Transnational Corporations

TRANSNATIONAL CORPORATIONS 5

Transnational corporations and the contemporary economic- andfinancial crisis

Currently, there are thousands of TNCs globally, which play a hugeand developing function in the global economy. For example, exportsfrom overseas affiliates of TNCs are approximated to result in onethird of the entire international exports of services and goods(Gilpin &amp Gilpin, 2000).However, the contemporary economic-financial crisis has largelyaffected TNCs at the industry and company phases. This is apparentthrough the dropping gains, layoffs, bankruptcies and restructurings.The contemporary economic and financial crisis that started towardsthe end of 2007, has led to major instability for the globe’s majorTNCs. Specifically impacted were industries, sensitive towards thebusiness cycle, like transport equipment, mining and automotive. Asthe crisis years progressed, most TNCs declared main cost-cuttingplans, involving layoffs, and cutback on investment expenses (Gilpin&amp Gilpin, 2000).

The crisis emerged from problems in the American financial sector in2007. Unsteady lending endeavors by financial sectors as well assubstandard risk management prompted an unmatched depression ofassets. In addition, was the credit squeeze apparent in interbankloaning. The crisis advanced fast resulting in a global economicshock, which eventually affected the actual economy (Blankenburg&amp Palma, 2009). The crisis is to great extreme importedhitting transnational corporations through the fall of exportmarkets. In specific, the small export-led economies experienced amajor decline apparent in demand for automotive supplies, vehicles aswell as consumer electronics. The market decline was followed bycredits dry up from overseas and a decline in foreign directinvestments. The contemporary financial and economic crisis is areflection of the major imbalance of existing capacity, as well asdemand because of the disintegration of markets, resulting in majoradjustment procedures at the sector, company and industry phase(Blankenburg &amp Palma, 2009).The associated credit squeeze makes the situation worse, even incompanies that have a sound core business.

The impacts of the crisis differ not just by nation, rather byindustry. Despite operating in the similar industry, it is possiblefor corporations to have distinct market, sales as well asperformance conditions (Blankenburg&amp Palma, 2009). Two dimensions validate the presentcompetitive position of TNCs. Initially, the liquidity position is anindicator of strength during the economic-financial crisis. Ampleliquidity is required for survival in the crisis, symbolized throughthe drying out of monetary funds. TNCs, which are triumphant in cashpreservation as well as pursuing a traditional financing model, arebetter placed in terms of competitiveness. Financially greatlyleveraged enterprises are experiencing refinancing pressure. Theother dimension is the business model’s competitiveness, whichregards to the suitability of the fundamental business model withindustry, as well as market situations. Business models directed tomoney value positioning, which demonstrates a greater level ofdiversification, founded on an apparent core benefit, in addition tohaving a reliable customer group will endure the crisis compared tospecialists from endangered market positions.

Dropping real estate values, escalating foreclosure rates as well asevasion rates on money borrowed are accountable for theeconomic-financial crisis, making it more difficult for corporationsto acquire loans to develop and widen their operations (Kotz,2009). The international credit critical situation hascompelled companies to resort to management decisions, which ensureoperational productivity. The crisis has resulted in reduced cashflow among corporations from business operations. This is becausecustomers purchasing the products and services are reducing spendingdue to recession. The outcome is that cash flow to the companiesslows down. When there is minimal cash flow, corporations seek loans.Because lenders have in place more strict guidelines, it has becomeharder for TNC to get loans needed in expanding their operations.

Layoff and lack of employment has been a negative impact arisingfrom economic-financial crisis (Kotz,2009). Some corporations have been compelled to reduce theirpersonnel due to reduced budgets, resulting in major employeelayoffs. The figure of layoffs has resulted in major unemploymentlevels globally. The US is an illustration of one of the many nationsthat have been largely affected by the crisis, in terms ofunemployment. This is because most of the countries corporations haveopted to invest overseas, meaning they outsource production as wellas services. The outcome has been loss of work amid Americanemployees, leading to more underemployment and joblessness. Joblessemployees that have many debts are incapable of paying for theirmortgage, or credit cards leading to foreclosures as well asbankruptcies. Other sectors affected include the banking structure,requiring an administration bailout of banks.

Generally, the crisis has compelled corporations to function in anenvironment they did not have to previously. The direct impact isthat corporations are becoming flexible to ensure company operationsremain afloat up to when the crisis ends. Flexibility is apparent viathe closure of some overseas companies by TNCs. The mere positiveoutcome of the contemporary economic-financial crisis has led toenhanced creativity by transnational corporations. Running businessduring such a crisis has compelled corporations to derive manners ofprogressing with their operations. These measures involveoutsourcing, which is widespread amid TNCs, and renegotiation withforeign suppliers.

References

Blankenburg, S., &amp Palma, J. G.(2009). Introduction: the global financial crisis. Cambridge Journal of Economics,&nbsp33(4),531-538.

Gilpin, R., &amp Gilpin, J. M.(2000).&nbspThechallenge of global capitalism: The world economy in the 21stcentury&nbsp(Vol.5). Princeton: Princeton University Press.

Kotz, D. M. (2009). The financialand economic crisis of 2008: A systemic crisis of neoliberal capitalism.&nbspReviewof Radical Political Economics.