The flailing multilateral system has led global corporations to rethink just how connected they ought to be
This article is part of the series Colaba Edit 2021.
Transnational corporations remain the ace players of the global economy, and some even emerged as the ‘superstar firms’. These actors shape the ecosystems in which others seek their living. The nature of global economic affairs, trade wars, and fierce competition regenerated and reshaped transnational companies’ control over the flows of goods, services and capital that brought globalisation to life. From essential commodities to services for outer-space ventures, global corporations own or regulate the supply chains and claim ownership of most of the world’s intellectual property.
Over the past two decades, the spirals of global trade disruptions continue to threaten the golden reminiscence of economic integration and the increasing movement of people and knowledge across borders. Global corporations stand at the heart of the debate over the merits of global economic integration. In dynamically re-casted global economic affairs, the global corporations do not limit their acts to outsourcing, markets or micro-managing worldwide production and supplies. Global corporations’ behaviour underwent various deflections and, hence, did not necessarily represent liberal globalised trading practices. There is no doubt that multinationals matter and influence global trade policy, but there is a need to analyse and narrate evolving distinctions that global corporations make while operating their businesses.
In dynamically re-casted global economic affairs, the global corporations do not limit their acts to outsourcing, markets or micro-managing worldwide production and supplies.
As it is evident, global corporations are centre to international trade. In the past, a more stable trade system served the interests of global corporations, but the growing global volatilities left defining lessons for the global corporations. Global corporations could retain their control over the key levers of the global trade system despite looming global financial crises, trade wars and the pandemic but at the cost of shrinking profits and lower performance. This retreat of global corporations has been the reason behind geoeconomically induced contests. For example, the collapse in earnings from British multinationals is the reason why Britain’s balance of payments looks bad.
Global corporations are struggling to be at the core of transnational trade order by adapting to increasing uncertainties. Beginning with the financial crisis and stoked by the trade wars, the global corporations have been reconfiguring their strategies to exert more refined controls. There is a growing concern that global corporations may bring in the parochial kind of capitalism and be trapped in turbulence where competition abates, and prices rise.
Beginning with the financial crisis and stoked by the trade wars, the global corporations have been reconfiguring their strategies to exert more refined controls.
These corporations are no more pursuing hyper growth plans but rely on restructuring the shorter and favourable supply lines. Such reconfigurations led to further intensification of global corporations’ influence over international trade. The strategies of hyperextensions of a trade network and associated supplies lines have started becoming shorter and narrower in optics giving transnational companies a reason to control the global trade tightly. The rising questions over the hyperextensions of production and supply lines indicate how global corporations distinguish the need for exclusive terms of business sourcing and operations. This helps the global corporations to better deal with restrictive deals and measures by some of the governments. On the other side, and in today’s context, a few economies have continued to defy the spirit of international trade and the WTO’s rules over the past few years. Developed economies like the United States or the emerging Asian economies like China have attempted to circumvent globally accepted dispute-settlement mechanisms calling them unfair and ineffective, and even endorsed levying tariffs against trade partners and imposed trade restrictions for national security. This has greatly influenced the choices left for the international players, including the global corporations.
The growing cases of economic conflict exhibit the challenges for the already weakening multilateral system. The geopolitically stemmed trade wars are forcing the global corporations to be careful about their prospects, let alone be the plans to overrule them. But the growing unilateral trade actions by certain countries and the corporations with vested interests are braying to allies to join in support. This has impacted the liberal and open trade relations between corporations. To make matters worse, barriers to trade are going up. As it was evident, the barrages of controls over global corporations was not only limited to trade and sensitivities associated with security and privacy but during the pandemic, growing number of countries restricted exports of medical supplies.
Global corporations cannot outsource and operate from just anywhere. While governments continue to file complaints against other countries at the WTO, most of these complaints are against global corporations. Global corporations are becoming extra conscious in choosing their partners and ways to circumvent these problems. The efforts to distinguish between selective and amorphous trade expansions have become the priorities of global corporations. The notion of risk over a particular country has developed from narrow apprehensions of military rivalry and intelligence-gathering activities to include more holistic parameters like the country’s technological leadership. On one hand, while global corporations stand to gain from technology and services, on the other, they face constant pressure to modernise their supply chains to be in sync with advancing innovations and fast-changing consumer preferences.
While the role of transnational corporations in globalisation has been challenged, the digitisation and technology-speared trade in services will keep these corporations at the top of the food chain. Even though transnationalisation brings a qualitative change into the international economic space, the nation-states emerged stronger to dominate, and global corporations that tried to globalise seem to work best when they operate at national or regional level. A few years ago, that would have been a heretical thought. The tapestry of rules designed to help businesses globally is fraying, and the way global corporations overcome and re-engineer their dominance will have a profound impact on global commerce and related policies.
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Aravind Yelery is a Senior Research Fellow at the Peking University Beijing: Visiting Faculty at Fudan University Shanghai and Indian Institute of Management Shillong. At ...
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