Economic Nationalism Essay Example

and differences found, the challenges for multi-national companies have to encounter during the global expansion will be pointed out, in which proper suggestions could be made for a better adjustment to the phenomenon of nationalistic sentiments.

• Economic nationalism – the topical issue

Definition Under different scopes, there is a wide spectrum of definitions of “nationalism”. Generally, nationalism is an ideology linked with the term national identity”, in which the exponents in the belief of superiority over other nations are stimulated by a sense of national identification (Fowler 2002, Druckman 1994, Kosterman & Feshbach 1989). In economics, nationalism lingers beyond pure political ideology into the set of actions, as it is considered as an act of state-building and economic independence (Gilpin 1987, cited in Akhter 2007) which is also supported by Mayall (1990, pg. 42), who considered it as “policies which are adopted to defend the nation and further its interests”.

In the current day context, economic nationalism expands beyond the reaction of individuals, but also the reflection of the people’s expectation on the domestic market stakeholders on the economic restrictions of foreign firms (Akhter 2007). Isaac (2007) has expanded the concept, as an “isolationist response” to globalization, not only in trade but also in the capital movement. Not only cover the products, but economic nationalism also manifests the distinction of the origin of the firms (Akhter 2007). An example of such expansion in definition could be found in the case of the sign of “100% Korean goods” in the storefronts (Slater 1998).

With such complexity, by analyzing under the help of the expectation model, Akhter (2007) has pointed out the possibilities that domestic companies and the general public

could apply to cover their economies from the invasion of foreign companies, which is believed to be exploitative. The boycotting of consumers towards foreign products, the refusal of distributor agency to foreign suppliers (Akhter 2007), the government intervention by granting protection with protective policies, obstacles for outsiders to the industry in competitive trouble (Walter & Jones 1981) have been occurring in higher frequency.

With the involvement of many stakeholders in the marketplace, economic nationalism has led to the absolute nepotistic regime conducted by a nation, trade protectionism. Trade protectionism is the ultimate form of nationalism, in which the government, as the role of policymaker imposes favoring decisions for domestic players and expresses hostility towards the foreign corporations (Abboushi 2010). Tracing back the timeline, the agreement still can be achieved. Dolan and Lindsey (1994, pg. 826, cited in Block & McGee 1997) defined it as “any policy that is intended to shield domestic industries from import competition”.

Walter and Jones (1981) interpreted it as the “government intervention in the adjustment process in the granting of “sectorial protection” to industries in competitive trouble”. In the current context, protectionism exists in many forms, which include tariffs, quota ceilings, and regulatory obstacles, subsidiaries for domestic producers, currency control, and anti-dumping (Abboushi 2010, Balwin & Evenett 2009, Block & McGee 1997). Such measures of protectionism increase the difficulties in trading for foreign companies, in which room for development will be provided for certain groups of local players.

• Ambiguity in similar yet distinctive concepts, However, the common of domestic interest perplex with a certain level of “discrimination against foreign products” (Baughn & Yaprak 1996, pg. 765) perplexed the interpretation of similar but distinct
  

concepts of ethnocentrism, consumer ethnocentrism, patriotism and even nationalism itself (Akhter 2007, Josiassen, Assaf, Karpen 2011). Ethnocentrism sculptures into the division between who belongs and does not belong to a certain group, when the insiders perceive the outsider in an unfair viewpoint (Akhter 2007, Barger 2008).

Adapted from the general concept of ethnocentrism, consumer ethnocentrism specifically refers to the ethical dilemma of buying foreign products as an unpatriotic act against the native economies, which leads to the reduction in consumption of outsiders’ products (Akhter 2007, Shimp & Sharma, 1987, Ruyter, Birgelen & Wetzels 1998). In comparison with economic nationalism, consumer ethnocentrism is believed to be encapsulated in economic nationalism (Druckman 1994, cited in Akhter 2007), and can be used as the measurement of “our product” dimension of economic nationalism (Jossiassen, Assaf, Karpen 2011).

