The Covid-19 pandemic is a global health issue that has impacted health care systems as well as the economies of all countries. Local and international businesses are equally affected by governments’ measures to control the spread of the disease. National and international demand and supply chains have been disrupted. Multinational corporations (MNCs) have responded to the effect of the Covid-19 pandemic by adjusting their operations. This essay discusses the implications of Covid-19 on MNCs’ strategies and globalization.
The common strategies used by MNCs are the vertical and horizontal expansion of markets. The approaches ensure that the companies have a significant share of the global market and maintain their competitiveness in the respective industries. The vertical expansion involves the enhancement of production processes in foreign nations. This strategy allows MNCs to take advantage of such factors as reduced cost of raw materials and labor, less stringent local business laws and regulations, as well as low capital investment requirements. These aspects help MNCs to have minimum production costs and maximum profits. The tactic is also applicable to sales, where MNCs decide to establish their sales units in the host countries rather than using local marketing agencies. The disruption of supply and demand in the market by Covid-19 hampered the full implementation of the vertical strategy. Covid-19 inhibited MNCs’ ability to exploit opportunities in the host countries.
Cross-border and local regions’ shipment of raw materials and finished goods have been negatively impacted by the policy of limiting the movement to control the spread of Covid-19. Equally, closure of business and stay-at-home plans have lowered the demand due to reduced disposable income and consumers prioritizing more on saving than spending (United Nations Industrial Development Organization 19). Therefore, MNCs have been adjusting their functioning according to the market forces in different countries. The labor-intensive and operating companies in countries most affected by the virus have halted production due to a reduced supply of labor and raw materials (United Nations Industrial Development Organization 20). The organizations are also changing the way they were reaching their customers. They have capitalized on social media platforms such as Facebook for marketing their products and maintaining communication with their clients since Covid-19 regulations inhibit direct promotion. MNCs are changing the way they were operating before Covid-19 to prevent losses.
The horizontal expansion strategy in production and sales focuses mainly on the local markets where the MNCs operate. The corporations start manufacturing units in host countries to cater to existing demand. They promote their goods the way they do in their home nation, including branding and packaging, to copycat international norms. The approach allows the organizations to save transportation costs and protects them from currency value fluctuation uncertainties. The implementation of this horizontal strategy has been challenging, especially for the countries which are hardly hit by Covid-19. The requirement for social distancing and closure of businesses due to the disease has reduced labor supply and demand for goods and services (United Nations Industrial Development Organization 19). Consequently, MNCs are closing the operations in some countries and considering alternative markets which show better preparedness for the pandemics and other factors adversely impacting local markets.
Negative effects on globalization are evident due to the fear of Covid-19 spreading. People are the carrier of coronavirus, and their movement from one region to another increases the risk of transferring the illness to unaffected areas. Therefore, most countries closed their borders and banned international flights. Additionally, they have started to promote sourcing of raw materials locally to manufacture the products which meet their demand (Toulan 5). International business operations have been reducing due to Covid-19, inhibiting globalization. However, group interaction through social media platforms such as Facebook, LinkedIn, and Twitter has increased. Indeed, the internet is the only alternative to reaching people in other parts of the world. Responses of governments and companies to Covid-19 are hurting globalization.
The future of MNCs will not remain unchangeable because operations will significantly transform. Industries such as the travel sector rearrange the ways of doing business to meet the demands of a world affected by the ever-evolving consumer behaviors and physical distancing. Covid-19 has been an accelerator for the operationally intensive sectors to adopt digitization and automation of the activities. Regardless of their size, organizations will prioritize enhancing skills and retraining their workforce to ensure higher productivity, competitiveness, and sustainability (Hedwall 9). The corporations leading in consumer goods will reshape sales function, fostering collaboration between manufacturers and retailers to prevent excess and deficit production. Undeniably, Covid-19 has helped firms discover numerous alternative ways they can continue communicating effectively and manage operations within a remote working environment. More advanced new technologies and artificial intelligence may present opportunities for the innovative supply chain in the next five years, creating a positive impact in the world (Hedwall 10). Nevertheless, it is essential to consider how such changes will affect labor rights, product sustainability, environmental protection, ethical business practices, and economic growth.
In conclusion, Covid-19 has negatively impacted global economies and health systems. The disease disrupted the global demand and supply chain, making MNCs adjust their operations. The organizations have reduced their production capacity due to decreased supply of labor and demand for products. The policies adopted by governments to control the spread of Covid-19 have adversely affected globalization. In the next five years, companies will be more prepared for the problems such as Covid-19 by embracing automation and digitization of the operations.
Works Cited
Hedwall, Mattias. “The Ongoing Impact of COVID-19 on Global Supply Chains”. World Economic Forum, 2020. Web.
Toulan, Omar. “How Globalization Will Look Like After COVID-19? | IMD Article”.IMD Business School, 2020. Web.
United Nations Industrial Development Organization. “The Economic Impact of COVID-19 Pandemic “.UNIDO, 2020. Web.