This
presentation focuses on MNC’s as they have greatly influenced the development
path of many nations. It seeks to expose how they have positively and
negatively impacted host countries as they are considered key agents of change
when it comes to development. This change can be
facilitated by various players, the government , NGO’s and non-profit
organisations, Faith based Organisations and Multi National Corporations.
Former UN Secretary General
Kofi Annan emphasized in one of his speeches: “The UN once dealt with only
governments. By now we know that peace and prosperity cannot be achieved
without partnerships involving governments, international organizations, the business
community and civil society. In today’s world we depend on each other.” (Gell-Redman,
Micah and Kang, Caren, 2006)
What then are MNC’s?
A Multi-National corporation (also sometimes
known as a multi-national-enterprise) is a corporation or an enterprise that
manages production or delivers services in more than one country. MNC’s may
also be referred to as international corporations. The International Labour
Organisation has defined an MNC as a corporation that has its management
headquarters in one country, known as the home country and operates in several
others known as host countries.
Some
multinational corporations are very big, with budgets that exceed some nations'
GDP’s Multinational corporations can have a
powerful influence in local economies, and even the world economy, and play an
important role in international relations and globalization
According to Anderson and
Cavanagh, among the largest 100 economies in the world, 51 are multinational
corporations (MNCs), whereas only 49 are countries. The analysis is based on a
comparison of the corporate sales of MNCs and the GDPs of the countries. The
study further shows that, out of the 200 largest economies of the world, 144
are MNCs. The combined sales of the top 200 corporations are bigger than the
combined economies of all the countries of the world, minus the largest 10. The
income of MNCs is 18 times higher than the combined annual income of the 1.2
billion people of poor countries (24 percent of the total world population).
The study has found that the growth of sales of top 200 corporations is faster
than overall global economic activity. Between 1983 and 1999, their profits
grew by 362 percent whereas their combined sales grew from 25 percent to 27.5
percent of the world GDP.
Anderson and Cavanagh (2000), further
reveal that the US dominates the top 200 corporations, accounting for 82, i.e.
41 percent of the total. Japan is second, with 41 corporations, Germany comes
in third, with 20, followed by France and UK, which account for 17 and 11
corporations, respectively.
According to the UN
Committee on Trade and Development (UNCTAD), MNCs account for 70 percent of the
total world foreign trade, which is US $7 trillion.
Most of these MNCs belong
to the rich countries; therefore, it is natural that MNCs and their respective
countries should safeguard their mutual economic, political, and cultural
interests under the cloak of globalization. Economies are the catalysts of the
globalization process, and they are represented by MNCs and transnational
corporations (TNCs), which maintain the highest stakes and stand to gain the
maximum benefits.
I have mentioned TNC there so I will elaborate
A
Transnational Corporation (TNC) differs from a traditional MNC in that it does
not identify itself with one national home. Whilst traditional MNCs are
national companies with foreign subsidiaries, Druker, P (1997) The Global
economy and the Nation State . TNCs spread out their operations in many
countries sustaining high levels of local responsiveness. An example of a TNC
is Nestlé who employ senior executives from many countries and try to make
decisions from a global perspective rather than from one centralised
headquarters.
Schemerhom J (2009) Exploring management However, the terms TNC and MNC are often used
interchangeably.
Multinational
corporations because of their enormous size, enjoy massive economic and
political power which enables them to dictate terms to the under-developed
countries. They are able to manipulate prices and profits and restrict the
entry of potential competitors through their dominant influences over new
technology, special skills, ability to spend enormous fund on advertising etc.
MNCs
organize this operation in different countries through any of the following
five alternatives:
1.
Branches
2. Subsidiaries 3. joint venture company 4. Franchise holders 5. turn-key
projects
Through
these various methods of operations, MNCs carry their technology to the
developing countries. If MNCs set up a branch or a subsidiary company, it is
claimed that there is a direct injection of foreign experience and expertise in
the developing country. The branch or the subsidiary company can provide a
channel for the transmission of the latest improvements from the developed to
the underdeveloped countries. In the words of A.K. Cairecross, There is a no
question that the branch factory is a highly effective way of improvement
technology. It usually provides, along with the technical expertise, the
capital that is not easily mobilized in underdeveloped countries for new
industrial countries for new industrial ventures and the managerial experience
that can so rarely be supplied by them.