Patriotism, argued by Kosterman and Feshbach (1989), is also based on national pride like nationalism, but it excludes the expression of hostility towards outsiders. Despite being different concepts, they and economic nationalism, often come together in research papers. Therefore, to some extent, these terms could be used as the keywords for the literature review, which could present a panorama of economic nationalism, from the perspective of consumer behavior to responsive policies to the trend of globalization.

• Is economic nationalism protecting the national economies? From the reviews of various research papers above, it is seemingly the most preferable insulator for the local economies, especially at the harm of the economic crisis (Baldwin & Evenett 2007). However, after offsetting the pros and cons, there grows skepticism among academics about the genuine motivation of nationalism and protectionism.

Economic drive The economic drive of nationalism is built around “the

desire to protect the domestic business interests” (Akhter 2007).

When foreign companies with good preparation of financial resources and proficiency in marketing enter the market, the domestic producers perceive them as threats to their development. As a result, economic nationalism is the systematic response triggered by the whining of the local companies about an uncertain future (Reich 1991). Thus, the government is fed with the fact produced by the locals stating that the increased international trade will threaten the room of development of some local firms, and thus the pursuit of national economic well-being is vitiated (Han 1988, cited in Akhter 2007).

Such nationalistic behavior can even stimulate discrimination between the local and foreign firms. An example could be found in the recent economic crisis, signs stating “100% Korean” could be found in storefronts (Slater 1998). Another economic argument for the nationalistic exponents growing well in both developed and developing countries is the protection for infant industries (Preparata & Elliot 1996). A newly established industry doesn’t possess the efficiencies in cost and production like the established outside competitors.

As a result, pressure for subsidiaries, including monetary, technological support, is applied to enhance the local immune system to outside competition (Scott 2010, Carbaugh & Olienyk 2004). Using the national sake like job creation, monetary support, and murky protectionism could be provided for such humanity purpose (Watching America 2005). A typical case is the subsidy dispute between Boeing and Airbus, one of the most expensive commercial wars ever witnessed, with the billion-dollar subsidy package (Carbaugh & Olienyk 2004).

With such protection against the open global markets, is it indeed a dose of adrenaline for the growth of such protected companies? The

answer is both yes and no. Companies are indeed provided with the ultimate shelter from the government, in which the growth is nurtured in the best conditions. Monetary endorsement for the home players, trade barriers luring away the competitors are expected to contribute to catching domestic companies in experience and expertise with the competitors.

However, the indulging treatment of the parents has built a set of “brat spoils”. General Motors is used to be the largest car manufacturer in the US. However, the rising of foreign brands like Toyota and Hyundai had led to protective measures by the government, in the hope, the national pride’s performance would improve. Oddly, the support turned out to be counter-productive. General Motors exceeded the tipping point and announced bankruptcy soon after that. With the reasonable excuse of protecting the infant industries, what have they done?

They grow, but the ultimate goal of maturity is delayed (Coughlin, Chrystal & Wood 1988). Enjoying the luxurious treatment, the image of brat spoils is getting clear. With the growth in size, they start to establish an oligopoly situation, in which significant political power is acquired to preserve or even increase the depth and the breadth of the protection (Pincus 1977, cited in Abboushi 2010). Furthermore, nationalism not only blunts the competitiveness of local companies but also hinders the inflow of foreign direct investment (Jakobsen & Jakobsen 2011).

When the foreign investment is positive for the national development (Neumayer & Soysa 2006), the host narrows down their room of the development.

• National security Unlike the economic basis, national security has been used as a persuasive supporting argument for economic nationalism (Akhter 2007). The argument’s foundation is based
  

on the fear of citizens towards the uncertainty in the genuine intent of the foreigners, especially in the key industries like military, electricity, water. As a result, protective measures are imposed to maintain the existence of such producers.

Akhter (2007) illustrated the trend with the aggressive response of Congress and the public on security when Dubai Port Worlds took control of termination operations in 6 US ports. The pressure from the government and the public has forced the divestment of outsider holdings in the company. To prevent such negative examples of nationalism, governments have passed laws to exclude foreign takeovers in several strategic industries (Lander & Meller 2006, cited in Akhter 2007).

