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The Role of International Companies Analytical Essay


Introduction

As asserted by Hodgetts (2003), the societies that we live in are dynamic in nature. As a result, the interaction between the structures that are present within a given societal setting always changes with time.

To be particular, the advancement in the field of information and technology has made the world to operate on a global level. This fact has made nations to highly depend on each in order to fulfil their overall goals and objectives. By critically analysing this fact, it is evident that the relationships that nations have towards each other has become a critical factor in determining their overall development and sustainability (Davidson, 2005).

Therefore, foreign policies of a given nation play a critical role in safeguarding the national interests of a given state as well as in the realization of its operational goals through the international relations that it has with other states (Caves, 2001).

Thus, the study of international relation is important, especially in understanding the operation of contemporary sovereign states, the role played by intergovernmental, inter-nongovernmental, and non-governmental organization and most importantly, the impact of multinational corporations in safeguarding the national interest of a given state as well as realizing its developmental goals and objectives.

The industrial and technological development that we are currently experiencing has played a critical role in the growth and development of the global economy. The progressive growth of the Chinese economy can be attributed to the policies and strategies that have been put by the Chinese government as well as the relationship that it has with other nations across the world.

With this in mind, this paper will critically analyse the growth and development of the Chinese economy as well as the foreign policies that the Chinese government has put in place to support and regulate this development. The arguments that will be presented in this paper will be supported by international relation theories, specifically realism, institutionalism, and constructivism.

Also, a PEST analysis will be conducted to have a clear understanding of the Chinese foreign policies on its economy as well as that of other states around the world.

Literature review

Realism, Institutionalism, and Constructivism theories have been widely used to critically analyse the economic growth of China as well as its rise in power over the years especially since the 1990s. A number of studies have been conducted to determine the effects of China’s regional strategy in East Asia.

As such, the strengths and weaknesses of these theories have been clearly outlined with regards to this issue. From the studies that have been conducted, it is evident that no single international relations theory can be used to clearly explain China’s regional strategy hence resulting in the increased debates about its true intentions.

As such, this paper will critically analyse the international relations of China from the perspectives of realists, institutionalists, and constructivists. As asserted by Cantwell (2001), the theory of realism is based on the following assumptions:

  1. The international structure in anarchic in nature
  2. Global politics are controlled by sovereign states
  3. States have an offensive force (mainly through their military)
  4. The main goal of states is to survive
  5. States are rational actors
  6. States often fail to cooperate

Based on these assumptions, it is evident that realism theories often focus on the shift of political power and relations among states within the international stage (Dees, 2008). It is due to this fact that Erramilli (2010) stated that as a given state increases in power, it will strive to change the international system.

This change will be through territorial expansion, economic dominance, and political control up to that point whether the marginal costs of the system change will exceed the marginal benefits accrued (Erramilli, 2010). The fact that states live in an anarchic system means that there is no higher authority that they can turn to in an event such as an attack or invasion by other states.

All through history, this fact has made states to become uncertain about the intentions of their neighbouring states as well as other states within the global arena. As such, states have been forced to enhance their power as a means of protecting themselves and their interest within the anarchic system that they live in (Broadhaust, 2008) in order to be sustainable.

As asserted before in this paper, the main principle of any given state is to be sustainable in the long run. This clearly explains the reason behind the continued need of gaining power by states through political, economic, and social development.

The theory of institutionalism takes a different approach as compared to that of realism. According to this theory, intergovernmental as well as non-governmental institutions play a critical role in promoting international cooperation among states resulting in social progress (Jun, 2006).

Thus, unlike in realism where cooperation between states is seen as an impossible phenomenon, cooperation between individuals, institutions, and states is deemed as being possible under the theory of institutionalism (Gee, 2003). Like in realism, the theory of institutionalism assumes that states live within an anarchic system. However, as asserted by Jun (1996), an increase in economic interdependence and cooperation among states results in a decline in political conflicts and insecurity.

Economic interdependence is a term used to define the sensitivity of transaction that take place between two or more nations, hence resulting in socioeconomic development (Behrman, 2002). This interdependence is complex and is characterized by international economic transactions such as the movement of people, the flow of money, exchange of messages through the communication portal and exchange of goods and services across state boundaries that result in reciprocal effects among the involved states.

By critically analysing this theory, it is evident that the cooperation that is present between the involved states is sustained by the active participation of intergovernmental institutions as well as non-governmental institutions. As such, it is believed that these institutions play a critical role in sustaining the international relations of the involved states, hence enabling them to protect their interests and achieve their goals and objectives hence guaranteeing their sustainability in the short run and in the long run.

On the other hand, the theory of constructivism holds that the he core aspects that are present within the international area among all the states are not objectively determined by the material structures that are present, but by processes and interactions that manifest themselves within the social practice (Kogut and Singh, 2008).

