Contents
1. Introduction
2. China and its economy
3. India and its economy
4. China and India’s economic development and its effects to western MNC
5. Its effects to Japanese and South Korean MNC
6. It’s effects to ASEAN companies
7. Conclusion
8. References
Introduction
The degree to which business is internationalized is a function of changes and developments in the world economy. Central to these developments in recent years is the process of globalization or increased global interdependence which many allege took place in the closing decades of the twentieth century. Globalization has also thrown up new challenges for the world’s international economic institutions like the World Trade Organization (WTO), the World Bank and the International Monetary Fund (IMF). The establishment of the WTO in 1995 represented a more extensive and legally grounded international trading system. The pressures of globalization imply a need for an even greater shift of regulation and powers to international institutions. Anti-globalization protestors single out international institutions as the servants of international business and the cause of many of the world’s ills. Many of these ills are said to reside in the developing world which, according to globalization critics, is excluded from any benefits of greater international integration and, at worst, exploited for the benefit of wealthier countries (2003).
For those who welcomed the supremacy of markets and economic liberalism, globalization offered the possibility of boundless growth and prosperity, not only for developed countries but also for those developing countries brave enough to embrace rather than resist globalization in all its manifestations. For others, globalization threatened rising inequality, economic anarchy and a surrender of political control. In developed countries, job losses and the unraveling of social progress were anticipated as a result of greater competition from low-cost countries whereas developing countries feared that their former colonial subjugation had been replaced by the dominance of market forces and its agents in the form of multinational corporations (MNCs) ( 2003).
Business activities are becoming increasingly global as numerous firms expand their operations into overseas markets. Many U.S. firms, for example, attempt to tap emerging markets by pursuing business in China, India, Brazil, and Russia and other Eastern European countries. MNCs, which operate in more than one country at once, typically move operations to wherever they can find the least expensive labor pool able to do the work well. Production jobs requiring only basic or repetitive skills such as sewing or etching computer chips are usually the first to be moved abroad. MNCs can pay these workers a fraction of what they would have to pay in a domestic division, and often work them longer and harder. Most U.S. multinational businesses keep the majority of their upper-level management, marketing, finance, and human resources divisions within the United States ( 2002).
They employ some lower-level managers and a vast number of their production workers in offices, factories, and warehouses in developing countries. Mergers and acquisitions are also becoming more common than in the past. With large mergers and the development of new free markets around the world, major corporations now wield more economic and political power than the governments under which they operate. In response, public pressure has increased for businesses to take on more social responsibility and operate according to higher levels of ethics. Firms in developed nations now promote and are often required by law to observe nondiscriminatory policies for the hiring, treatment, and pay of all employees. Some companies are also now more aware of the economic and social benefits of being active in local communities by sponsoring events and encouraging employees to serve on civic committees. Businesses will continue to adjust their operations according to the competing goals of earning profits and responding to public pressures for them to behave in ways that benefit society ( 2002). The paper will discuss about china and its economy, India and its economy, China and India’s economic development and its effects to western MNC, China and India’s economic development and its effects to Japanese and South Korean MNC and China and India’s economic development It’s effects to Asian companies. The information acquired from such will be used to create a proper conclusion.
China and its economy
Officially the People’s Republic of China, China is a country in East Asia, the world’s largest country by population and one of the largest by area, measuring about the same size as the United States. The Chinese call their country Zhongguo, which means Central Country or Middle Kingdom. The name China was given to it by foreigners and is probably based on a corruption of , a Chinese dynasty that ruled during the 3rd century B.C. China proper centers on the agricultural regions drained by three major rivers the Yellow River in the north, the Yangtze in central China, and the Pearl River in the south. The country’s varied terrain includes vast deserts, towering mountains, high plateaus, and broad plains. Beijing, located in the north, is China’s capital and its cultural, economic, and communications center. Shanghai, located near the Yangtze, is the most populous urban center, the largest industrial and commercial city, and mainland China’s leading port (1977).
In the 1950s China’s Communist government began bringing a majority of economic activity under state control and determining production, pricing, and distribution of goods and services. This system is known as a planned economy, also called a command economy. In 1979 China began implementing economic reforms to expand and modernize its economy. The reforms have gradually lessened the government’s control of the economy, allowing some aspects of a market economy and encouraging foreign investment; however, the state-owned sector remains the backbone of China’s economy. China refers to this new system as a socialist market economy. As a result of the reforms, China’s economy grew at an average annual rate of 10.2 percent in the 1980s and by 10 percent annually in the period of 1990–2001. This was among the highest growth rates in the world. However, the reforms also have caused problems for China’s economic planners. Income gaps have widened, unemployment has increased, and inflation has resulted from the extremely rapid and unbalanced development ( 2003).