Apart from that, employment security is a controversial concern for many governments. By imposing the nationalistic measures, the national companies would be able to compete against the outside competitors, and thus jobs are retained. The call is even louder when the industry has insufficient preparation for the global competition and jobs lost are the consequences (Abboushi 2010). Especially, when many nations are facing high levels of unemployment like Spain, Greece the pressure is even stronger. However, the connection between job loss and globalization seems to be unstable (Isaac 2007).

Logically, keeping the domestic company running will guarantee the current employment, at least for the short term. However, the argument has not mentioned the impact. Although protections do reserve some occupations the follow-up reduction of jobs in export sectors has not been considered in such argument (Abboushi 2010). The win-lose situation of employment between jobs gained from import and occupation lost in export balance each other that the net employment effect is near zero (Luttrell 1978).

Even more

dangerous, with the import surcharge, the wholes industries relying on imports like industrial users, trade-related service industries are in the impact zone. Higher cost for doing business due to the escalated prices of the imports makes it more challenging for current players and less attractive for the potential. With such consequences, Coughlin, Chrystal, and Wood (1988) have pointed out the amazing cost of job saved, which exceed the band $100,000 for each. However, the sadness is not over.

History has recorded many cases, the protectionism at worst generates massive unemployment (Fung 2009, in Balwin & Evenett 2009). To conclude, Fung (2009, in Balwin & Evenett 2009, pg. 25) stated that the theory of protectionism securing jobs “must be strongly rejected”. And lastly, contributing to the approval of protectionism is the alarm in the deficit balance of payments in many countries. With the growing issue of deficit in many countries, namely the US and Greece, protectionism is believed to be able to tackle the difference in the nation’s injustice trade relations.

However, research shows an opposite reality. The act of reducing the imports also leads to the drop in export, in which the two sides equal up and it seems irrelevant to the elimination of deficit (Kaempfer & Willett 1987). Even worse, not only helps solve the deficit, it even leaves damage on the GDP (US Current 2008, cited in Abboushi 2010).

• The naked truth If describing the national economy as the Titanic, the nationalism, or protectionism is the iceberg that sinks the cruise ship. When the ship starts to sink, one end of it does rise above, like the protected industries.

However, the other part of the economy

goes deeper into crisis, and the studies show that the cost of nationalism exceeds what it is believed to bring (Abboushi 2010). However, why do many governments still choose such measures in hope of protecting the national structure? It is the “rent-seeking”, in which the government influenced by the special interest of particular industries, decides to protect them at the expense of the general public, which is supposed to be the priority (Gilpin 1987, Block & McGee 1997)

• Nationalism – implication for multi-national corporations

Challenges With the literature reviewed above, it can be seen that apart from the pure competition from market rivals, the local government could also be among the largest opposing force with its murky protectionist mechanism (Chen 2010). The barricaded free open markets have resulted in the friction of marketing and distribution efforts (Akhter 2007). At the same time, entering into the hostile business environments, the multi-nationals are in the spotlight and bad presses are consequences.

Many cases have been recorded as evidence of the backlash of globalization, like OMG, Bayer, and Cabot Corp on the list of illegal exploitation (Westervelt 2002, cited in Akhter 2010). In addition, the threats also come from the macro situation, namely the international relations issues. The American companies had to deal with “trade discounts” in many European countries because of the administration's foreign policies (The Enquirer 2004, cited in Wang 2006). As a result, the high possibility of financial loss is the expected aftermath of the expression of nationalism (Wang 2006).

• The bright side, However, incongruent with the challenges are the benefits that they can gain the nationalistic exponents.

Despite the governmental application of trade protectionism, consumer behavior is

hard to be altered. Shimp and Sharma (1987) stated that the consumer could acknowledge the pros and cons of purchasing local and foreign-made goods. With the world getting flattered, consumers are more open to foreign products, which is expressed as worldmindedness, the consumers display a lower level of discrimination on the origin of the product (Rawwas et al 1996).

