Example Of Report On How Large Firm Contributes To The Country's Economic Growth And Development
Large firms contribute significantly to the growth of a country’s economic performance. In essence, large companies are more productive and pay higher wages, are more successful and enjoy higher profits in international markets. In this respect, the economic growth of a nation is linked to the operations of large companies in its economy. The difference in the profile of various companies in Europe is clear evidence concerning the influence of firms in economic development. For example, the firms in Italy are relatively small as compared to firms in Germany. Thus, when comparing the economic growth of these two countries, no doubt Germany is far ahead. This is associated with the size of the firms since large companies contribute more to the economy in terms of profits and their impacts on the economy as a whole.
According to a survey done in European countries, it is significant to understand the backgrounds of the distinction as they are core aspects of improving the economic performance of a country. On the other hand, the relatively small and average firm size is linked to chronic lack of large companies (Henley, 2007). In Spain and Italy, for example, a relatively 5% of manufacturing companies have more than 250 workers, in comparison to a much higher 11% in Germany. The normal firm size in Italy and Spain is 42.7 and 49.3 employees respectively, compared to 76.4 on average in the context of Germany. As such, these statistics indicates the influence of large firms to the growth of economies.
Virtually, in several countries, large companies export more. In addition, in order to improve their products and market size, they regularly do more research as well as development (R & D). More research and development does not only benefit the firms, but it also boosts the nation in examining various emerging aspects in the global market. Often, large firms are depicted to be creative and innovative because most of these firms have specialized and well-trained employees. Therefore, large firms are innovative and in most cases come up with advanced ideas on how to deal with economic concepts such as tax distortion and innovation costs. Through such innovations, the host country will likely to benefit in terms of advices from the large firms.
Employment is one of the components that contribute to economic growth. Economists argue that a country with the lowest rate of unemployment registers higher economic growth as compared to a country with higher rates of unemployment. Large companies provide several job opportunities to the citizens of a given country (Hessels & Stel, 2011). For this matter, the presence of a number of large firms in a given country will reduce the rate of unemployment thus; increasing the rate of an economy. At the same time, the people employed in large firms usually receive higher wages. This is relatively important to a country as the income of its citizens mostly contributes to the development of economic growth.
The presence of large firms in a given country is beneficial. Over the past decades, the economic development of South Korea has substantially increased. South Korea has grown to be one of the wealthiest countries in the world (Firzli & Nicolas, 2013). Currently, the market economy of South Korea ranks 13th globally by nominal GDP and its purchasing power parity (PPP) also ranks 13th. Since 1960s to the late 1990s, the economy of South Korea was one of the fastest economies in the world.
The steady increase in the economic growth rate of South Korea is associated with the increase in the number of large firms. Some of the large companies that significantly enhanced growth in South Korea include Hyundai and POSCO. Precisely, POSCO which was formerly known as Pohang Iron and Steel Company is one of the largest steel companies in the world (Jayati, 2013). It is headquartered in Pohang in South Korea. Basing on the global survey done in 2010, POSCO was the largest steel manufacturing company in the entire globe by market value. Currently, POSCO operates two integrated steel mills in South Korea; in Gwangnyang and Pohang. Furthermore, this great company operates a joint venture with some US steel known as USS-POSCO situated at Pittsburg in California, United States (Gopalakrishnan, 2007). Throughout POSCO has been registering an increase in revenues and profits due to ready market both at home and internationally. POSCO Company provides employment opportunities to a large number of South Koreans who in turn contributes to the economic development. At the long run, the employed population will earn income thus; increasing the per capita income. Ultimately, due to increase in per capita income, the GDP of the country increases.
Another robust company contributing to economic development in South Korea is Hyundai. Hyundai is an automobile manufacturer formerly known as a multinational Chaebol (conglomerate). The headquarters of this company is in Seoul, South Korea. Just like POSCO, Hyundai is one of the major employers of South Korea. Reduction or eradication of unemployment is an essential tool in ensuring economic growth of a country. In this regard, these large firms are in the forefront in fighting unemployment both in South Korea and other locations of the world because they have outlets in most countries.
