The Role of the State in Protecting Home Markets Essay

The Role of the State in Protecting Home Markets Essay

Executive Summary:
Within the context of international business and globalisation, the role of the state in protecting home markets has been highlighted to examine the increasing influence of multinational companies on local markets. However the influence of MNCs goes beyond economic effects and MNCs may have a major influence on political and social policies of states. The positive and negative aspects of globalisation are discussed from an empirical, social and historical perspective.

The role of the state in development of neo-liberal economies relates to changes in the international markets, global economy and trade patterns. The theories on the role of the state in globalisation and development could be integrated with global political economy. The internalisation process involves liberalising the economy with cooperation of institutions at the global and regional level and trans-nationalisation processes associated with civil societies. Hveem (2002) argues that globalisation is a complex processes and is made of conflicting sub-processes and that only by breaking up globalisation into its elements is it possible to find new agencies and options for alliance building across national boundaries between nations.

Globalisation relates to international markets and international business as it refers to the connectedness of production and communication around the world. With globalisation phenomena, technologies and products are shared across the world and new laws and regulations guide global trade patterns. Globalisation could be labelled not just a phenomenon but a pattern, a force and revolution in trading and is marked by speed of communication and exchange, complexity of networks, volume of trade, size of products, interaction and risks in trade. However, globalisation is much more than diffusion of technologies, products, ideas and innovations or liberalisation of markets and internationalisation. Globalisation involves change in geography, and the way we experience local markets and trends. In this analysis we discuss the different aspects of international business trends and globalisation from the perspective of state policies and effects on local markets.

Globalisation � Aspects and Studies
According to Giddens (1990), globalisation is the �intensification of worldwide social relations which links distant localities in such a way that local events are shaped by events occurring many miles away and vice versa� (p.64). Globalisation thus has social, economic, political implications and has the features of territoriality, speed of technology, creation of global free markets and rise of multinational corporations.

Multinational companies have a definite impact on local communities as they exploit cheap labour and although MNCs can bring in wealth for such local communities, there may be significant inequalities as although MNCs bring large scale employment, the wages given to members of local communities are minimal. Multinationals identify different target groups and try to increase sales by creating new needs and products. Considering the impact of multinational companies on local markets and sales, the government regulations to protect the local markets are important and play a major role in achieving a balance between sales of local and international products.

Shin (2000) argues that the state plays a role in affecting social policy through economic changes. Globalisation has brought in global regulations and increased economic integration although it places a constraint on the discretion of the nation state bringing in an economic and industrial transformation towards a more competitive state. States compete with each other to attract FDI or foreign direct investment from international capital markets and this helps to promote competitiveness within the local and global markets. Competition between international companies and local companies influences not such economic changes but triggers in social policy as for example Shin (2000) writes that welfare states may need to reform their social policy towards business-friendly social policies with the entry of international competitors. The welfare state policies are geared towards a market-conforming policy on business taxation, providing for social protection revenues, using income security programmes and allocation of resources for active labour market programmes and reduced state intervention. Changes in social policy triggered by globalisation and in accordance with globalisation needs are seen as responses of welfare states to meet the evolving needs of international business caused by structural changes in the market.

Global corporations are not just focused on policies related to competence and business performance but play a key role in local and global issues of human rights and environmental policies. Thus by investing in local and global communities on a long-term basis MNCs can develop public trust and demonstrate their presence and social concerns within poorer countries and emerging market economies. Globalisation does not always prove or support that the rich get richer and poor gets poorer as globalisation provides its opportunities and corporations can be agents of progress for a nation.
Navarro et al. (2004) discuss the implications of globalisation on the welfare state in a related study and analyse the evolution of welfare states in most OECD countries during the pre-globalisation and globalisation era. The effects of globalisation on the welfare state show that globalisation has led to the convergence of a smaller welfare state which is funded by labour, property and consumption rather than capital. Navarro et al. claim that social public expenditures and public employment have increased in the era of globalisation despite indications of negative trends. So the possibilities of negative effects of globalisation on the welfare state seem to be minimal also because welfare states remain rooted in political traditions that govern state policies. Thus a global economic and social policy and a tradition of political economy seem to determine the function of welfare states although globalisation as a phenomenon may not have any negative influence on the concept of welfare state.

