The Relationship between Multinational Firms, the State and Essay

The Relationship between Multinational Firms, the State and Socio-Economic Development in the UK - Essay Example Most of the research work conducted did concentrate on the firm-level decisions regarding their FDI strategies but less time and resources have been devoted to the state level. It has been realized that a number of states such as the US have often attracted FDI through various tactics including reduction in taxation levels. The relationship between these multinationals and the State becomes very important in the success of both parties. Even though one would argue that the role of state in international business has been eroded by the development in globalization, this is still not the actual case on the ground. The nation state still has a crucial role to play and this is why its relationship with the multinationals is quite relevant (Henderson et al., 2002, pp.436-464). A number of reasons exist as to why most multinationals are tolerated. One of them is the mutual relationship that could emanate between the state and the multinational which further links it to the home state of th e multinational. In this case, a tripartite perspective could be established. The other reason is based on the social and economic developments that multinational companies do promote in the host country. These two reasons seem to underlie the basic intentions of the national governments in welcoming multinationals. This paper looks at the relationship between multinational firms, the state and socio-economic development in the UK as a case study. Analysis Multinational firms and the UK state The relationship between nation states and multinationals is one that has been characterised with juxtaposed needs or interests. Each seems to be pulling towards its side. The state is territorially defined and has well-defined political systems which provide the necessary framework for economic, social, political and cultural activities of those acting domestically and pursuing the interests of the nation (Dunn, 1994, pp.3-8). On the other hand, multinationals are interested in expanding their individual operations irrespective of the boundaries set by the state and have to cope with a number of political, economic, cultural and social conditions that exist in those acquired markets and they are always driven by private interests, which are usually founded on economy of scale, global trends in economy, and effective management of international operations. Existence of negotiated relationships between these two opposing parties merges their needs and ensures a win-win outcome (Kay, 2002, pp.1073-1102). Democratic political institutions have the capacity to establish policies that are market-friendly. The peace that exists in states links these democratic institutions to more credible levels of international systems. These mechanisms provide better playing grounds for multinationals in the long run. On this point, the institutional based checks as well as balances, which could be linked to democratic systems usually, reduce the possibility of reversing the policies made an d thus providing the multinational companies with the de facto commitment to the stability of these policies (Iet to-Gillies, 2002, pp.43-54). Stable policies ensure that multinational are given a friendlier environment where they can forecast their needs for budgeting in relation to the upcoming economic scenarios as well as tax schedules, make critical managerial decisions that are able to respond to macro-economic predictions, and also eventually hedge against risks associated