The modus
operandi of the multinationals in spreading there is very interesting. Like the
East India Company which came to India as a trading company and then spread its
net throughout the country to become politically dominant, these multinationals
first start their activities in extractive industries or control raw materials
in the host countries and then slowly enter the manufacturing and service sectors.
The economic role of multinational corporations (MNCs) is
simply to channel physical and financial capital to countries with capital
shortages. As a consequence, wealth is created, which yields new jobs directly
and through “crowding-in” effects. In addition, new tax revenues arise from MNC
generated income, allowing developing countries to improve their
infrastructures and to strengthen their human capital. By improving the
efficiency of capital flows, MNCs reduce world poverty levels and provide a positive
externality that is consistent with the United Nations’ (UN) mission —
countries are encouraged to cooperate and to seek peaceful solutions to
external and internal conflicts.
Strategies used by MNC’s
Lobbying: Given their huge capital resources and production capacities,
MNCs are able to dictate their own terms in economic dealings. For the sale of
their enormous production, MNCs require access to large markets; tariff issues,
access restrictions and similar “barriers to trade” are hurdles in this access.
What MNCs need is a global system for the free flow of their goods. They
therefore use their sheer economic weight to influence international trade
rules. With their huge resources, they employ lobbyists with the highest
expertise and influence at international trade organizations. The rich West,
influenced by such lobbying, makes decisions in favor of the MNCs, irrespective
of the economic, social or cultural consequences for the poor of the world.
This lobbying power is what MNC’s should be using to development rural areas at
home and in the developing world
Entry
in Host Countries: Having poor economic
infrastructure and little capital, developing countries very easily agree to
host MNCs. At times, their weak regulatory positions are subsequently exploited
by MNCs.
Pushing Local Producers Out: MNCs either buy
out the local companies of the host countries or push them out of the markets
by offering cheaper and better quality goods for some time. Where aggressive marketing
is needed, MNCs can, in the initial phase, even provide their products free of
cost to coax the public into developing appropriate consumption habits. An
example as highlighted in an article on MNC’s in Pakistan is An interesting example is the advertisement of the
global beverage brand, Pepsi, which openly ridicules indigenous drinks such as Rooh
Afza and Jam-e-Sheereen
Benefits of MNC’s to host countries
When MNCs enter host societies, there are some
benefits, which are outlined below:
Financial
and Technological Resources and Expertise: MNCs provide immense resources and investments, technology,
innovation and expertise to the host societies. A culture of research and
development is encouraged and human resources are developed, at least within
the organization. MNCs also contribute significantly to the national exchequer
by paying taxes.
Good Business Practices: Good governance, organizational
transparency, clear command structures, and performance-based evaluation and
incentives programs for employees encourage the merit system. MNCs introduce a
professional working environment and culture for local organizations to
emulate, thereby promoting sound management and business education.
Comforts
of Life: In some cases, large-scale
economies, quality control and a healthy competition lead to price cuts and
other benefits for the end-user. People have more access to the comforts of
life with a large variety of choices.
Infrastructure Improvement: Many MNCs help in improving the
infrastructure and provision of basic needs in their specific areas of
operation. They either do so directly or provide funds
for this purpose to civil society organizations. This also improves business
conditions within and in the vicinity of the areas where they are operating. A simple
example in the case of Pakistan is that of petrol pumps, which used to be
filthy and inhospitable places but are now not only clean and aesthetically
laid out, but also offer many facilities for travelers. These improvements have
been a result of the moving in of Shell
Pluralism: MNCs help boost cross-boundary interaction among people. Even
education, particularly, business education, has taken on a global perspective.
The global perspectives and opportunities for cross-cultural understanding
increase the adaptability of students to alien environments. This leads to the
mixing of cultures and practices and encourages pluralism as well as
competition.
Nevertheless, MNCs can also pose problems for host societies in the spheres of
social and economic development and cultural diversity. How this happens is
outlined below.
Cultural
Changes: MNCs use, develop and
continually refine their marketing tactics to create consumers’ need for their
products. They use social marketing and stars from the worlds of sports and
show business to project their products, especially affecting the youth, women
and children as they are generally attracted to glamour. Special events,
festivals and campaigns are organized to create hype. In this atmosphere,
ethical and moral considerations have no place, and corporate interests start
determining what is to be celebrated and how.