Thompson (2003) has discussed globalisation as a total commercialisation of politics by suggesting that globalisation has been built on corporate takeover of economic, political, social and cultural life. Thus globalised economies are commercialised economies completely controlled by multinational companies in all aspects of life. Global capitalism seems to dictate and create consumption habits and also influences state policies that are focused on gaining commercial interests. Considering the fact that states also derive commercial gain from globalisation and an open market policy, the state interests in protecting home markets purely for welfare may be under scrutiny.
To understand the effects of globalisation on national policies, state control and institutions, Nordhaug (2002) focuses on theories to study issues of financial liberalisation in emerging economies. These theories tend to differ according to causal influences on national policies and the five levels of impact of globalisation are related to national political influence; trans-national economic influence; international, trans-national and global political influences. Nordhaug suggests that all these levels of theoretical perspectives may have to be considered while dealing with the impact of globalisation on national policies.

Globalisation brings about commodification of life, expands the scope of multinational companies and may have implications on quality of life. Brand culture is an offshoot of globalised market trends with multinationals replacing local markets and brands. Multinationals not only influence the local markets and economic patterns but also influence social policy changes within national governments and transnational bodies such as the EU and World Bank. Multinational companies thus have a certain degree of control over globalised economies and social institutions. Globalisation aims to expand market relations, reduce state and interstate interference, and create a global free market. According to Hirst and Thompson (1999), international business is largely confined to home territory in terms of business activity and by being nationally embedded they continue to remain multinational rather than trans-national corporations. However the patterns of changes in foreign-controlled turnover as a ratio for domestic turnover shows local market conditions and is given as a graph below. The graph by OECD shows foreign-controlled turnover has been increasing for Scandinavian countries and also the United Kingdom (OECD, accessed 2006).

Rigman and Girod (2003) give an empirical study of 49 of the world�s largest retail multinational enterprises or MNEs and one of these is considered as a global MNE and five are considered bi-regional with twenty per cent sales in the EU, NAFTA and Asia. The remaining MNEs studied are domestic with sales in the home-triad market. The study showed that most MNEs are neither global nor do they have global strategies and are mainly regional MNEs so their focus is local market oriented. This study shows that despite the impact of globalisation, most MNEs operate within the local markets and thus affect local sales rather than global sales. Thus state regulations to protect home markets from being replaced by MNEs may well be founded on grounds of exaggerated effects of globalisation and international business.

According to Agmon (2003) the interface between national states and MNEs result in globalisation and is a negotiated solution rather than a market equilibrium. In a global liberalised market, national states aim to generate welfare and wealth for their residents and MNEs try to maximise value. State control to protect home markets is also guided by the motivation to aid residents� earning potential and welfare. The income distributional effects of globalisation highlight the role of the state and the MNE although there may be a need for a proper calculated strategy and optimal solution for identifying elements of bargain. Carr et al. (2000) studied effects of global and international business on home-based workers and local communities.

The study claims that globalisation presents both threats and opportunities for women who work within the informal sector and uses the example of women who work in informal employment. Some of these organisations are Home Net and Global Markets Program and the study analyses the impact of globalisation on labour relations and other market transactions within the framework of home-based workers and global value chains. Agricultural products, manufactured goods, non-timber forest products are the products identified which show the uneven distribution of power and emphasis on the importance of home-based workers both locally and internationally. In another case study, Carr and Garcia (2003) used a Spanish case study to argue that strategic implications from globalisation are not so defined for executives in local companies and are more appropriate for strategies of MNCs.

The strategic choices of local companies are constrained by limited resources and distinctive evolutionary paths and alternative theoretical perspectives. Thus international business strategy is based on theoretical perspectives such as Porter�s analysis emphasising market power and market positioning although the recent trend in analysing global business has been focused on competence and resource-based perspectives with the emphasis on internal issues of technology and control of market factors. Competence, resource base and technology are some of the issues pertinent to MNCs although resource-based considerations are most important for local companies. The strategic priorities of local independent companies seem to be different from MNCs although both types of companies shift their strategic emphasis as globalisation proceeds towards an evolved stage highlighting the need for a dynamic perspective. Future policy shifts of companies seem to be focused in terms of their exposure and response to globalisation.

The effects of globalisation and international business relate to changes in social and economic policy, global trade, national politics and changing market trends. Globalisation changes the labour pattern within a nation and may bring about both opportunities and threats. Opportunities of globalisation would relate to opening up of the market with a huge number of job additions and new recruits. Threats relate to changes within the structure of the domestic market that may face increased competition from global companies. The role of the state in protecting the interests of the local workers relates to the concept of the welfare state in which the state protects the welfare and wealth of residents against external forces. Globalisation is in itself considered a force that is capable of changing local and national markets although some studies have suggested that most MNCs tend to operate within their national markets and thus MNCs may not impose a direct or immediate threat to local products. Along with this we have also analysed that states seem to have commercial interests in a free international market policy as MNCs affect economic, social and political concerns of nation states.

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Appendix I:

Source: OECD, accessed, 2006-02-14 (Measuring Globalisation)

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