At the same time, the level of income and education has an inverse relationship with the level of prejudice on foreign products, even from less-developed countries (Niss 1996, Leonidou et al 1999, Ahmed & disastrous 2002). Not only supportive in the consumer behavior, the nationalism sometimes could make it more profits, as the increase in prices offsetting the decrease in quantity exported (Abboushi 2010). Altogether, the supportive aspects of nationalism could make the expansion less challenging.

• Solutions to nationalism Nationalism is an irresistible trend in the world, in which firms need to comply to grow and develop in the overseas markets.

It is worthwhile to acknowledge that consumer behavior is the only alterable source of nationalistic advocacies, while the others are based on social-economic issues, which is beyond the control of the firms (Wang 2006). From that basis, a step-by-step could be provided for a better adaption in the hostile environment.

Firstly, the brand should conduct a thorough audit on the corporation's susceptibility in conjunction with the level of nationalistic sentiments in the desired markets. The result will help the firm to have a panorama on the current situation of the firm in the desired markets, namely the customers’ current perception of the brands, the firms’ competitive advantages and the risk hindered. With the comprehensive results, the strategies for

entrance and domination could be altered to maximize the benefits. In the next step, the brands should consider the localization of the brand’s association.

It is advised that the brand should localize operation in some phase, like production, distribution, marketing, and sales. This process helps re-locating the firm as a part of the nation, in which the antagonistic nationalistic sentiments could be eased. Another benefit is the experience and the expertise acquired from the alliance with the locals (Wong & Furuse 1999). A further move on localization is corporate social responsibilities. The firm needs to actively participate in the local community-building activities like charitable ones like programs to raise the living conditions. Being a corporate citizen is the ticket to the desired market. Nationalism will be reduced, as it at least equals up the objective of domestic development, especially in developing countries. However, the firm must commit to sustainable goals, otherwise, the immune power of corporate social responsibilities on nationalism will turn against the brand as a kind of protectionism (Welford 2002). Amazingly, the next move seems to be a paradox, as after localizing the brand, the firm raises the level of global identity.

However, it is reasonable, especially with the tremendous benefit from being a non-domestic brand (Skeenkamp et al 2003, cited in Wang 2006), which is mostly gained from the symbolic value. As a result, the firm must maintain a balance between the local and global identities.

Conclusion

This literature review has presented the inevitability and the actual benefits of economic nationalism on the national economies. Economic nationalism is a drug for a nation, as it is convinced about the remedy on settling down the public, without

mentioning the long-term consequences.

The decision of economic nationalism, under the form of trade protectionism, has shield nature as “a cloak for the interest of particular group” (Gilpin 1987, pg. 48) with the shining cover of national security and economic advantages. Based on the understanding of economic nationalism, it is advisable for many economies, especially the emerging and developing to minimize the impact of nationalism. The isolation of the economy does not help maintain the economies, but be a great assistance in shrinking them.

Following the trend of globalization will bring about not only the opportunity, not for the nations themselves, but also the health and development of the global economies. As a summary, Isaac (2007) advised that “To reject globalization would be an expensive error for developed countries … the cost would be even higher – destroying opportunities for billions in developing nations”. In a turn of the multi-national corporations, it is crucial to bear in mind the fact that, nationalism is not only burdensome but also constructive.

However, to utilize its benefits, a thorough plan with clear identification of their strengths and nationalistic disputation is a must-have item for the success of the penetration plan.

References

1. Abboushi, S 2010, Trade Protectionism: Reasons and Outcomes, Competitive Review: an International Business Journal, vol. 20, no. 5, pp. 384-394, viewed 7th September 2011, Emerald database
2.  Added, SA disastrous, A 2008, Antecedents, Moderators and Dimensions of Country-of-origin Evaluation, International Marketing Review, vol. 25, no. 1, pp. 75-106, viewed 9th September 2011, ProQuest database
3. Akhter, SH 2007, Globalization, Expectation Model of Economic Nationalism, and Consumer Behavior, Journal of Consumer Marketing, vol. 24, no. 3, pp. 142-150, viewed 7th September 2011,
   

Emerald database