The Obsolescing Bargaining Model (OBM) illuminates the complex foreign direct investment (FDI) tango between multinational companies (MNCs) and host nations. This conceptual framework assumes that technology, market dynamics, and regulatory environments influence the delicate balance of power between these two institutions. The OBM convincingly argues that their original agreements may become obsolete, necessitating renegotiations and contentious confrontations.
The OBM’s core idea is that host governments’ concessions and incentives tempt MNCs to invest in their nations. These incentives range from tax cuts and flexible laws to unrestricted access to local resources and vital infrastructural assistance. As host countries grow, they acquire knowledge, technology, and experience, which increases their negotiating strength (worldwrite, 2015). This additional power encourages them to seek better terms in the continuing partnership. Such conditions include increased profitability, technology transfer, or local job prospects.
Although powerful, the Obsolescing Bargaining Model’s currency is not absolute. The context of different geographical regions and chronological epochs determines its validity. The concept works best when host countries improve their capacities and negotiating leverage (Levy & Prakash, 2003). This resonance is especially strong in locations with significant technical or economic growth. However, political instability or slow technical growth may reduce the OBM’s predictive potential, resulting in fewer accurate estimates.
As organizations consider their future, corporate strategy exhibits a strategic dualism. One way organizations integrate is horizontally. Consolidating or merging with the value chain and industry peers is required. Horizontal integration seeks economies of scale, increased market share, and reduced competition pressures (Levy & Prakash, 2003). Firms may simplify operations, eliminate duplicate expenses, and strengthen their pricing power by acquiring or merging rivals. This method works well in areas with high fixed costs, where economies of scale determine profitability.
Firms’ strategic compasses may point them toward vertical integration, which is characterized by ownership or control over many links in the value chain, both upstream and downstream from the point of origin, the suppliers. This approach materializes to ensure a steady supply of inputs, strengthen control over manufacturing processes, and grab a bigger piece of the value created throughout the supply chain (TEDx Talks, 2015). Vertical integration shines when coordination across several stages is crucial, as it often is in markets with imperfect competition or large transactional complexities.
Making the pivotal choice between vertical and horizontal integration involves a complex calculation that depends on a web of interrelated elements. The specifics of the industry, the firm’s strengths and weaknesses, the state of the market, and the potential for wealth generation all play a role in making this strategic decision (worldwrite, 2015). Furthermore, the organization’s internal capabilities, financial resources, and broad strategic goals greatly shadow the path the firm finally chooses.
The Obsolescing Bargaining Model serves as a beacon through which the dynamic relationship between MNCs and host nations may be understood over many years. This model’s success is intertwined with the ebb and flow of technology development, market forces, and governmental policies. Companies use the twin horizontal and vertical integration concepts to achieve various goals. While market domination and economies of scale are the results of horizontal integration, the full potential of value creation is unlocked by vertical integration when companies control all stages of the value creation process. However, these techniques’ viability depends heavily on the specifics of the business’s sector and its resources.
References
Ghauri, P. N. (2022). The Role of Multinational Enterprises in Achieving Sustainable Development Goals. AIB Insights. https://doi.org/10.46697/001c.31077
Levy, D. L., & Prakash, A. (2003). Bargains old and new: multinational corporations in global governance. Business and Politics, 5(2), 131–150. https://doi.org/10.1080/1369525032000125358
TEDx Talks. (2015). The transformational power of multinational business | Colin Mayer | TEDxEastEnd. In YouTube. https://www.youtube.com/watch?v=XLdiBNYGd-Y
worldwrite. (2015). Multinationals: curse or blessing for the developing world? Www.youtube.com. https://www.youtube.com/watch?v=bLpRJbRFzyY
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