Hyundai and its corporations developed a number of initiatives in the social context that started in South Korea then spread to other parts of the world. The Asan Foundation, for example, is a foundation initiated by Hyundai in 1977 to subsidize medical care services specifically in Korea through the Asan Medical Center, as well as six other hospitals. In addition, the foundation has boosted conferences ethics and sponsored academic research into an indigenous Korean culture (Zoltan, 2006). Technically, it is noted that education and medical care are some of the necessities that every country ought to provide. To a large extent, medical care, and education contributes to economic development. Thus, the fact that Hyundai has designed strategies to ensure proper medical care and educational research means that it has a core role in uplifting the economic development. Of note, large firms are indeed vital for economic growth.
POSCO and Hyundai have played a core role in infrastructural development. Helping the state in enhancing growth in the infrastructural sector proves that these large firms participate in economic development. Indeed, the fact is large companies have a bigger hand in economic development (Nicolas, 2014). According to economic proponents, by successfully locating supply chains and critical operations in a country, large firms can generate income, create jobs and contribute to the transfer of technology as well as knowledge in that country. Moreover, large companies can make substantial long-term contributions to economic development by taking part in the public policy formulation and advocacy. Through these interventions, large companies can influence development.
Often, large firms create new technologies, process innovation or develop new products as well as opening new markets. There are a number of instances of essential innovations introduced by firms. It is postulated that fundamental innovations result in economic growth and development. Precisely, large firms that who bring innovations to the market provide a significant value-generating economic progress. In the contemporary world, firms are given the opportunity to take part in the formulation of policies in a country. Specifically, governments involve stakeholders from the business sector in formulating policies especially those touching on trading, revenues, taxation, exports, imports and other related policies (Wennekers & Thurik, 1999). The essence of this is that large firms have skilled expertise that can analyze such policies and give viable advices to the government to design policies that enhance economic growth. As noted in the instance of the two large firms in South Korea; Hyundai and POSCO, large companies are indeed crucial contributors to economic growth and development.
Having explained in detail how large companies contribute to economic growth and development, it is important to note that the failure of these large firms has adverse negative impacts on the country’s economy (Michael & Stephen, 2011). For example, Lehman Brothers one of the Wall Street titan failures led to economic turmoil in United States in 2008. Before the fall of the bank, the economy had been fueled by cheap money whereby anyone could easily borrow a loan to buy a car, a house or expand the business (Wong & Autio, 2005). The majority of the American citizens saw the increasing value of the houses and other investments as an alternative way of saving. Many people still believed financial systems would not fail, and that informed the government’s decision not to bail out Lehman at first. When the bank filed for bankruptcy, the already distressed financial market further became volatile. It was prior to an economic crisis that forced the government to bail it out at a cost of $700 billion money that could have been used to spur economic growth and development (Beugelsdijk, 2007).
Furthermore, investors and entrepreneurs also became discouraged given that Lehman Brothers was one of the key financial institutions with the highest number of clients borrowing loans for investment. Given that economic growth is about the increase in the country’s gross domestic product, that period there was a decline in the economic growth because investors made less or no investments at all for fear of loss. The bank was also mostly involved in activities that improve people’s welfare ensuring sustained economic development just before the fall (Wennekers & Thurik, 1999). Unfortunately, when it fell it could no longer support the social welfare activities given that it was declared bankrupt. Even today, some investors still cannot risk by investing in financial institutions having gone through bad experiences by investing in Lehman Brothers and this has a negative impact on economic growth and development.
In conclusion, there is no doubt that large firms contribute significantly to the economic growth and development of a country. Most governments depend on large firms in terms of revenue in order to fund major projects. Furthermore, large companies have introduced corporate sections within their systems to boost in developing programs aimed at uplifting the living standards of people in a given economy. As a matter of fact, large firms are in the forefront line in making sure that economic growth and developments are advanced to higher levels.
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Financial Development and Economic Growth: A Meta-Analysis