The Behaviour of MNEs and of Global Supply Chains Essay

The Behaviour of MNEs and of Global Supply Chains - Essay Example 15). It is the purpose of this brief discussion to explore some of the more salient views of economists on the behaviour of MNEs and global supply chains and how they affect the global economy. Effect of MNEs in emerging economies Theoretically, the MNEs fulfil a vital role in linking economies with each other, through the transfer of financial capital, knowledge and capabilities, ideas and value systems (Meyer, 2004). Controversy attends, however, the effects of MNE activities on the development of the local economy and the social welfare of the host country residents. It is acknowledged that MNEs may transfer advanced technologies and best practices to emerging economies where it has subsidiary operations, while local firms may benefit from positive knowledge spillovers from the operations of MNEs. Knowledge spillovers are different from knowledge transfers because the latter are intentional and are targeted at the local subsidiary, while spillovers are not deliberate, and the bene ficiaries are the local firms other than the subsidiary. This positive development is tempered, though, but the possibility that the MNE may crowd out local firms, and cause a reduction in competitiveness in the market. Furthermore, MNEs may impose their strong bargaining position in relation to host country governments, in order to obtain concessions which minimize the social and economic benefits which should have accrued to host nations (Stiglitz, 2007; Bansal & Hoffman, 2012). Global standardisation versus national differentiation/ fragmentation in the supply chain At the centre of the debate concerning MNE’s impact on host countries and their environments is the pressure towards global standardisation as against the local tendency towards national fragmentation (Bansal & Hoffman, 2012). According to the integration-responsiveness framework developed by Bartlett and Goshal (1998, 2002), MNEs are compelled to integrate their operations globally because of customers across different countries have common needs, and it is by centralized decision-making and standardized products and practices that the MNE could more efficiently and economically meet the demands of its global market. Among external determinants of MNE global standardization are home and host country pressures as well as those influences that cross borders. Complications relating to the varying availability of materials, technology, skilled workers, and other resources across countries impacts upon the decision of MNEs whether and how far to standardize and integrate. Early in the development of the global economy, significant heterogeneity of host country regulations forced MNEs to adopt different policies to adopt to each country and culture. More recently, however, national governments have concentrated on attracting foreign direct investments (FDIs), raising concerns that developing countries would lower their barriers to trade and FDI, and to keep environmental regulations low to att ract MNEs to set up production and infuse investment in the country (Bansal & Hoffman