In 2001 China’s gross domestic product (GDP) was ,159 billion. The size of the country’s economy, which is comparable to that of Canada (4 billion), makes China a significant economic power; despite this, it remains a low-income, developing country because it must support a huge population of more than 1.2 billion. In 2001 China’s per capita GDP was just 0, compared to ,340 in Canada. Industrial activity that includes manufacturing, mining, and construction contributes the largest percentage of the country’s GDP, amounting to 51 percent in 2001. Transportation, commerce, and services together accounted for 34 percent. And agriculture, together with forestry and fishing, contributed 15 percent (2003).
The information technology (IT) industry is a pillar of China’s national economy. It has developed rapidly since the market opening and reform policy was introduced. The IT industry contributes more than any other industry to the growth of the national economy as measured by output value and sales revenue. IT is one of forty industries in the industrial sector; its market share increased from 3.1 per cent in 1990 to 8 per cent in 1999. The IT industry has developed more rapidly than any other Chinese industry and has the largest output, best profits and largest export turnover (2004). From 1990 to 1999, the Chinese IT industry grew by 32.1 per cent per annum, compared with a total industry figure of 14.2 per cent and national economy growth of 9.7 per cent. In 2000, the output of the IT industry exceeded US0 billion, sales revenue increased by 34 per cent to US billion, and profits and taxes grew by 66 per cent to US.7 billion. Exports reached US.1 billion, up by 41.2 per cent from 1999. In 2000, the IT industry created value added of US$l6.7 billion, which accounted for 1.54 per cent of gross domestic product (GDP), compared with 1.29 per cent in 1999 (2004).
India and its economy
India is bounded on the north by Afghanistan, China, Nepal, and Bhutan; on the east by Bangladesh, Myanmar which is formerly known as Burma, and the Bay of Bengal; on the south by the Palk Strait and the Gulf of Mannār which separates it from Sri Lanka and the Indian Ocean; and on the west by the Arabian Sea and Pakistan. India is divided into 28 states and 7 union territories including the National Capital Territory of Delhi. New Delhi is the country’s capital. The world’s seventh largest country in area, India occupies more than 3 million sq km encompassing a varied landscape rich in natural resources. The Indian Peninsula forms a rough triangle framed on the north by the world’s highest mountains, the Himalayas, and on the east, south, and west by oceans. Its topography varies from the barren dunes of the Thar Desert to the dense tropical forests of rain-drenched Assam state. Much of India, however, consists of fertile river plains and high plateaus. Several major rivers, including the Ganges, Brahmaputra, and Indus, flow through India. Arising in the northern mountains and carrying rich alluvial soil to the plains below, these mighty rivers have supported agriculture-based civilizations for thousands of years ( 1952).
India has struggled financially since independence, experiencing slow economic growth and economic setbacks due to climatic extremes or political disturbances. The country has been gradually transforming its economic base from agrarian to industrial and commercial. Under British rule in the 19th century, India’s cottage industries and thriving trade were virtually destroyed to make way for European manufactured goods, paid for by exports of agricultural products such as cotton, opium, and tea. Beginning in the late 19th century a modern industrial sector and an extensive infrastructure of railways and irrigation works were slowly built with British and Indian capital. Nevertheless, India’s economy stagnated during the last 30 or so years of British rule. At independence in 1947 India was desperately poor, with an aging textile industry as its only major industrial sector (2000).
Economic policy after independence emphasized central planning, with the government setting goals for and closely regulating private industry. Self-sufficiency was promoted in order to foster domestic industry and reduce dependence on foreign trade. These efforts produced steady economic growth in the 1950s, but less positive results in the two succeeding decades. By the early 1970s India had achieved its goal of self-sufficiency in food production, although this food was not equally available to all Indians due to skewed distribution and occasional shortfalls in the harvest. In the late 1970s the government began to reduce state control of the economy, making slow progress toward this goal. By 1991, however, the government still regulated or ran many industries, including mining and quarrying, banking and insurance, transportation and communications, and manufacturing and construction. Economic growth improved during this period, at least partially as a result of development projects funded by foreign loans (2000).
