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Introduction
What is a Multinational Corporation (MNC's)?
Multinational companies are firms with their home base in one country and operations in many other nations. Most of these very immense firms establish in third word countries or developing countries where they could manufacture the same identical product for very low costs compared to establishing the same firm in the western countries producing that product.
Although transnational corporations (TNC's) are commonly thought to be synonymous with MNC's they are infact different in several regards.
The primary defining factor is that they keep their financial headquarters offshore to protect them from taxes. Ideally MNC's are one which are global operating across borders with no single national emphasis. The first multinational, appearing in 1602, was the Dutch East India Company.
A key concern with regards to MNC's is their mobile nature. Logically they establish subsidiaries in countries where conditions are most favorable to their business operations.
Very large multinationals have budgets that exceed those of many countries.
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Countries often offer incentive to MNC, such as tax breaks or lax environmental standards, in order to attract MNC into their country. They can be seen as a power in global politics.
MNC's are important vehicle for the movement of direct foreign investment. With Direct foreign investment, a firm in the country creates or expands a subsidiary in another through the use of international capital flows.
Companies such as Reebok, Nike, Mcdonalds, DeBeers, Enron, Coca-Cola, Pepsi, Toyota, Colgate, Cadbury are some of the multinational companies.
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Positive Aspects of Multinational Corporation in an Economy
-Creating Competitive Environment - Competition is not destructive; it has compelled multinational corporations to provide the world with an immense diversity of high-quality and low-priced products.
Competition, given free trade, delivers mutually beneficial gains from exchange and sparks the collaborative effort of all nations to produce commodities efficiently. As a consequence, competition improves world welfare while dampening the spirit of nationalism and, thus, promoting world peace.
-Boasting the Economy - There is evidence, which was supplied by World Bank and United Nations that multinational corporations are a key factor in the large improvement in welfare that has occurred in developing countries over the last forty years. These firms rent buildings and land, or sometimes buy them thus generating higher incomes for the owners. In 1998, 75% of foreign direct investment went to developed countries. Besides, labor costs alone do not determine where multinational corporations base their affiliates; other variables-such as political stability, infrastructure, education levels, future market potential, taxes, and governmental regulations-are more decisive and a boaster in the economy.
-Help to reduce poverty - They can bring money into a country through employment and investment. Three quarters of international investment in developing countries is from MNCs and private sources. They create jobs, raise labour standards as in their absence, the people would have had fewer or much lower paying jobs. For instance in Bangladesh, Mexico, Shanghai, Indonesia, Vietnam, and elsewhere figures show that multinationals actually pay what economists call a "wage premium," that is, an average wage that exceeds the going rate in the area where they are located. Affiliates of some U.S. multinationals pay a premium over local wages that ranges from 40 to 100 percent.
-Welfare Activities Carried Out - MNC also organizes charitable funds for the welfare of the people of the countries where they are located. For example after the tsunami Schlumberger a well know MNC agreed to support four children's activity centers that now are being administered by the two charitable trusts. Each will accommodate 50 to 100 children who will receive nutrition, counseling, and education.
-Spillover - This is a very good effect on developing economies; this refers to the fact that domestic firms learn productivity-enhancing techniques from foreign corporations with better technology and management practices. Production workers often learn better techniques while employed by foreign firms. Managers may learn about better practices by observing, or by having previously worked at multinationals themselves. And increased competition pushes all companies in an area where multinationals are operating to become more productive.
-Reliability ; Awareness - When a product is associated with an MNC it is considered to be a good quality product and genuine as these firms follow the same standards and procedures to manufacture it wherever they are, which goes with their goodwill and reputation all over the world. For instance a burger at Mcdonalds will taste the same in Paris or India. This reliability helps the consumers to distinguish between the MNC product and local product thus creating awareness.
-No contribution to external Debts for Developing Countries - If the investment does not do well, the multinational corporations may lose their investment and the developing country does not receive the aforementioned benefits, but the developing country owes no restitution. As a result, multinational corporation investments do not contribute to the external debt problems of developing countries.
Negative Aspects of Multinational Corporation in an Economy.
