Free Custom «International Business in Emerging Markets» Essay Paper

Introduction

The last few decades have witnessed a rapid expansion of international trade. The global trends in macro forces have enhanced globalization where firms have been forced to compete at a global level. The increased demand in the international market has enabled the emergence of transnational corporations, more so to take the advantage of hitherto untapped opportunities in the emerging markets.  The effect of this increased international trade is the economic growth of the developing countries since the TNCs enhance labor mobility, poverty and unemployment reduction, flow of capital goods from developed to developing countries and production specialization and efficiency. Generally, the globalization of trade has been instrumental in social transformation (labor markets, poverty alleviation, migration and cultural integration), economic growth (capital flow, financial markets integration, unemployment reduction and market efficiencies) and political enrichment (regulatory framework, trade policies and treaties and diplomatic integration) as well as technological transfer. Indeed, emerging countries like China, India and other South East Asia countries can attest to the economic benefits that international trade brings about.

 

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Despite being associated with economic growth, international trade is also associated with the prevailing environmental degradation. Apart from exporting capital and production expertise to the emerging markets, TNCs have also been viewed to export environmental wealth which leads to the deterioration of public health. According to Asante-Duah and Nagy (1998, p. 125), most developing countries import waste (TNCs investments) to supplement their incomes and boost their economic growth without much consideration of the long term dangers/risks on their environments.      The reaction by the governments who realize the negative implications of increased international openness has been to tighten environmental regulations and embrace green revolution strategies. Moreover, environmental activists from all over the world have been aggressively campaigning for environmental protection to prevent the adverse climatic changes brought about by global warming – the Kyoto Protocol is one of those environmental campaign agendas. Therefore, there has been widespread controversy surrounding environmental protection and economic benefits of globalization. This paper will discuss the trade off between the economic benefits and environmental problems arising from increased international trade in relation to emerging markets and Transnational Corporations (TNCs).

Economic effects of international trade

The advent of globalization in the last few decades has enhanced international cooperation as well as ease of capital flow from the developed countries to the developing countries. The globalization of the world economy has put all world economies on the pedestal for structural alignment both in governance and market orientation. The interconnectedness in the global market has affected the economic systems of the emerging markets in terms of market pricing, government trade regulations, market and production efficiencies, monetary and fiscal policies and the relationship between the economic players, government and the TNCs. In addition, the global market has become so competitive that the only viable route to survival is through the services of the TNCs which exhibit enormous and controlling powers in the global economy. Indeed, some of the TNCs have larger capital bases than the GDP of many emerging markets.

The contribution that the TNCs through the international trade have made to the economic growth of emerging markets can not be underrated. Through their global competition for supremacy, the TNCs have transferred their intellectual capabilities, capital endowment and technical prowess to the emerging markets as they seek to capitalize on the production and market efficiencies opportunities available. The rapid GDP growth and rate of FDI in emerging markets such as China and India can be attributed to the influx of TNCs who have realized that their future growth and innovation lies in the developing countries (Elfrink, 2009). They have been attracted by the production efficiency through cheap labor and availability of raw material and through their technological strength; they have enhanced the establishment of manufacturing plants, infrastructural development and general growth of the economy in these countries. For instance, according to Elfrink (2009), India is one of the main gainers due to its competence in research and development, fast growth in young talented population, sound government policies, cultural tolerance and diversity and its being the largest democracy and freer market.

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Food supply in the global economy and especially in the developing countries has been a great concern for many years. Through the international trade, food security has been improved especially considering that most of the big players in agribusiness are the TNCs who extend their power to ensure that agribusiness policies are designed not only to serve their business interests but also to facilitate improvement of social welfare through food security. According to FAO Corporate Document repository (2003), agribusiness is dominated by a few large corporations that are vertically integrated with a lot of powers and with their large capital strength; they are capable of influencing food prices as well as large scale food production thus enhancing food security. The effect of this is the reduction of poverty which is the main undoing in most of these emerging markets.

Capital mobility and foreign direct investment are the major achievement of the TNCs. For a long time the emerging markets have been less endowed with capital goods for investment and with the birth of the international trade, the governments of these countries have been able to access the financial aid to support their welfare goods including education, health, infrastructure, and energy. The impact of the increased FDI has been the lifting of the living conditions of the residents of these countries, increased, per capita income and reduced unemployment, not forgetting the growth of other dependent local industries (Pere, 2005). In addition, through the World Bank, International Monetary Fund and the World Trade Organization, the emerging markets have been able to internally restructure themselves through monetary and fiscal reforms, tariffs and quotas adjustments price control liberalization and other prudent economic decisions to the extent that the developed countries are no longer setting the terms and conditions for negotiation, especially with the high growth of countries like china, India and the Asian ‘tigers’ (Hoge, 2004).

Environmental effect of the International Trade

The globalization of trade has led not only to the development of the world economies but also to the adverse effects on the environment in which the trade players operate. Most of the emerging markets have concentrated so much on the economic growth of their nations with little regard to the consequences that unregulated investment growth can have on the environment (Anderson and Blackhurst, 1992, p. 98). The role of international trade in environmental decay has been a subject of debate in the last few decades especially when looking at the environmental effects caused in the field of importation, production of export goods and transport of goods in the global markets. With the aim of developing their domestic industries, emerging markets have had to import technology and other capital goods, which to some extent seem to be the obsolete capital goods from the developed countries thus creating a dumping site for such goods, for example, the importation of third generation computers whose life span is very short. In addition, the increased foreign direct investment in these countries has led to excess industrial emissions whereby poor management of such waste has led to environmental and health risk to the communities living the affected countries. Lastly, international trade has seen the rapid revolution of transportation of goods across the globe, the effect of which is increased emission of carbon products to the atmosphere leading to global warming and abnormal climatic changes.

