Essay on Global Market Integration and the Evolution of Multinational Firms through Global Production Networks

Has the integration of global markets led to the disintegration of the multinational firm as the central coordinating unit of international production?

Global market integration has continued to create a world economy (Athukorala, 2018). In such an economy, production and marketing occur in spatially and culturally diverse global fronts. For over a century now, the world has continued to experience increased networking, communication, and transport among several destinations. Since the coming of the post-industrial society, the world continued to change from the space-limited interactions towards the shrinking of space-time dynamics (Martin et al., 2015). Economic sectors around the globe thus began to adopt multicultural, multinational, and transnational approaches. In such systems, the business previously limited by space began to extend its global reach to new and diverse settings.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Order now

Currently, global markets are increasingly integrated (Martin et al., 2015). The markets continue to expand internationally through a sustained correlation of market demands and solutions. This market revolution to carter for the continued globally-oriented production and marketing has instigated various industries (Wong, 2002). Arguably, however, not many industries have experienced more significant shifts in production trends than the information and technology sector. The arrival of the network society was necessitated by the increased investment in information and communication systems. As such, it is fair that the researcher in this essay investigates the global market progress in one of the most significant product and service-based industries that continue to be synonymous with the post-industrial revolution.

Researchers in global market integration progress positively toward completely integrated and correlated markets (Genschel & Jachtenfuchs, 2017). This progress towards market integration has, however, continued to raise questions about the centrality of multinational corporations (MNCs) in international production. In this analysis, the author hypothesizes that increasing market integration in the mobile phone industry creates a disintegration of MNCs as the coordinating units of the international output.

Body

Background and History of Global Markets Integration

In 1830, the steam engine was invented by innovators of the preindustrial era (Andersson & Ljungberg, 2015). With the advent of the engine, the transport sector began to experience a global revolution. Railroads and steamships were built to connect various ports and market destinations. The invention drastically lowered freight rates for goods transportation to longer distances. As such, the traders in various regional and overseas destinations could engage in goods exchange. The railroad and steamship inventions were then followed by the first electric telegraph and marine cables (Andersson & Ljungberg, 2015). Trains began to connect Europe and Asia through the Suez Canal in the following decades, thus lowering freight rates further. Through the latter part of the 19th century, the engine developments for both ships and trains intensified (Andersson & Ljungberg, 2015). Bulk cargoes could thus be transported by rail and sail through Asia and Europe. Organizations in Asia and Europe were able to produce in their country of origin and export the goods to distant locations.

As the trade relations among countries and continents continued to take center stage in International Corporations, merchants began to lobby their governments to lower trade tariffs. Due to such merchants’ mobilization, the concept of free trade was invented. Free trade allowed for liberal inter-country trade interactions. The countries were no longer required to demand balanced or surplus trade relations with foreign countries. This approach to trade facilitated an increase in global collaborations as countries aimed to balance deficits by diversifying their trade expanse. The open market policy was observed in most British Empires except for Australia, Canada, and the USA. By using the open-market approach, Britain was able to sustain a complicated mesh of international relations among the members of the British Empire. Countries within the same trade umbrella could thereby specialize in a specific product line and exchange them with other foreign countries. A noteworthy business between different collaborating countries was the cotton trade between the USA and Canada. Through the established railway lines connecting the two countries, merchants in cotton exported their products from Canada to the USA. In return, the companies in the USA processed the cotton and timber and produced paper and clothes that were then shipped back to Canada.

At the beginning of the 20th century, the third societal (the industrial) revolution brought the mass production concept. Mass production ensured surpluses of products and improved transportation. The industrial age increased the global reach of both pre-existing and new products into new markets. During the early 1900s, grain markets experienced the most notable impact of global market integration (Genschel & Jachtenfuchs, 2017). Across the trading regions, market analysts noted the synchronization of such factors as pricing for the grains, including rice and wheat. Rice prices, for instance, were observed to move uniformly in exporting countries like Burma, French Indochina, and Siam and importing destinations like China, India, Japan, and the Dutch East Indies. Such similar product behavior could imply that they were controlled by identical market factors like weather and labor variables. The worldwide market integration was epitomized by the great depression of 1930. This depression was observed to affect all the trading partners in the global setting similarly and thus evoked similar intervention measures, including tariff changes.

