Economic Cooperation

Read the text and get ready to comment on the following issues.

– three factors for successful development;

– stages of economic integration;

– core objectives of the European Economic Community;

– the Eurasian Economic Community main tasks;

– role of OECD;

– mission of APEC.

In the era of globalization, countries have realized that economic co-operation with other nations is strategically important for the growth of the economy. Only international co-operation can shape globalization in a positive way, and make it equitable for all. International economic relations play an important role in the growth of economies across the world. For economic relations between nations to be successful, a number of conditions need to be fulfilled: unrestricted movement of goods and services, flow of capital, mobility of workforce, and reduction of regulatory obstacles.

Development of economic cooperation is a long-term process. Three factors are especially important for successful development: ownership of the process by developing countries; effective dialogue between developing and developed countries; and coherent policies in developed countries in areas such as trade, investment, intellectual property rights, and agriculture, that will have a maximum positive impact on developing countries.

In the era of globalization, countries have realized that economic integration with other nations is strategically important for the growth of the economy. The degree of economic integration can be categorized into six stages:

- Preferential trading area

- Free trade area

- Customs union

- Common market

- Economic and monetary union

- Complete economic integration

Economic integration tends to precede political integration. Economic communities naturally evolve into political unions. Transformations in Europe, gave European nations a completely new chance of cooperation and friendship. An example for cooperation is the European Union, which attempts to form infrastructure that crosses state borders. Two of the original core objectives of the European Economic Community were the development of a common market, and a customs union between its member states. The common market involves the free circulation of goods, capital, people and services within the EU, and the customs union involves the application of a common external tariff on all goods entering the market.

Another example of economic and political integration is the Commonwealth of Independent States (CIS), a regional organization whose participating countries are former Soviet Republics, with the exception of the Baltic Republics and Georgia. It was established in December 1991. The administrative center of the CIS is located in Minsk. The CIS possesses coordinating powers in the spheres of trade, finance, lawmaking, and security. Some of the members of the CIS have established the Eurasian Economic Community with the aim of creating a full-fledged common market. The EurAsEC is working on establishing a common energy market and exploring the more efficient use of water in central Asia.

Countries with close mutual interests often join to create economic communities. The best known and most successful is called the Organization for Economic Cooperation and Development (OECD). Head-quartered in Paris, it aims to stimulate economic growth. The stated purpose of OECD is to achieve economic growth in member countries, to contribute to economic expansion, and to increase the expansion of world trade. Broadly speaking, the objective is to foster the free international flow of payments, services, capital, human resources, and scientific developments. Likewise, OECD is concerned with developments in industry and agriculture, the use of nuclear energy for peaceful purposes, and environmental problems. The OECD gathers and disseminates information about numerous economic indicators in its member countries, and about the issues that affect those economies. The organization has 29 full members. Among them are Australia, New Zealand, Japan, Korea, the United States, Canada, Mexico, Turkey and most countries of Western Europe.

Another example of international cooperation is Asia-Pacific Economic Cooperation, or APEC, is the premier forum for facilitating economic growth, cooperation, trade and investment in the Asia-Pacific region. APEC was established in 1989 and unites 21 countries from America and Asia. It enhances economic growth and prosperity for the region and strengthens the Asia-Pacific community.

APEC is the only inter governmental grouping in the world operating on the basis of non-binding commitments, open dialogue and equal respect for the views of all participants. Unlike the WTO or other multilateral trade bodies, APEC has no treaty obligations required of its participants. Decisions made within APEC are reached by consensus and commitments are undertaken on a voluntary basis.

Text 3

Multinational Corporations: the Pros and Cons

Scan the text and find information on the following issues.

– Classification of MNCs;

– Advantages and disadvantages of MNCs’ activities.

– Glocalization

The expansion of international business, particularly since the end of World War II, has resulted in the creation of a unique structure: the multinational corporations. A multinational corporation (MNC) or multinational enterprise (MNE) or transnational corporation (TNC) or multinational organization (MNO) is a corporation or enterprise that manages production establishments or delivers services in at least two countries. Its international operations contribute significantly to overall revenues and size. IBM, General Motors, General Electric Co., Coca-Cola, and scores of other giant companies are true multinationals.

A company usually evolves into a multinational over a period of time. First, it places more and more emphasis on exporting goods produced by its home factories. Then, it opens one or more foreign offices to allow for more aggressive marketing efforts. The offices may expand to include the production of goods. The company often buys foreign companies already in business producing the same or different kinds of products. Soon full-fledged multinational operations are under way.

Multinational corporations (MNC) are often divided into three broad groups:

• Horizontally integrated multinational corporations manage production establishments or businesses located in different countries to produce the same or similar products. (example: McDonalds)
• Vertically integrated multinational corporations manage production establishments in certain country/countries to produce products that serve as input to its production establishments in other country/countries. (example: Adidas)
• Diversified integrated multinational corporations manage production establishments located in different countries that are neither horizontally nor vertically integrated. (example: Microsoft)

To be more competitive, the countries in which multinational corporations operate offer them such incentives as tax breaks, and pledges of governmental assistance. However, the citizens of those countries tend to regard the companies as basically foreign rather than multinational. This view is justified to the extent that the company’s profits from international operations are returned to its home country for distribution to owners.

Nevertheless, the multinationals are becoming more and more truly international. Managing is becoming more decentralized and actual ownership of many companies is becoming more international. MNCs are concentrating now on employing natives of the countries in which they operate. It can be argued that they exploit workers and national resources, that they shift production from one country to another in search of the cheapest sources of labour without regard for the high-wage workers in their own countries who lose their jobs. However, they take advanced technology to less developed economies and bring lower-cost products to more developed ones. Managing a truly global multinational company would be much simpler if it required only one set of corporate objectives, goals, policies, practices, products and services. But local differences often make this impossible. The conflict between globalization and localization has led to the invention of the word ‘glocalization’. Companies that want to be successful in foreign markets should know the local cultural characteristics that affect the way business is done.

The great size and true international character of multinational corporations is bound to give them intentional influence in the political and economic affairs of the countries in which they operate.