A financial crisis in 1991 stimulated India to institute major economic reforms. After the Persian Gulf conflict of 1990 to 1991 caused a sharp rise in oil prices, India faced a serious balance of payments problem. To obtain emergency loans from international economic organizations, India agreed to adopt reforms aimed at liberalizing its economy. These economic reforms removed many government regulations on investment, including foreign investment, and eliminated a quota and tariff system that had kept trade at a low level. Also, reform deregulated many industries and privatized many public enterprises. These reforms continued through the mid-1990s, although at a slower rate because of political changes in India’s government. In 1993 India permitted Indian-owned private banks to be established along with a minority of foreign banks (2000). With the reforms, India made a dramatic shift from an economy relatively closed to the global economy to one that is relatively open. By 1996 to 1997, foreign investment had increased to nearly billion, up from 5 million in 1990 to 1991. Exports and imports also grew dramatically in this same period. Economic growth since the 1980s has brought with it an expansion of the middle class, which was estimated to form 20 to 25 percent of India’s population in the mid-1990s. As a result, the demand for consumer goods from soap to luxury cars has expanded rapidly. In 2000 India’s annual gross domestic product (GDP) was 7 billion. In 2000 agriculture, forestry, and fishing made up 25 percent of the GDP, compared with 27 percent for industry including manufacturing, mining, and construction and 48 percent for services (2000).
In India, the upsurge of innovative activity seems to have had more to do with the advent of liberalization than with the Silicon Valley phenomenon. Liberalization has dramatically changed the market and supply conditions, from being shortage and seller driven to being buyer and competition driven. To survive and grow, firms have to focus on improving their competitiveness. They are realizing that the real source of industrial competition today lies in innovation and the rapid technological change taking place throughout the world. Technology is now a key determinant of strategic change in Indian firms. Industrial development based on indigenous technology development is still an elusive dream, but the ‘process’ of technology acquisition and assimilation is now very much a strategic process, aligned with firms’ need to build competencies (2004). Liberalization has stimulated the rapid growth of innovation-driven industries such as information technology (IT), communications technology, biotechnology and pharmaceutical industries. This has led to a new type of business enterprise known as the knowledge enterprise and a new sector of the economy known as the knowledge economy. This sector is now a significant component of the national economy and accounts for a large portion of economic growth. Liberalization created renewed interest in innovative entrepreneurship as a key driver for the rapid diffusion of innovation in business and industry. Entrepreneurship occupies centre stage in the wealth creation process in the knowledge economy (2004).
China and India’s economic development and its effects to western MNC
In the past, as have been seen, Asia has not been high on the list of investment targets for Western multinationals. Even during the boom years of the 1990s, firms were at first slow to understand the growth possibilities of the region, and later held exaggerated expectations. Their emphasis was on gaining a foothold to keep up with their competitors and making short-term profits, rather than building up a good cadre of managers with Asian expertise who could run the business for long-term growth and solidly based prosperity. Those expatriate managers sent to Asia often found themselves overwhelmed by the number of VIP visitors from headquarters demanding a guided tour of Asian interests. In the wake of the currency crisis of 1997, the instinct of many Western multinationals was to withdraw until the better times came round again, perhaps leaving a lone manager in charge of a scaled-down operation. Others saw the crisis as providing unparalleled acquisition opportunities at bargain basement prices. But as many of them now realize, having read it so often in the business press, making an acquisition is only the opening paragraph of the story. If they are not to lose the plot, but achieve the sort of returns on these investments that their shareholders require, they will have to manage their Asian operations much more effectively than ever they have in the past (2003).
China and India is said to be on the verge of being an economic giant in the year 2020 and it can affect western companies. Different effects can be felt by the western companies. This include tougher competition, harder time penetrating or controlling the Asian market, loss of potential clients, and loss of ability to attain income. When India and China gain an economic supremacy western companies can have harder competition. The western companies can have a hard time in dealing with these two countries and they have to make better products and services.
When China and India gain economic supremacy western companies can have harder time in penetrating or controlling the Asian market. Not only the western companies will have new and probably better competitors but they also can’t easily penetrate or control Asian markets. Instead of finding ways to gaining their goal in the Asian market they have first to worry about how to penetrate the said market. Another effect of China and India’s projected economic supremacy is the loss of potential clients. The western companies cannot easily get clients from Asian regions because there can be markets in there that offers their product and services. Lastly China and India’s projected economic supremacy gives western companies lesser chances to gain income. Lesser clients, tough competition and inability to control the market lead to lesser chance for the western companies to gain income.
Its effects to Japanese and South Korean MNC
During the mid to late 1980s, Japanese corporations rushed headlong into Asia, pushed in part by the sharply rising value of the Japanese yen and pulled by the alluring prospect of lower labor and other factor costs, plus very large and rapidly growing markets. MNCs based in Japan remain the largest national source of foreign direct investment (FDI) in Asia, a driving force behind much of that region’s rapidly growing trade in goods and services and a principal source there of technology transfer. By weaving these FDI, trade, and technology flows into cross-border networks, Japanese multinationals have fundamentally reorganized production across Asia (1999).