Based on this fact, Klein (2011) asserted that the structure of human association that is present in any given societal setting is not determined by material forces but by the shared ideas. It is these shared ideas that construct the identities and interests that manifest themselves within individuals, institutions, and states.

Unlike in realism and institutionalism where the anarchic system forces states to resort to self-help due to the lack of an overlooking authority over the states, constructivism purports that causal power within a given system is determined by the structure that is constructed through social practice (Goddal, 2008). From a critical point of view, therefore, it is evident that the theory of constructivism mainly focuses on the role played by norms, identities, and shared understanding between individuals as well as among states.

As such, the values, beliefs, and identities that individual states develop play a critical role in influencing their behaviour as well as political ideologies. It is due to this fact that Grebe (2005) asserted that the identity of a given state plays a significant role in determining its interests as well as its actions within the international area.

Through constructivism therefore, one can easily determine the origin of the preferences and interest of a given state, unlike in realism and institutionalism where the key focus only lies on how states pursue their interests and objectives without focusing on the origin of these interests.

The case study

The case

From the second half of the 1960s, the Chinese economy has been growing progressively as compared to many other states in the world. This economic development has made China to become an important player the world stage.

After the Asian Financial Crisis, China has been advocating for regional cooperation with its neighbouring states (Balasubramanyan, 2006). Through regional cooperation, China believes that its social and economic status as well as that of the states that will be involved will be enhanced.

However, the rise of China as a regional power in East Asia, coupled with its fight for regional development has brought about a lot of debate about its long term intentions within the international community (Cantwell, 2001). There are scholars who believe that China’s activism in East Asia is a means through which the state wants to achieve regional hegemony (Irmer, 2007).

However, there are those who believe that China’s efforts aim at achieving economic interdependence and mutual benefits (Cantwell, 2001). This disparity brings about a lot of debate that question the international relations of China.

For instance, there is the question as to whether China will continue to be peaceful in nature or will it affect the peace and security of its neighbouring states and the world at large has brought about a lot of debate and speculation. There are scholars who have been keen on the growing Chinese military power and the question whether the nation will use it to realize economic interdependence or for raising a claim over territories beyond its boundaries.

Finally, the debate of whether China will embrace the internationally accepted regimes of the world or whether it will challenge the rules and regulations set by the international community has been increasing with the socioeconomic development of China as a state over time.

PEST analysis

The foreign policy that China has developed to protect its interests as a state as well as to achieve regional cooperation with other states within East Asia and the world at large has an impact in the political, economic, social, and technological structures of the nation.

From a political perspective, it is evident that the rise of China as a regional power has enhanced the role it plays within East Asia. In accordance with the realism theory, the anarchic system forces states to compete for power and dominance as a means of surviving and pursuing their national interests (Latta, 1998).

This fact thus explains the rapid expansion of the Chinese military as well as the increased influence that this state has over its neighbours. As asserted by Head (2006), China might be planning to push out US forces out of China and East Asia so that it gains full control of the region the same way the USA pushed out European powers from America in the 19th century to gain full control of the region.

By holding such a position, China can easily control the structures and resources present within East Asia to achieve its interests and goals. From a constructivist perspective, however, China like any other state has its distinct characteristics that have shaped its unique identity. In accordance with the famous Chinese expression, Daguo jeuqi (the rise of the great power), it is evident that China view itself as a powerful state based from its history and current economic and political status.

As such, the nation is seeking cooperation with its neighbouring states to enhance economic interdependence hence resulting in socioeconomic growth. Such a system usually results in a decline in political conflict, an outcome that is in line with the Chinese expression, Daguo guanxi (great power relations).

Economically, the Chinese government has come up with a number of policies and strategies that aim at enhancing positive relations with other states as well as safeguarding its domestic markets and industries. In accordance to the theory institutionalization, intergovernmental organizations, non-governmental organizations, and multinational corporations play a critical role in enhancing international relations (KPMG, 2012).

As such, China, through its various government and non-governmental agencies have come up with desirable policies that aim at attracting foreign direct investments (FDI) within the nation. In China, (FDI) has been playing a critical role in increasing the productivity levels of a host nation by enabling it to meet its domestic demand. The Chinese government is thus advocating for regional cooperation to increase the benefits of FDI within East Asia, resulting in an increase in the rates of employment, development of infrastructure, reduction in the cost of goods and services and so on (Borensztein, 2008).

The enhanced cooperation between China, its neighbouring states as well as other states within the global area has enhanced social relations and interactions between the Chinese people and the rest of the world. This has resulted in sharing and embracing of new cultures within China and the East Asia region.

Finally, China has embraced information technology. The nation hosts several manufacturing plants for leading ICT companies in the world such as Toshiba, Microsoft, Nokia, Sony and so on. These MNCs operate in China due to the favourable foreign policies that the state has put in place. Furthermore, collaboration among East Asian states will further enhance the technological development of the region.