With the spread of MNCs’
operations in a society, the importance of foreign languages increases because
these firms mostly operate among the classes equipped with foreign language
skills and hire and promote the people from the same groups. Culture in such a
space is eroded, Matunhu J (2011) posits that, in the process of mordenising
Africa, the people of the continent lost their identity and development path. This
is not to say cultural diversity is bad but development for Africa must be
embroiled in African values. As the world moves towards becoming a
universal village, it must maintain its cultural diversity, which is the beauty
of life and an asset of all mankind. Any effort by a dominant group to impose a
particular culture on the rest of the world will create problems globally. To
be just and fruitful, globalization must always have a human face.
Conflicts
of Interest: MNCs are commercial
organizations and their only interest is to gain maximum return on their
invested capital, occupy market shares and ensure their long-term
competitiveness. This leads to conflict of interests between the MNCs and host
societies on issues like repatriation of profits, patents, and major
operational decisions. Host countries would want MNCs to work in a manner that
is harmonious with the social and political needs of their societies and
communities, whereas the MNCs make their choices based purely on economic
criteria. This conflict of interests leads to conflict
within societies. 
Increasing
Materialism and Consumerism: MNCs promote a culture of
conspicuous consumption, in which presentation and cosmetic changes matter the
most. The product models change very fast and the older ones lose relevance in
a short span of time. Consumerism has an overwhelming impact on societies. For
example, departmental stores and shopping malls/plazas are mushrooming
everywhere both as an outcome of and an impetus to further consumerism. Eating
habits are also changing, with increasing consumption of processed, instant,
fast and junk food, especially products of international brands. The emphasis
is on instant access and quick relief. Many products also glamorize life in the
fast lane, leading to increased consumption of faster communication products,
cars, as well as stimulants such as cigarettes, and alcohol. As outward looks
become central in the vision of success, a vibrant fashion industry is changing
the dress and outlook of ordinary people. Spending priorities have changed.
Contrary to the
conventional view, taking loans is now considered a status symbol. The
availability of easy credit, consumer financing, credit cards and personal
loans by the banks to the middle class is promoting a culture of people living
beyond their means.
Simplicity is losing
currency and people strive to live in luxury. This trend makes the disparity of
resources among people, groups and even regions look wider. Previously,
education was aimed at developing a balanced personality and ethical and social
values and character building were emphasized. Now, however, materialism has
taken over. We may then conclude that MNC’s are perpetuating Modernization in
the less developed world.
Corruption
and Crime: In the race for maximum
profit, the MNCs deem their ends to sometimes justify the means: they use their
considerable buying power to corrupt people to capture markets. For example,
a report titled Milking Profits, which is based on a disclosure by a
former employee of an MNC in Pakistan of the unfair tactics the company uses to
increase its sales of formula milk and earn profits, compromising infants’
health. The tactics include interfering in government efforts to regulate the
industry, bribing doctors with perks and persuasions such as money for
signboards and free lunches as well as cost free supplies and samples. (The
Network for Consumer Protection, 1999)
Healthcare Attitudes: Healthcare attitudes are changing
and people expect better health services. The job is
made easier by the new norm of “third party cashless payments,” where payment
is made via credit cards or health insurance. The focus
has now increased on preventive healthcare. Although it
is good for those who can afford these facilities - and they are the targets of
MNCs- yet it is extremely frustrating for those who cannot afford them. Hectic
routines, targets and deadlines are resulting in stresses and pressures. A
destructive lifestyle has led to a host of medical crises: sexual problems from
over-performance at work, stress, mid-life crisis, ulcers, nervous disorders,
hypertension, obesity, cardiac disease, diabetes etc., are all
lifestyle-related ailments that are on the rise. These
are problems associated with the developed world that are gradually trickling
down to the developing world in the vein of MNC’s and development. For example
according to Datta (2006), In the US,
Caesarian rates have hit an all-time high at 29.1 percent. In the UK, one in
five births is a surgical procedure compared to less than 3 percent in the
1950s; in Brazil, a joke goes, the only way you don’t get a Caesarian in Rio De
Janeiro is if your doctor gets stuck in traffic.