The emergence of TNCs has eroded the democratic and political voice of the emerging markets since these firms dictate the terms and conditions in the global market including in the domestic markets of these countries. Through international trade, environmental hazards have increased especially in terms of air, water, and noise pollution as well as degradation of the ecosystem where climatic patterns and food security haven greatly affected. According to Asante-Duah and Nagy (1998, p. 2), management of hazardous waste has been a great challenge for many economies primarily due to ineffective policies and expensive and prohibitive costs of setting up waste management programs.

The link between Economic Growth and environmental protection

There has been a great debate as to whether it is possible to protect the environment without having to affect the economic growth of the economy. The two, economic growth and environmental protections haven for a long time been seen as two competing forces. For instance, it is always a challenge to prevent air and water pollution without affecting the expansion of business and employment level; also it is challenging to protect the ecosystem (including forests and wildlife) without affecting the human activities in these areas (e.g. agricultural activities are always seen to compete for land space with wildlife and forests cover). Moreover, the tightening of environmental regulations especially in the developed countries such as European markets has been met with criticism of hampering economic growth, global competitiveness and fueling unemployment, which has made most of the transnational organizations to shift their operations to the emerging markets, the biggest gainers being the Asian powerhouses.

Environmental regulation aims at protecting not only the extinction of renewable and  increase of non-renewable resources but also the protection of the human life from the adverse effects caused from overuse of these resources as well and emissions from the use of these resources by the manufacturing firms. However, economic growth depends on the use of resources for production of goods and thus diverting these resources from the production process, although it may significantly reduce the environmental damage and pollution, may significantly reduce output of goods and services, leading to severe humanitarian crisis and thus a decline in economic growth.

There seems to be a cyclic effect between the economic growth and environmental protection without clear indication of the direction of cause and effect. For instance, according to Lomborg (2001), emissions from the burning of fossil fuels increase the concentration of greenhouse gases in the atmosphere, the effect of which is global warming and adverse climatic conditions. This leads to increased drought and food insecurity, a condition that is likely to slow down the global economic development – thus the expected rise in economic development from exploitation of the non-renewable resources results to a decline in economic growth! Industrialization may be claimed to be the savior of the world economies and especially the emerging markets where production activities have grown so rapidly, yet such same production processes carry with them the environmental and health risks. For instance, China and India have been having the highest economic growth rates of nine percent and six percent respectively     for a long time but they have also been the centers for dumping by the western world. Therefore a tradeoff between the health and environmental risk factors and the economic benefits of the residents creates a need for the concerned parties to establish regulatory frameworks and policies that are well blended in the development programs (McDaniels and Small, 2004, p. 420).

The conflict between the economic growth and environmental protection has led to the intervention of world economic bodies such as the UN, WTO, World Bank, International Monetary Fund as well as other large global economic players to create a harmonizing situation in international trade. For instance, the WTO has over the years been aggressive in instituting international trade standards that are not only aimed at enhancing trade practices but also ensuring that the players are ethically and environmentally minded, not forgetting the harmonization of laws related to public health, food security and labor and human rights (Krugman and Obstfeld, 1994, p. 23). Moreover, these bodies have been effective in ensuring that the plight of the countries that are relatively poor are not abused by the transnational corporations who are said to amass a lot of powers both economically and politically.

The tradeoff can also be explained using the Kuznet curve which indicates that emissions from production grow rapidly initially then decline with time as efficiency is achieved (Kuznets, 1955). In this case, as the economy grows, there is tendency for reduction of pollution and other environmental waste. Although this may sound so theoretical, the reality is that, as the economy becomes more endowed, the demand for cleaner environment and better living conditions also rise and therefore the firms will be on alert to establish more efficient and less polluting production processes (Andreoni and Levinson, 1998).

Intervention measures

Due to the high correlation between the economic growth and environmental protection, there is a need to initiate strategies that create a win-win situation to the countries affected. One of the increasingly adopted strategies is the Triple Bottom Line which requires the corporations to make corporate decisions that incorporate corporate goals, social responsibility/welfare and environmental conservation (Metzler et al, 2002). While the corporations will not relent from pursuing their profit maximizing agendas, they need to recognize the importance of operating in a clean environment that is free from ruin. In other words, the corporations are important players in economic development and therefore they should protect their businesses by instituting waste management programs in order to ensure the natural heritage, ecology and the wildlife are protected at all times. In addition, social welfare of the community in which the business operates is an integral part of the survival of the very organizations as well as of the economies they operate in. this involves incorporating the interests of all the stakeholders in their corporate strategy, giving back to the community (through donations, community projects) and being sensitive to the rights of the community for hazard proof existence.

For the last few years there has been call for sustainable development strategies that would promote the growth of business and at the same time protect the environment. Various environmental activists have been campaigning for countries to be sensitive to the issue of environmental conservation. The Kyoto Protocol is a testimony to the concerted efforts that have been made towards sustainable development agenda. The UN Habitat has also been instrumental in influencing a balance between the environment and development. Workable waste management programs should be established to ensure that there balance between environmental risks and economic gains.

Conclusion

The relationship between economic growth and environmental protection is one that can never be ignored. Unlike in social welfare maximization where it is not possible to increase the welfare one party without reducing that of the other, environmental protection can be achieved without having to reduce the level of economic growth. The international trade has been beneficial to the emerging economies who have gained enormously from the technological transfer, capital mobility and knowledge transfer to an extent that they are competing almost at the same level with most global powerhouses. This is despite suffering from environmental degradation and other ethical problems. Cost-benefit analysis of international trade is important to ensure that there is truce between economic development and environmental protection.