Incidents such as the improper use in the Third World of baby milk formula manufactured by Nestle, the gas leak from a Union Carbide plant in Bhopal, India, and the alleged involvement of foreign firms in the overthrow of President Allende of Chile have been used to perpetuate the ugly image of MNCs. The fact that some MNCs command assets worth more than the national income of their host countries also reinforces their fearful image. And indeed, there is evidence that some MNCs have paid bribes to government officials in order to get around obstacles erected against profitable operations of their enterprises. Here are some negative impacts on the economy:
-Exploitation of Labor - This can be proved by examples like companies like Reebok, Nike have exploited the labor in Indonesia. Workers live in deteriorating, leaky, mosquito - infested apartments and only earn a mere 39$ a month for producing thousands of products worth well over 100$ each.
They encourage child labor as in poor countries where population is rising poverty is everywhere and children cannot afford to study are employed by these big firms thus jeopardizing their health and future. For instance in India one of the gem cutting industries DeBeers employed six-year-old children at work on dangerous polishing wheels, people living and sleeping at their workplaces, and trash, human feces and industry waste clogging the open sewers that run between the warren of gemstone workshops. In one factory almost half the workers were under-age. As diamonds are ground, fine dust enters and infects the lungs. Diamond cutting is among the top 10 hazardous and the employment of children under 15 is banned. However, the number of children employed in recent years has been rapidly expanding.
-Polluting the Environment - Some MNC's are also responsible for polluting the environment like throwing industrial waste in rivers, polluting the air etc. We had a very serious case in India the Bhopal Gas Tragedy where in over 40 tons of deadly methyl isocyanate, hydrogen cyanide and other gases leaked from a hazardously designed pesticide factory in Bhopal owned by US based multinational Union Carbide Corporation. Over 500,000 men, women and children were exposed to the poison clouds and at least six thousand people died within the first week of the disaster. The current death toll is well over 16,000. Hundreds of thousands of survivors continue to suffer from multi-systemic injuries.
-Harming Domestic Investment - By pumping in foreign investments it discourages domestic investments it is like the big fish eats the small fish in the ocean. Local products suffers and this intern discourages domestic investments
-Monopolistic Power - Due to a large share in the economy they can exploit the countries on the basis of this like causing problems in aspects of human rights, economic fragility, corruption etc.
-Human Rights Violations - Due to having substantial amount of power it allows them to easily find cheap labor in large quantities as a result the workers are exposed to hazardous conditions, over exertion and overall are subject to abuse of capital -owners.
-Corruption - MNC can easily get their work done like acquiring a licence for manufacturing products which may cause damages to the environment or people by Bribing the officials and also exploit the government due to their stake in the economy thus encouraging corruption. Like the Enron project raised controversy for a number of reasons: there was no competitive bidding for the project. The project costs and power tariffs were higher than other power projects and the cost of electricity from Enron would be higher than before. The Maharashtra Electricity Board promised to buy all the high priced power produced by Enron even if cheaper power was available. No environmental impact assessment has been done. Natural gas is 90% methane, which is 20 times more damaging to the global climate than CO2. Each well produces thousands of tons of toxic drilling mud that contains arsenic, lead, and radium that severely affects the health of people.
Conclusion.
Determining the positions (in favor or against) of nation-states towards MNCs is a bit complicated and not always logical. Generally developed countries usually favor MNCs as it allows firms to make more profit with cheaper labor.
With developing countries the stance is not very clear usually they will favor this in order to boost the economy and infrastructure. Thus delegates must consider many complex economic factors that would help explain whether it is in their favor to support or oppose multinational corporations based on whether that particular developing nation has comparative advantage or not.
Multinational companies are giant firms with their origin in one country, but their operations extending beyond the boundaries of that nation. For reasons of marketing, financial and technological superiority, these multinationals are generally considered as a sine qua non of the modernisation of an economy.
They have been responsible for the rapid economic liberalisation in India in 1991, the question of the entry of multinational corporations (MNCs) has assumed significance.
Multinationals corporations, mostly from the United States, Japan and other industrialised nations of the world, have entered our life in a big way. Foreign investment proposals and commercial alliance have been signed on an unprecedented scale, thus giving rise to the controversy whether these multinational corporations are our saviours or saboteurs.