Holistic review

The economic growth of China and its regional strategy has had varied outcomes for individuals, states, as well as on international cooperation. The local Chinese population has benefited through increased employment opportunities that offer better pay and employment terms (KPMG, 2012).

There has also been an increased growth in businesses, especially small and medium sized enterprises. On a larger scale, the number of multinational corporations in China has also been increased due to its favourable foreign policies, availability of raw materials and the presence of cheap labour (Grebe, 2005).

As a nation, China’s economy has been growing at a tremendous rate since the 1970s due to its favourable international relations that support imports, exports, and FDI resulting in political, social, and economic stability within the nation. Finally, the international relations strategies of China have resulted in increased cooperation between China and other states all around the world. As such, the confidence that other states have with China has been rising over the years and explains the increased FDI.

However, the nation’s growth in power has had mixed reactions as to its intentions behind its regional strategy with other East Asian states especially by the states from the West.

Conclusion

The international relations strategy that a given state has played a critical role in determining the relationship that it will have with other states. The growth of China as a regional power in the East has, however, brought about mixed reactions especially from nations in the West.

This is due to the uncertainty of its regional strategy that advocates for regional cooperation. Using realism, institutionalism, and constructivism theories, this paper has found that China’s main aim behind its regional cooperation ambition is to enhance its power and influence in the East as well as to develop great power relations with other states within the region and the world at large.

Thus, China’s regional strategy aims at enhancing interdependence through meaningful cooperation to achieve social, political, and economic stability within the East Asia region.

References

Balasubramanyan, V 2006, ‘Foreign direct investment and growth in EP and IS countries’, Economic Journal, vol. 106, no. 1, pp. 92-105.

Behrman, J 2002, The Role of International Companies in Latin America: Autos and Petrochemicals, Lexington Books, Lexington, MA

Borensztein, E 2008, ’How does foreign direct investment affect economic growth?’, Journal of International Economics, vol. 45, no. 1, pp 115-135.

Broadhaust, L, 2012, ‘Business and the risk of crime in China’, The British Journal of Criminology, vol. 2 no. 3, pp. 15-22.

Cantwell, J 2001, ‘A survey of theories of international production’, In C. Pitelis and R. Sugden, The Nature of the transnational firm, pp. 16-63, Routledge, London.

Caves, R 2001, ‘International corporations: the industrial economics of foreign investments’, Economica, vol. 38, no. 2, pp. 1-27.

Davidson, W 2005, ‘Key characteristics in the choice of international technology transfer mode’, Journal of International Business Studies, vol. 16, no. 3, pp. 5-22

Dees, S 2008, ‘Foreign direct investment in China: determinants and effects’, Economics of Planning, vol. 31, no. 4, pp. 75-194

Erramilli, M 2010, ‘Choice of foreign market entry modes by service firms: role of market knowledge’, Management International Review, vol. 30. no. 1, pp. 135-150

Gee, P 2003, ‘The compelling case for perpetual strategic planning’, Service Line: Eight Essential Rules, vol. 2 no. 3, pp. 62-64.

Goddal, S 2008, ‘Foreing dilemmas in China: The case of FDIs in Shangai’, Asia Pacific Business Review, vol. 2 no. 1, pp. 1-21

Grebe, M 2005, ‘Strategic financial planning: What every trustee needs to know about facility replacement’,Trustee, vol. 12 no. 4, 24-28.

Head, K 2006, ‘Inter-city competition for foreign investment: static and dynamic effects of China’s incentive areas’, Journal of Urban Economics, vol. 40 no. 8, pp. 38-46.

Hodgetts, S 2003, ‘U. S. Multinationals’ expatriate compensation strategies’, Compensation and Benefits Review, vol. 2 no. 1, pp. 57-62.

Irmer, B 2007, Human resource capital, Sage, New York.

Jun, K 1996, ’The determinants of foreign direct investment in developing countries’, Transnational Corporations, vol. 5 no. 1, pp. 67-105.

Klein, R 2011, ‘Compensating your overseas executives: Part three. Exporting U.S. stock option plans to expatriates’, Compensation and benefits review, vol. 6 no. 1, pp. 27-38.

Kogut, B and Singh, H 2008, ‘The effect of national culture on the choice of entry mode’, Journal of International Business Studies, vol. 19 no. 2, pp. 411-432.

KPMG 2012, The Future of MNCs in China, Silk Road Associates, Hong Kong

Latta, M 1998, ‘Expatriate incentives: Beyond tradition’, HR Focus, vol. 75 no. 2, pp. 53-67

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IvyPanda. 2019. "The Role of International Companies." June 22, 2019. https://ivypanda.com/essays/the-role-of-international-companies/.

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IvyPanda. (2019) 'The Role of International Companies'. 22 June.

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