Globalisation and Government Regulation in Uk

Topics: Multinational corporation, Investment, Foreign direct investment Pages: 8 (2143 words) Published: March 3, 2008

‘Think global', ‘Act local' is a common phrase used by executives, companies in the UK have been heavily impacted by globalisation due to the benefits of attractive cheap labour available overseas, establish subsidiaries to overcome exportation, producing globally standardised products to achieve economies of scale and gaining a market share in local/region of a country. This is the age of globalisation, a term which has numerous definition (Dunning, 1997), but generally refers to a process of "tighter international linkages on a world-wide scale" (De Wit and Meyer, 1998).

On the other hand, UK has also become a major host country for foreign multinational investment. Corporate interests shed light on market share-hold and thus intensify competition. Consequently, the prospect for enhanced efficiency and welfare gain is created, as increased number of firms promote lower prices, increase output levels and enhance the potential for quality improvements. The consequences of globalisation and such openness to multinationals is still a matter for debate, but a major area of interest is the impact of global integration in the UK environment

Inevitably, the importance of regulation is evident through the significant growth in global regulatory changes throughout the 1990's. It is estimated that between 1991-2000 some 1,185 regulatory changes occurred in the UK, 95 percent of these changes created a more favourable FDI environment (Hillman and Omar, 2005). The influence of regulation on UK firms' and international investment decisions is of the essence. Regional differences between less developed economies has meant that regulation is a statistically significant, and positive, factor influencing international mobile FDI. However, FDI inflows to less developed economies partially reflect Multinational Corporations' (MNC's) response to weak governance and the regional predisposition towards corrupt practices.

The purpose of this investigation is to asses the impact of globalisation focusing on the UK environment, drawing particular attention to the key areas. I will then discuss the role played by government regulation influencing investment decisions and consequences of corrupt practices. Impact of Globalisation on UK

Foreign direct investment and economic welfare
In search for potential capital gains, multinationals invest in foreign countries. Relatively low business tax and a competitive product market have made the UK a favoured venue for inward FDI within the EU. "foreign-owned stock in the UK at $948 billion at the end of 2005, an increase of 33 per cent from the previous year (Lee, 2007)"

This practice is still regarded as unclear as to does it really benefit the economy because the initial objective of the cross-border activity is to gain higher profits. Griffiths and wall (2007) raise two issues about the implications of FDI, generally the foreign company will use their own capital; this has no effect on the economy because money is not borrowed. However, if the funds were raised locally to finance their establishment then the demands for loans would increase, hence raises interest rates. The second argument is that "multinational investment more frequently involves the take over of existing assets, rather than greenfield site investment in new plant and equipment". There is no improvement to the infrastructure and technology; hence legacy is simply being transformed.

However' multinationals have largely help build up the infrastructure stock of overseas assets in the UK. This makes an important contribution to the country's economy through a steady flow of net investment income (please refer to appendix 1). Similar, Blackwood (2006) argues that flexible labour markets and low business taxes amongst other factors has encouraged a huge inflow of inward investment, "this has boosted GDP, protected thousands of jobs and helped to finance our growing deficit on the current account of the...
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