Partly because foreign firms have been kept out, the South Korean economy is dominated by a small number of very large multinational companies. Twelve of these ranked in the Fortune Global 500 list for 1995. These South Korean multinational companies have achieved significant global successes. The Samsung, Daewoo, LG, and Hyundai groups have become global household names. Samsung Electronics, a flagship company of Samsung Group, is the world’s largest producer of memory chips and color monitors, and the second largest maker of microwave ovens with global market shares of 15%, 17%, and 18% respectively as of 1995. It is also the company that in 1996 acquired U.S.-based AST Research, then the fifth largest personal computer maker in the world. Daewoo Electronics is the company that tried to become the largest color television producer in the world by acquiring Thomson Multimedia of France, but was blocked by French nationalist resistance ( 2000).
Hyundai Automobile is the twelfth largest automaker in the world and the biggest player from a developing country. LG Electronics became a force in multimedia by purchasing Zenith of the United States. These companies also hold oligopoly power in many domestic South Korean industries: Samsung, LG, and Hyundai in semiconductors; Hyundai, Samsung, and Daewoo in shipbuilding; Hyundai, Daewoo, and Kia in automobiles; Samsung, LG, and Daewoo in consumer electronics. These South Korean multinationals have become even more active in globalization in recent years, a response to the changing domestic and foreign market environment: deteriorating factor cost conditions in South Korea, emergence of regional economic blocs such as the European Union, pressures for domestic market opening, and the rise of emerging markets such as China and India ( 2000).
When China and India becomes economic superpowers Japan and South Koreas’ MNC will be affected. The main effect to Japan is it losing the power it has over the Asian market. As mentioned Japan is the largest source of foreign direct investment. This benefits not only Japan but the whole of Asian region as well. China and India will then be having most of the power in the region and it will be divided among the two. On the other hand the main effect to South Korea is it having a more powerful competition when it comes to producing technologies that is patronized not only in the region but in the most parts of the world. South Korea’s sales on the technology it has can go down. It may be forced to discover new technologies or trends to come up with the competition. Technology is one thing needed and valued by people in most parts of the world and South Korea is the one providing it to the Asian market this could all change when China and India becomes an economic superpower.
Its effects to Asian companies
What has changed along with the Asian economic crisis is not just that Asian firms are struggling against a prolonged recession, pressing though it is. Nowadays, the prevailing view is that Western companies had learned everything they needed to know about Asian management, and that it is the Asian companies that now have to learn again from the West. An important contribution to organizational efficiency and the business success of Asian companies has been their long-term investment in people particularly their humanistic approach to management. When the organization and its employees are strongly identified with and committed to each other, business success is no longer an abstract concept (2002). Asian companies have long promised employees a job for life, but they have had to announce unprecedented layoffs as they reorganize their businesses. The Asian and, in particular, the Japanese employment system was heavily influenced by the crisis, which slowed down the growth of Asian companies. During the economic miracle the growing enterprises could offer solid career development paths. Asian firms have to learn to operate in environments in which capital is limited and pricey; and they will have to convince capital markets that they can use money efficiently. In addition, pressure is rising from multilateral agencies and global markets for more disclosure of financial data. Asian companies that want to access international capital markets must meet more stringent reporting requirements (2002).
When China and India becomes economic superpowers the companies in Asia can be affected. The effects include a more radical perspective on business operations, improved ways of personnel management, and a more powerful competitor for the western mnc’s. When China and India becomes economic superpowers Asian companies will have more radical business operations. They will have a different perspective in running a business since they have to pattern the way they manage with China and India. Another effect is improving ways of personnel management. Asian companies will then improve their employees according to the changes they need and what the situation calls. Lastly an effect of China and India becoming economic superpowers is Asian companies becoming a more powerful competitor for western MNC. The focus of consumers will then shift to the Asian region and more clients will be enticed to purchase products coming from this region.
Conclusion
Business activities are becoming increasingly global as numerous firms expand their operations into overseas markets. MNCs, which operate in more than one country at once, typically move operations to wherever they can find the least expensive labor pool able to do the work well. The IT industry is a pillar of China’s national economy. It has developed rapidly since the market opening and reform policy was introduced. In India, the upsurge of innovative activity seems to have had more to do with the advent of liberalization than with the Silicon Valley phenomenon. Liberalization has dramatically changed the market and supply conditions.
China and India is said to be on the verge of being an economic giant in the year 2020 and it can affect western companies. Different effects can be felt by the western companies. This include tougher competition, harder time penetrating or controlling the Asian market, loss of potential clients, and loss of ability to attain income. When China and India becomes economic superpowers Japan and South Koreas’ MNC will be affected. The main effect to Japan is it losing the power it has over the Asian market. . On the other hand the main effect to South Korea is it having a more powerful competition when it comes to producing technologies. When China and India becomes economic superpowers the companies in Asia can be affected. The effects include a more radical perspective on business operations, improved ways of personnel management, and a more powerful competitor for the western mnc’s.
References
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