This is so because of the vital difference between the economies of developed and developing nations. This requires that the entry of multinational corporations in India be examined from this angle.
According to A.K. Cairn cross, “It is not possible to buy development so cheaply. The provision of foreign capital may yield a more adequate infrastructure, but rarely by itself generates rapid development unless there are already large investment opportunities going a begging
That is why the intervention of multinational corporations is imperative in the context of the economic growth and modernisation of developing economies where ample investment avenues lie open and yet due to lack of capital and technical know-how, these potentials remain unexploited.
Multinational corporations help in reorganising the economic infrastructure in collaboration with the domestic sector through financial and technical help.
If we consider the case of our country immediately after Independence, ours
was an agrarian economy with a weak industrial base and low level of savings.
“Though the public sector was supposed to cure these ills, with problems like paucity of funds, lack of technical know-how and other amenities, it seemed an impossible proposition. Hence, the help of multinational corporation was sought in terms of finance and technology.
As a consequence of the public sector multinational corporation nexus, from a miniature one, the Indian industrial economy assumed colossal dimensions and India is considered one of the most industrialised nations of the world today.
However, there is another school of thought, which denounces multinationals as an extension of imperialist power and potency source of exploitation of the Least Developed Countries (LDCs) by the developed economies of the world.
According to them, MNCs are an expensive bargain for a developing economy from the foreign exchange point of view. These days when developing countries are struggling with massive foreign debts and their development plans are held up due “to paucity of funds” .this may be considered a serious drawback.
Second, multinationals evade paying taxes in most countries by concealing profits. Government agencies entrusted with the task of collecting the taxes and scrutinising their accounts are often bluffed by them as they do not know enough about the industries they are asked to deal with.
Third, multinationals often provide inappropriate technology to the developing nations. The technology provided by them is very often too sophisticated to adopt or too absolute by international standards. Further, transfer to technology in accordance with resource endowment of LDCs involves high cost and this may prevent MNCs from transferring appropriate technology to these countries.
Fourth, some of the evils of the multinationals emanate out of their oligopolistic character. Collision is the main determinant of its price policy, which ensures profit at the cost of high level of consumption at a lower price. Even the impact of high productivity brought about by them through the technology-cal advancement is not conducive to the working class because of pre-determined level of profit under oligopolistic criterion.
Fifth, concentration of economic power is the main charge against MNCs.This economic power is often used to distort national politics and international relations by multinationals. These enterprises build up a power entity of their own. They never hesitate in exploiting the social and political weakness and economic backwardness of the LDCs to their own benefit.
A multinational corporation is neither a saviour as its protagonists claim, nor a saboteur as its detractors make it out to be. It is a mix of virtues and vices, boons and banes.
Charges levelled against multinationals are serious, yet it also remains a fact that, despite all these disastrous consequences of their working, multinationals have emerged as the most dominant institutions of the late twentieth century. As such, third world countries in general, and India, in particular, will have to deal with multinationals despite their ugly designs.
The Government must, therefore, have an optimally balanced policy towards MNCs after weighting the various pros and cons of the issue.
It would not go for foreign collaboration in areas where adequate Indian skills and capital are available. Whenever the need for foreign collaboration is felt in areas of high priority, emphasis should be on purchasing outright technical know-how, technological skills and machinery. But only if this is not possible, should MNCs be allowed to operate in India?
Once these safeguards are taken, multinational corporations will give an uplift to national economy by bringing in quality goods and services to the country. They will reward enterprise and talent; the inefficient would, of course, have no place in the new scheme of things. Hence, the hue and cry by
interested party, who, dub MNCs as saboteurs.
Multinational corporations will demand efficiency, punctuality and dedication things which are deadly lacking in national life today. They will demand a certain work culture from the employees as well as the employers besides offering the best of goods and services to their clientele.
They should, therefore, be viewed as saviours of national economy rather than saboteurs because we have seen where our previous policies, have landed us right at the bottom of the list of industrialised nations. The economy has steadily picked up since the liberalisation measures were introduced.
This must ‘continue if we are to emerge as a global economic power in the next century. And multinational corporations are the only answer.
Multinational Corporations (MNC's). (2016, Jul 21). Retrieved from https://studymoose.com/multinational-corporations-mncs-essay
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