Later, after the Second World War in 1945, the global players acted to restore free trade. These analysts (while aiming for a united international business front) proposed that free trade among regions was an essential factor in the avoidance of tension and hostility among various countries. Such trade agreements would thus foster multiculturalism and multinational collaboration. In the preceding years, free trading practices and globally oriented products were enforced by the coming of the micro-electronics age.

Since the internet revolution, countries in the North have continued to penetrate emerging markets with resources and market abundance. Such increased efforts to penetrate new markets and integrate them into a coherent marketplace have often been approached through multinational firms. The northern countries often look to the south for cheap labor and enlarged profits for the investors. However, this approach has continued to receive backlash from socioeconomic theorists and activists. Theorists propose a diversified and fluid production network that extends beyond dominant control by the multinational firm. This essay shall analyze the concept of global production networks as a coordination strategy for the international production of mobile phones.

Global Production Networks

In the international production sector, MNCs are continually encouraged to concede their stranglehold on the control and coordination of the production processes (Lee et al., 2015). As already implied in this essay, the one-way flow of information and production patterns by the MNCs operating in southern countries has often faced strict opposition from human rights activists. These hierarchically rigid systems of production coordinated by the MNC from the headquarters are seen to fail in recognizing the context of the foreign locations.

Global Production Networks (GPN) have often been investigated as an innovative approach for handling complex production systems in various contexts (Coe & Hess, 2013). A concentrated dispersion of value chains is combined across cross-national borders and firm boundaries (Coe & Hess, 2013). GPN is dynamic by definition and operates through organizational and geographic flux. To ensure that the networks are people-focused and people-oriented, they must be interconnected and linked spatially across national boundaries. Since its inception two centuries ago, the GPN has been subject to scientific analysis. While the concept rose through a focus on economic geography, it has gradually increased to encompass such constructs as the global value chain (GVC) and global commodity chain (GCC). The concept has extended beyond production and developed both sectorally and thematically (Coe & Hess, 2013).

According to Ernst and Kim (2002), “the network flagships transfer both explicit and tacit knowledge to local suppliers through formal and informal mechanisms” (p. 1417). As such, an organization´s (MNC) intentions to control the production process are monitored by the GPN. The GPN thus creates an entire network of localized production systems that promote local managerial and technical skills. The GPN approach thus enables the capabilities of these local suppliers. This approach aims to empower the local producers holistically and independently without staying bound by the MNC. Production is thus highly contextualized and culture-sensitive.

Traditionally, MNCs used tariff-hoping investment approaches and low-cost offshore production while taking advantage of their locally developed asset bases (Coe & Hess, 2013). In such investment approaches, production units were wholly dominated by the parent companies, while the foreign production locations were exploited through insufficient compensation patterns. While coordinating such production mechanisms, these MNCs did not consider the production factors that extend beyond costs and market access. Recently, however, since the development of academic literature around production networks, firms have begun to prioritize a more comprehensive array of production factors. The MNCs have realized the pressing need for operational flexibility, improvement of the speed-to-market, and the acquisition of localized yet professional capabilities. These organizations had to concede some level of production and active control of their product life cycle mechanization processes.

The international proliferation of the GPN catalyzed knowledge dissemination and the development of capabilities among the local suppliers. As experts boldly assert:

“a transition is underway from “multinational corporations” with their focus on stand-alone overseas investment projects, to “global network flagships” that integrate their dispersed supply, knowledge, and customer bases into global (and regional) production networks” (Ernst & Kim, 2002; p. 1418).

Experts in the internationalization of production encourage a complete shift from focusing on what an individual MNC can offer to an internationalized dimension of business networks (Coe & Hess, 2013). These business networks encourage the sharing of managerial and technical knowledge through various contexts. While the production patterns will still leverage the low labor costs in the offshore production sites, GPN shall encourage local knowledge transfer and community involvement in the organization´s production processes. The locals are thereby chosen based on their absorptive capacity and ability to internalize the knowledge. The coordination process of the production is conducted through the interconnected nodes of the networks (Ernst & Kim, 2002).