Global interaction encourages the integration of world economic activity that leads to liberalization. Liberalization can be seen from trading activities that switch from national oriented became internationally oriented. Globalized economic activity indirectly reduces the role of the state, and led to non-state actors in interaction. One of the key actors in the global political economy activity is Multinational Corporation (MNC). MNC comes as new economic powers entity that is predicted to compete with State entity, even a global organization. This is very interesting to review and further analyzed. Various debates surrounding the power ratio between the MNC compare to the State.
Robert Gilpin (2001) in his article “The State and the Multinationals” simply defines MNC as a business organ that operates in more than one State. The expansion of business networks is the main goal of an MNC to reap maximum profit. In addition to the export way, the choice to invest or establish production bases in other regions become more efficient assessed. Thus, the system of distribution of goods can be more easily and reduce costs.
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As a business entity, MNC major oriented to economic aspects. However, more than that, the orientation of the MNC extends to not only the economy. For the sake of launching and achieving the economic objectives, MNC also concerned to influence the order of the international trade regime. This is because the political aspects are often the things that affect the overseas expansion policy. MNC success as a global company that is able to influence the economic and political relations domestically and internationally. This is because MNCs activities deemed almost always associated with the state.
MNC growth basically is strongly influenced by the ideas of capitalism which forces the global system evolved towards a liberal. Liberal system becomes the best alternative that could encourage economic domination by the capitalists (MNC) in the global market. However, differences in cultural, social, economic and political is often a barrier for MNC to enter other countries. In this stage, the institutional structure becomes a major factor that needs to be overhauled. That's why MNCs need to intervene in the political economy of a State policy to achieve its interests. In fact, MNCs also have the power to shape market response itself. Ability lobbies and capital strength of the MNC makes it able to influence the political condition of a country.
Radical Theory and Marxism even see FDI as an expansionist strategy by the company to be able to control the production facilities in other countries for personal gain. FDI is formed by the expansion of cross-border basis through a hierarchical mechanism. With the scale of production as well as higher mobility, the power to regulate and exploit other regions automatically increase. The ability of MNCs in shaping the structure and function of the global economy can be seen from how big influence on the economic order of the countries in the world. Among them can be seen in the control aspect of trade, expansion of economic activity, and the internationalization of production and services. The larger the aspect of holding, control over capital investment and access to global markets was greater. This has become a threat to countries in the power competition with MNC.
In addition to the strength of the MNC, investment destination was also a source of power that can be utilized in relation circuitry MNC. In MNC activity in the host country, its activities carried out by adjusting policies and national market of host country. This is related to the influence of domestic governments in welcoming the presence of foreign MNCs.
When dealing with these MNCs typically power between MNCs and the state faced. Countries with weak power usually tend to prefer to act protectively against foreign MNCs. However, its involvement in multilateral agreements that encourage economic liberalization may inhibit this protective effort. The influence of a large MNC grows its own concerns for the state. Existence MNC considered potentially shifts the role of government in economic and political fields. Until finally, can lead to a condition in which the state can lose its power in government control.
The debate often arises in understanding the relation of state and MNCs who have greater power to influence the world system. Moreover, the presence of MNCs in a country can also be threats in the dominance of potentially erode the sovereignty of a country. However, the presence of MNCs can also bring positive things for the country. Investments can provide jobs and modernize the region so that economies can grow. Even MNCs can also be used to increase knowledge through technology transfer. Of course this requires a great power state to be able to control the MNC are present in the country.
Although MNCs have the potential to shift the global trade regime, but it cannot be denied that the supreme authority over the activities of the actors in the country in the fields of politics and economy is in the hands of the state. State is a political entity that holds the legality and legitimacy of the policy makers, in order to achieve its national interests. Because it is state authority in the maintenance intervention economic and political stability in the region. State only needs to show his power in regulation, so that regulations are made in the end do not provide a gap for MNCs to exploit or take other actions that harm. However, this is often difficult because of the MNC also often received support from his home country. This support is automatically enlarges the strength of their bargaining position with MNC in the host country.
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