The Effects of Globalization on Multinational Corporations

by Andrew Button; Updated September 26, 2017

Multinational corporations are agents of globalization. At the same time, many multinational corporations are also affected by globalization in ways they may or may not like. This reality stems from the fact that multinational corporations have many subsidiaries, some of which benefit from globalization and others that do not. The effects of globalization on a multinational corporation can be good or bad, depending on the nature of the corporation in question.

Access to Markets

Globalization gives businesses access to markets that would have been difficult to reach in the past. Because of the Internet, customers from anywhere in the world can order products from companies anywhere else in the world, and have those products delivered by airplane in just a few weeks. This is naturally a tremendous advantage to businesses, who stand to increase their potential customer base by millions by reaching out to foreign buyers.

Labor Factors

Globalization allows businesses to access labor at cheap prices. Otsourcing and off-shoring allow businesses to hire employees in foreign countries, where labor and real estate costs may be lower than in the business' home country. While these practices can have negative effects on workers looking for full-time jobs, there is no doubt that they decrease costs (and therefore increase profits) for businesses.

Partnership

Globalization allows corporations to form partnerships with companies all around the world. Many American, European, and Asian companies have corporate partnerships that stretch across continents. For example, Sony-Ericsson MP3 players are the result of a partnership between the Japanese Sony company and the European Ericsson company. These kinds of partnerships minimize costs and maximize quality by playing to the strengths of teams all around the world.

Tax Effects

Globalization gives multinational corporations the ability to seek out foreign countries for their investments when their current country adopts a tax policy they find to be unfavorable. Countries with low corporate tax rates are sometimes called "tax havens," as they allow corporations and individuals to lower their tax rates by moving assets offshore. These counties include Bermuda, Belize and Switzerland. The international financial structure, comprised of encrypted information systems and private documents, makes all this possible

Coordination Challenges

Multinational corporations may have a difficult time coordinating activities in a globalized economy. A company that operates in America, Japan and Europe will need to hire employees who speak many different languages, and it may be difficult for that company to make sure all employees are on the same page when only a few of them speak the same language. Translators may be called upon to assist in information coordination where language barriers exist. Other coordination problems may come from differences in cultural norms (e.g., marketing in the Muslim world) and business norms (e.g., logistics management in countries with low-quality infrastructure).

About the Author

Based in St. John's, Canada, Andrew Button has been writing since 2008, covering politics, business and finance. He has contributed to newspapers and online magazines, including "The Evening Telegram" and cbc.ca. Button is pursuing a Bachelor of Arts in political science from Memorial University in St. John's.