Assess the Global Role and Local Impact of Multinational Companies.

Assess the global role and local impact of multinational companies. A multinational company is often defined as a corporation whose operations and investments are broaden across a number of countries. They are also referred to as transnational companies. Therefore given this definition it would be expected that if a company operates over such a large territory that it would indeed have many effects and impacts, locally and globally, and its role would also be quite significant as it can have a direct influence on an economy, the environment and general effects on society. However, changing the way they run things in order to accomidate society could break there business down and they could eventually have no impact on society so looking at the situation is they impacts worth the change? ‘Theory has evolved over the years regarding social concerns, society’s expectations and corporate responsibility. Indeed, early management and economic theorists viewed the corporation as having a strong fiduciary responsibility to shareholders, but stopped short of considering any real obligation to other stakeholder groups’ (Friedman 1962; Teece 1984) (Corporate social responsibility, Accountability and Governance; Istemi Demirag). This statement I think is very true, due to the fact that, as time continues people’s opinions of what is deemed socially responsible in both corporate and everyday society varies, as it is a sensitive topic that is very opinion based. Corporate social responsibility is when companies realise that their activities have economic, social and environmental influences. However, to put it simply it can be divided into two broad categories; one-off activities and larger issues of policy and strategy. One-off activities basically cover things such as charitable donations of money and time given to charities or community projects, all of which are at the discretion of the owners of the company. Larger issues of policy and strategy is where the company needs to have a much more devoted awareness to the firms moral, social, ethical and environmental acts within its operations. This requires the company to take a look at other external influences that directly affect the business, such as pressure groups. This could be seen as a type of contingency planning as it helps a firm avoid future conflicting interests with the outside world. Acting socially responsible brings many benefits to both the company and society, if the correct approach is used. So by a firm accepting social responsibility, everyday problems can be reduced such as unemployment and pollution. Therefore you would also see a vast improvement in the quality of life, as society would be factored into the day to day decision making process of the company. A business which includes this approach is most likely to see more of a tangible outcome, as they will probably benefit from increased financial performance from activities such as reduced operating costs from recycling instead of waste disposal. The company could also enhance its brand image from a good reputation and gain the ability to attract capital and trading, so will therefore see the benefits from increased sales and customer loyalty. However, this could also be a case for firms to not accept this responsibility, as they can suffer from lack of customer interest if they haven’t found the right approach for them. This is because various businesses see corporate responsibility being relatively constricting, as in some cases it has lead to products having a lack of sales, or makes the product less profitable. This is due to the fact that introducing some of these socially responsible policies into a firm is very costly, so this can lead to an increase priced products for the customers or a smaller profit margin on the product for the company. However, during the recent economic crisis companies are less likely now more than ever to not act socially responsible as they are more focused on profit and survival. On the other hand there could be a contrasting theory as corporate responsibility can just be used by a firm as a marketing ploy, as a company’s overall strategy is to make profit by responding to what their consumers want, so they may just use this method in order to maximise their product life cycle therefore increasing its revenue. Contradictions of corporate responsibility have been seen many times over the years within companies such as; ‘Barclays Bank CLAIM: We have the skills, resources and determination to make a positive and lasting contribution to the communities in which we operate. ’ (Barclays social review, 1999) ACTION: Barclays bank closed 172 branches in April 2000’ ‘Proctor & Gamble CLAIM: An employee should be able to answer â€Å"yes† to the questions: is this the right thing to do? With this action uphold p&g’s reputation as an ethical company? (Proctor & Gamble code of conduct) ACTION: Proctor & Gamble continues to trade in Burma, while other companies have pulled out because of the appalling record of the Burmese government on human rights. ’ ‘BAT (British American Tobacco) CLAIM: its corporate social responsibility report defines targets for reducing energy use, water consumption and waste products, and describes its commitment to enlightened employment practices. ACTION: it markets its tobacco products ruthlessly to young people – it was caught on television handing out packets of Benson & Hedges cigarettes to teenage volley ball players in the Gambia. ’ (All three examples used is from AQA AS Business studies, John Wolinski & Gwen Coates) Number of companies using corporate social responsibility reporting, 1994 – 2006 Source: EarthTrends, 2008 using data from UNPE, 2008 The chart above does in fact show that business are starting to realise the importance of corporate responsibility and meeting their customers’ needs by adapting to it. As the chart show continuous growth overall from 1994 to 2006 which does show the significance