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MULTINATIONAL CORPORATIONS OVERVIEW

1. BENEFITS THAT MNCS BRING TO HOST NATIONS

a. Improvement in the standard of living b. Employment and economic growth in overseas countries

2. POTENTIAL NEGATIVE IMPACT

a. Influence on foreign governments to gain concession b. Exploitation of labour in developing countries

i. Implementation of working practices which would be unacceptable in their home country ii. Sale of unsafe products to consumers

c. Use of unsustainable resources and the degradation of the local environment d. Cultural Imperialism e. Footloose Capitalism

3. CONTROLLING MNCS

a. Pressure groups and public opinion b. Internet c. Self-Regulation d. Political Constraints e. Legal or constraints f. Competition policy

WHAT IS A MULTINATIONAL CORPORATION (MNC)?

A Multinational Corporation (MNC) is a company that operates or has assets in more than one country.

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BENEFITS THAT MULTINATIONAL CORPORATIONS BRING TO THE HOST NATON

EMPLOYMENT

• MNCs bring in FDI and invest into the country; it will need to employ people which will create employment.

• Some jobs may require additional training which will aid in transferring technology and methods to the host country.

• MNCs will have a demand for many services such as meals, transport, raw materials, maintenance services that will be provided by domestic businesses, indirectly increasing employment.

WAGES

• Wages should increase as MNCs will want the best people that the country has to offer. • Wages may be lower on international standards but should be higher than the local

standard, as logically the business will pay its workers more in order to motivate them. • Often MNCs are criticised for their wage policies but recent research and statistics prove

this wrong.

SKILL AND TECHNOLOGY TRANSFER

• Transfer of technology through training and skill will make domestic businesses more competitive.

• Efficiency will rise as new technologies can be availed of. • Production of more sophisticated goods and services will make the economy stronger due to

transfer of technology.

EXPORTS AND TAXES

• Exports will rise as businesses are producing goods and selling them for foreign currency.

o This will raise GDP • The government will get tax revenue from both exports as well as production. • More employment means that the government will get more income tax as well

as having to spend less of unemployment benefits.

CORPORATE SOCIAL RESPONSIBILITY AND THE STANDANRD OF LIVING

• MNCs that offer higher wages will force domestic businesses to increase wages, raising the standard of living.

• MNCs often help local communities greatly by providing them compensation for things such as taking up farming land.

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POTENTIAL NEGATIVE IMPACTS

INFLUENCE ON GOVERNMENT TO GAIN CONCESSIONS – CORRUPTION

• Multinational companies are often accused of giving bribes to government officials to gain advantage of tax breaks and other forms of financial assistance; they are essentially being subsidised.

• Governments can often turn a blind eye to these MNCs’ actions that may exploit the environment of use child labour.

• Either way, these advantages mean that the MNCs will grow in prominence and make more profits as they are getting very cheap production costs. This in turn will diminish competition as they cannot hope to compete.

o Increasing unemployment and making the MNC too influential.

EXPLOITATION OF LABOUR IN DEVELOPING COUNTRIES AND UNACCEPTABLE WORKING CONDITIONS

• BAT (British American Tobacco) are accused of using child labour in production; these children are exposed to large quantities of nicotine and can be subject to nicotine poisoning.

o This means that the child is also working in harmful working conditions. • MNCs such as Nike are accused of paying Chinese workers very little wages in

order to make large profits – often referred to as ‘sweatshops’. • The Bhopal explosion in India proved how unsafe MNCs can be, and how little

respect they have for human life.

SALE OF UNSAFE PRODUCTS

• Toyota in the year 2010 had to do a massive re-call of the Prius Model hybrid cars sold in America because the brakes did not work properly, although this was an unintentional mistake by the company, it had caused injuries and caused massive outcry over the scrutiny of safety tests.

USE OF UNSUSTAINABLE RESOURCES – DAMAGE TO THE ENVIRONMENT

• Oil companies deforested large areas in order to meet the growing demand of bio-fuels. In doing so large areas of forests were destroyed. The Orang-Utan was pushed to the brink of extinction in Indonesia as large areas were deforested.

o Multinational Corporations have a huge appetite for natural resources and high levels of competition push these companies to make money through unsustainable means.

• MNCs produce and pollute on a very large scale. Often mining companies end up setting up in very delicate ecosystems, which lead to the destruction of natural environments.

• Capital intensive production methods have led to an influx of CO2 in the atmosphere, which has devastated the world with radical changes in climate.

• BP caused substantial damage to American coast due to its oil spill.

Figure 1 - This is what happened to wildlife after the BP oil spill.

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CULTURAL IMPERIALISM

• When MNCs come into a host nation, they bring their domestic culture with them. Often this culture is promoted to a great extent and is artificially injected into society. This results in the degradation of the host nation’s culture.

• Often the younger generation opt for the seemingly more “modern culture” that is often seen to be western. The adoption of a new culture and forgetting the true heritage of a nation often leads to the loss of identity for the nation.

FOOTLOOSE CAPITALISM • MNCs have the power to jump from

producing in one country to another, creating and destroying jobs and prosperity in their wake. MNCs can shift production from more developed nations where it is more expensive to produce to nations with cheaper labour. This will leave a large number of jobless people and therefore the govt. has to spend more on unemployment benefits.

o Their first priority is profits. o This can put a road block to government plans they rely on the MNC

to provide a large part of its GDP. Exports from Dell made up 5% of Ireland’s GDP, and when they left Ireland for Poland, it had a big negative influence.

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CONTROLLING MULTINATIONAL CORPORATIONS

PRESSURE GROUPS AND PUBLIC OPPINION The combination of pressure groups and media coverage influence public opinion. This has often led to dramatic change in consumer purchases. Bad media coverage has led Nike and GAP to change its suppliers which were convicted of running ‘sweat-shops’. Greenpeace fought hard for the sinking of the Brent Spar oil storage platform owned by Shell; with favourable media coverage, they were able to get what they wanted. Public opinion also aided them as people stopped getting their cars repaired from Shell garages.

INTERNET

The internet has now become one of the main places for all sorts of advocacy. Sites such as Chevwrong (Chevron + Wrong) and Tescopoly (Tesco + Monopoly) highlight what these companies. Nestle bowed down to pressure from these groups and stopped using palm oil in making Kit-Kats. This was in response to this YouTube Video. Nestle stopped buying palm oil from Indonesian producers that deforested to make new palm-oil farms.

SELF REGULATION

Businesses have now become far more conscious of how PR (Public Relations) especially with respect to the environment affects their image. Businesses are now strengthening their CSR policies and some joining umbrella groups such as ETI (Ethical Trading Initiative) and EITI (Extractive Industries Transparency Initiative) – both of these organisations aims to work towards giving workers better living conditions, making the business more transparent and increasing the priority of protecting the environment. More and more companies are using the FAIR TRADE logo on their products to prove that they actually care about farmers.

LEGAL CONSTRAINTS

The legal way of taking a business to court for their alleged wrongdoings can be lengthy and very costly. But there are instances where businesses have been taken to court and made to pay for their wrongdoings. Daimler (the owner of Mercedes Benz) was fined for paying bribes to over 22 countries. The consequences of being proven guilty in court can be very deadly; the Competition Commission in the UK and EU has the power to fine 10% of the company’s turnover.

However Multinational Corporations, as they fall under no direct legal system are often very hard to control through law.

GOVERNMENT CONTROL

Stronger governments will be able to enforce their restrictions on businesses more effectively. China and India can insist on joint venture and strict labour laws as well as tight expansion on foreign businesses since they’re both such large markets.