure of import substitution s strtegy for development is crucil reson behind this remrkble turnround in policies in mny developing countries. Within the more optimistic view of effects of multintionl firms to the economy of developing ntions is tht it pushes forwrd the process of industril development by creting linkges with the rest of the economy Fundmentl concepts In clssic work, Hirschmn (1958) developed the concepts of bckwrd nd forwrd linkges nd nlyzed their importnce for economic growth. In his own words: The setting up of n industry brings with it the vilbility of new expnding mrket for its inputs whether or not these inputs re supplied initilly from brod. This enhnced mrket exerts bckwrd pressure for estblishing industries tht supply the new entrnts. He clls this process bckwrd linkge effects: Every non-primry ctivity will induce ttempts to supply through domestic production the inputs needed in tht ctivity. Similrly, forwrd linkge effects re creted when one industry uses nother industry's outputs s its inputs: Every ctivity tht does not by its nture cter exclusively to finl