of the topic to society and the business world. Overall, positive externalities are created for society by companies that except corporate social responsibility as well as direct benefits to the firm. However, a lot of multinational companies are based in more of the westernised countries, so there main offices are seen as socially responsible some of which could be just due to the law in which it is governed by. Some of these companies may on the other hand have ‘back offices’ from outsourcing operations in counties such as China and India, where it is not ensured that these socially responsible factors are being kept, which is an increasing problem as more and more companies do it each year. Multinational companies also have to be aware of their global role in terms of business ethics. Business ethics can be defined as the entwining of ‘morals or a principle of what is right or wrong in human behaviour’ (business and society, Edmund Marshall) into a business’s activities. Every company starts with some kind of ethics whether intentional or portrayed by the owners or employees. These ethics are what help structure the way the business is run, even if they are not generally the right ones for society. However, all firms do have to have ethics which coincide with the law of which it is governed by. This does in fact make it trickier for multinational companies to obtain ethics which both abide by the laws of each country its company occupies, and have them be socially correct so that they are morally respected. Although, not doing so could have major effect on the businesses reputation, as multinational companies are more commonly known as they are generally larger. Therefore, it could result in heavy dents in their consumer base which would later affect the company’s revenue. Throughout recent years businesses have been forced to notice their participation and effects on the environment, mainly due to societies pressure to do so. However, responding to such pressures can give a firm many advantages such as, marketing opportunities, financial advantage and human resource opportunities. When a company is being ‘Environmentally friendly’ it portrays t its customers a very good reputation which is a very positive marketing tool. This can help achieve brand recognition more powerfully and even persuade a customer to choose them over a competitor. So could overall increase a business’s sales as well as give them stronger brand loyalty. This could even give a firm the opportunity to increase their products profit margins, so that the costs occurred from the change that would benefit the environment will be covered. However, although this change can have a beneficial effect on a company they do have to make vast changes on their operations so that it doesn’t have adverse effects on the environment. Such as, such as the use of raw materials and energy, many companies use finite resources like coal and oil as they are cheaper, but they will eventually run out and leave negative chemicals behind. So firms need to find more of a renewable energy resource that suits them. Another environmental impact that occurs often is the disposal of waste and by-products. Currently gases may be released into the atmosphere, liquids into rivers and solids into landfills all of which are extremely harmful to the environment. On the other hand, I do see that it is costly to find other ways of disposal so i think the company should focus more on changing the ways the waste is produced so that less is created. Also when obtaining environmental responsibility, a company needs to make a contingency plans, mainly so that negative externalities do not occur. By doing this if an environmental disaster occurs they can minimise risks and costs so that both the company and society will have less of an effect from t. However, if multinational companies are to take this seriously they are also to look at how their day to day operations effect the environment, such as using private jets instead of flying with normal airlines. They could also offer company cars that give out less carbon emissions. Therefore large companies like multinationals will most likely benefit from environmental audits. Overall, over recent years society has began to realise that all businesses have effects on the world locally and globally, even more for multinational companies. Although businesses already realised this, but have just began to take notice more increasingly due to the pressures of society and recent changes in the law. Every aspect of a business has a knock on effect and not just on the economy which some people is lead to believe. The ethics of how the company is run or the ethic they portray are being mirrored on to society. So for the general public to react is not that uncommon whether it is positive or negative. However, I do think that people should force a company to have corporate responsibility; so that they know their actions will not just be affecting society without any consequences. Finally, I think that multinational companies have one of the biggest influences on society as they are both global and local too many countries as they are transnational. Therefore they should respect the people of the community they are in and try there hardest to impact lives positively not negatively. . However, changing the way they run things in order to accommodate society could break their business down and they could eventually have no impact on society at all, so looking at the situation is they impacts worth the change? References Books Harvard Business school press, Harvard business review, business and the environment Edmund marshall, Business and society Hans, gunter, transnational industrial relations Istemi demirag, corporate social responsibility, accountability and governance, global perspectives Sally eden, environmental issues and business, implications of a changing agenda John wolinski & gwen coates, a2 business studies, aqa John wolinski & gwen coates, as business studies, aqa