Brain Drain: The term “brain drain” is commonly used for the situation when
talent goes out to other countries. The MNCs are involved in another kind of
brain drain. Their lucrative salaries attract talent that might have
contributed to the host society to work for their ‘multinational’ interests without
leaving the country. The human resources that could have been actively working
towards the development of their home countries rush to the big corporations
and end up working to further build the corporation without necessarily
contributing to the betterment of their own nations
Promotion
of Non-Issues: Importantly, poor people
are not the target of MNCs. They target the middle classes, who have the buying
powers, and trying to change their priorities in everyday life, spending and
consumption. MNCs establish close linkages with intellectuals, legislators,
media and some non-government organizations (NGOs) to highlight specific issues
that suit their business interests.
Negative
marketing: When introducing their
products, MNCs exaggerate the qualities to the level of cheating and lying.
Aggressive campaigns with false claims are launched. Local products are
ridiculed. Children and youth are special targets, while women are treated as commodities to project the
products, affecting the existing value framework of the societies.
Violation
of Human Rights: Exploitation of workers by
large business corporations is a common phenomenon. Most workers are exposed to
hazardous and inhuman conditions, overexertion and financial abuse. This
happens despite the fact that many of the world’s largest business
associations, including the International Chamber of Commerce, have endorsed
the UN Secretary General’s “Global Compact,” a mechanism for self-regulation by
business companies.
Stresses
on the Family: MNCs affect the host
society’s family fabric in many ways. The new cultures and lifestyles
introduced by MNCs are proving harmful to the family fabric in host societies.
Overspending and living beyond means eventually creates economic pressures and
develops tensions and stresses within families. Various indicators also prove
that women working with MNCs and other big corporations undergo extra stress
when entering into marriages and bearing children. Parents have little time for
their families, particularly children. One out of six women in the world opts
out of natural birth, according to the World Health Organization (WHO).
Earlier, this trend was specific to the developed countries
but it now prevails in the least developed world too.
The question then is how do developing
countries move forward when those
bringing ‘development’ have a lot of negatives attached as well.
MNCs have both a positive and a negative impact on host societies, even in the
developed world. MNCs have contributed a lot in the growth of developed
countries and both have progressed side by side. This has been an evolutionary
development and, therefore, there are now strong institutions, including
legislating bodies, regulatory agencies, judicial system, and consumer
societies, to check and maintain the balance from within. In the case of
developing host societies, however, a rather uneven contest is taking place.
So has anything be done to
monitor MNC’s?
An important role currently undertaken by the UN is the
provision of a valuable and detailed assessment of the economic impact of MNCs
through its publication of the World Investment Report. In addition, the
UN’s publication of the Human Development Report and the World Bank’s World
Development Report, provide researchers with a broad picture of trends in
world welfare. These reports, however, present static measures of income
inequality and are thus too limiting. The UN and World Bank should also analyze
measures of mobility. Studies that focus only on income inequality, may be
highly misleading because countries may have identical income distributions but
far different social welfare levels due to differences in economic and social
mobility.
Conclusion
At the end of the end the analysis reveals that although
MNC’s bring about improvements in host countries such as infrastructure , there
is a lot more that they could be doing to foster development considering their
massive influence in decision making worldwide, their economic power, and their
influence on world markets. It is apparent that most MNC’s are more concerned
with earning profit and all their efforts in developing countries particularly
are a means to an end, in all this they are doing more harm than good.
According to The World Revolution Three billion of the world’s people (one-half) live
in “poverty” (i.e. on less than $2 per day). Among these, 1.3 billion live in
“absolute” or “extreme” poverty (i.e. on less than $1 per day). Some 800
million people lack access to basic healthcare. About 17 million people,
including 11 million children, die every year from easily preventable diseases
or malnutrition. In addition, 800 million people are hungry or malnourished;
nearly 160 million children are malnourished worldwide, and 11 million people
die every year from hunger and malnutrition. Approximately 2.4 billion people
lack access to proper sanitation; 1.1 billion do not have safe drinking water.
By 2025, at least 3.5 billion people or nearly two-thirds of the world’s
population will face water scarcity. More than 2.2 million people, mostly
children, die each year from water related diseases. Some 275 million children
never attend or complete primary school education; 870 million of the world’s
adults are illiterate. There is therefore a lot that still needs to be done and
MNC’s may not be the answer. The MNC-led globalization currently under
way emphasizes economic integration. As Nelson Mandela admitted at the
“Bridging the Divide” Conclave 2006, held by India Today, “It
worries me that our world is becoming a global village only for the exchange of
goods and information — not as a place of shelter, livelihood, security and
dignity for all who live in it.”
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