Essay Sample on 2007 Global Financial Crisis: Devastating Economic Turmoil

Introduction

In 2007, the global economy and the financial platform experienced one of the most devastating economic turmoil. To date, the financial crisis and ramifications are not yet obscure, since the entire dimensions, as well as the impacts, are not known (Dikova et al., 2013). In other terms, research marked the 2007 financial crisis as the second most severe issue after World War II. The severity of the problem was too massive that it took the corporate sector years to recover since most of the multinational organizations lacked various intervention programs to assist with the comeback (Dikova et al., 2013). Additionally, during the 2007-2008 financial crises, the world experienced significant output declines, employment, and commercial performance. In other terms, the global GDP of industrialized nations fell by 4.5%, while that of the emerging economies declined by roughly 9% (Alfaro & Chen, 2012). Also, the employment rates in 2007-2008 reduced by approximately 9% (Alfaro & Chen, 2012). Therefore, the primary purpose of the paper is to analyze and outline actions multinational organizations may implement to control the impact of global issues.

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Enhancing Export over Import Prices

During times of economic crises, most of the multinational firms focus primarily on long-term operational solutions than short-term ones. Majorly, when faced with global financial issues, the primary objectives of these firms aim at minimizing the damages sustained and explore the new opportunities (Dikova et al., 2013). The United States or developed-multinational organizations tend using their flexibility and global scopes of operation to make changes that ensure that they withstand or at times capitalize in the case of complete economic episodes (Lipton, 2019). In other terms, when faced with financial crisis most of the U.S based multinational firms; often tap their exporting resources and international connections to quickly change results from declining markets to those that are more ideal and favorable (Alfaro & Chen, 2012). Increasing the export scope, aids in offsetting the domestic sales while the organization keeps or maintains the operation of the firm without increasing the layoffs.

Majorly, most nations face several different types of financial downtown, for example, banking, debt, or at time currency. Since some countries might meet any of the three financial problems, some nations, at times, face all three issues. Furthermore, according to Divoka et al., (2013), multinational firms are safe from any losses when their subsidiaries experience economic downturn at different intervals. Moreover, a multinational firm has a higher probability of recovering when it is affected by banking and debt issues.

Unfortunately, when faced with a currency issue, most multinational firms as well as the subsidiaries can only survive and gain from the market when the export rates are increased, for example, in 2007-2008; the export rates were increased by roughly 4.5% (Dikova et al., 2013). It was so because the prices of the domestic manufactured products reduced to the depreciated currency. Also, it was because the same products that lost their market worth in domestic markets received an attractive foreign exchange that encouraged the branches to divert the output from local to international markets.

According to the financial assessment conducted by U.S Bureau of Economic Analysis, the financial disruption faced by a multinational organization established across-boarder growth over within (domestic) development. In other terms, multinational firms need to understand the means of balancing local as well as international markets as a means of limiting damages from experience during an economic downturn (Napolitano, 2011). Also, most multinational firms use subsidiaries as a foothold measure for the future growth and development of domestic economies. Nonetheless, if the organizations experience stumbling foreign markets, and the value of market declines, then the firm needs to redirect its production towards international exporting. In simple terms, rather than promoting layoffs, corporates need to improve the subsidiary communication as well as corporate network to build the products market niche value. All in all, the implementation of subsidiaries to control the import and export scopes is a short-term strategy of limiting economic turmoil damages.

Multilateralism Approach

According to research conducted by Napolitano (2011), multilateralism might be the best approach to limiting economic turmoil. Indeed, the path towards establishing multilateralism has been one of the best methods that helped multinational firms recover from the financial crisis. For example, the historical timeline recognizes the G-20 leaders meeting that took place after the 2007-2008 economic crises. Moreover, such an initiative promoted the rise of international institutions, for example, the Financial Stability Board with the help of the International Monetary Fund as well as the World Bank promised to provide new ideal resources to mitigate the development emergencies caused by financial turmoil (Claessens, Kose, Laeven, & Valencia, 2014).

In other terms, organizations such as the United Nations have become fundamental contributors towards limiting the impacts of any financial crisis. Such a multilateralism approach will help establish radical reformations, such as the establishment for a stronger global administration, with the responsibilities of regulating and supervising transnational economic institutions and operations (Napolitano, 2011). Such a strategy, also known as the G-20, will assist in creating new comprehensive policies as well as financial markets (Napolitano, 2011).

Majorly, economists believe that international trade is more liberal; unfortunately, some facts undermine financial freedom. Financial liberation is an approach that can be used by multinational organizations by limiting economic damages since it will assist in boosting the risks of the turmoil (Kawai, Mayes, & Morgan, 2012). First, economic liberation will aid in designing and enforcing more prominent, tighter, and supervised regulations. Also, a liberal system can promote policies that will increase safety as well as the stability needed by multinational organizations. Nonetheless, these systems assist in establishing better banking and capital market reforms, with the standards of assessing, managing, preventing financial risks. All in all, such a liberal system will assist multinational organizations to establish better connections with the lending agencies as well as promote equitable corporate administration (Allen & Gale, 2009).

Conclusion

To conclude, most international firms are affected during financial turmoil. These firms might experience debt, currency, or banking issues. When faced with such a problem, most multinational firms opt to seek long-term rather than short-time effects. The best approaches of solving such an economic issue or minimizing the damages are by establishing a balance between export and import commercial operations, for example, multinational firms can increase the exports operations due to lucrative international markets. Nonetheless, these firms might implement multilateralism approach which will assist in minimizing economic crises, for example, establish radical economic reformations as well as supervising transnational commercial operations. Finally, such an approach will promote the implementation of a liberal trading system, which will, in return, encourage better banking and capital market reforms.

References

Alfaro, L., & Chen, M. (2012). Surviving the global financial crisis: Foreign ownership and establishment performance. American Economic Journal: Economic Policy, 4(3), 30-55. DOI: 10.1257/pol.4.3.30.

Allen, F., & Gale, D. (2009). Understanding financial crises. OUP Oxford.

Claessens, S., Kose, M., Laeven, M., & Valencia, F. (2014). Financial crises: causes, consequences, and policy responses. International Monetary Fund.

Dikova, D., Smeets, R., Garretsen, H., & Van Ees, H. (2013, February). How multinational corporations are buffered from financial crises. Retrieved from https://www.strategy-business.com/article/re00232?gko=db254

Kawai, M., Mayes, D., & Morgan, P. (2012). Implications of the global financial crisis for financial reform and regulation in Asia. Edward Elgar Publishing.

Lipton, D. (2019, January 17). What can we do to prevent another global financial crisis? Retrieved from https://www.weforum.org/agenda/2019/01/what-can-we-do-to-prevent-another-global-financial-crisis/

Napolitano, G. (2011). The two ways of global governance after the financial crisis: Multilateralism versus cooperation among governments. International Journal of Constitutional Law, 9(2). 310-339. doi.org/10.1093/icon/mor038.