The Multi-National Corporations - Assignment Example

MNCs – Boon or Bane of Globalization? Vogue photo shoot in India- Poor people dressed in obscenely expensive clothes! The latest Vogue controversy Before moving into details regarding whether Multi-national Corporation is a boon or bane of globalization; let’s explain the poster given above. With the improvement in communication and transportation and gradually diminishing inter country restrictions in movement the whole world seems to be chained with the realm of globalization. Though much cheered yet it seems that globalization seems to create a strange environment that provides costly outfits but no food. On one hand poverty remains as it is and on the other global corporate giants make their way commercially into poor nations. The second and third pictures show the outcome of Vogue photo shoot in India where the luxury brands are put on the poor people on the streets of New Delhi who perhaps strive to arrange for two square meals a day. The concept behind the advertisement is that the expensive fashion brands might wish to make this section of people their customers some day. This would be a far-fetched idea to come true and more than that it is ethically incorrect to put such contrasting scenarios in the photos. The photos also capture the attempt at forced westernization in the fashion industry. This is not only concerning the textiles segment but also other industries like sports and machineries. A burning question thus emerges whether multi-national corporations that is to globalization as white pigeon to peace is a boon or curse to the world? In what ways MNCs have affected globalization? The multi-national corporations might be considered as the harbinger of globalization. A multi-national corporation is a firm that has its assets spread over many other countries along with its country of origin. In terms of the size; these firms are huge and some of them has turnover that might overshadow the GDP of a developing or less developed country. Ironically much like its parental body globalization; multi-national corporations are surrounded with much debate. In what ways do MNCs affect national governments? The classical and new classical economists consider globalization as a boon to society and votes against government intervention. As multi-national corporations are the direct product of globalization that consider the world as a borderless playing field and strongly depend on market force; hence an indirect support towards multi-national corporations can be drawn from the classical and neo classical economists. On the other hand the radical economists from Marxist clan always referred globalization and free market mechanism biased towards the haves and hence for a just social allocation supported government intervention. Little or no support can be found from the Marxist and Keynesians regarding multi-national corporations. If a national government becomes heavily dependent upon the FDI then inefficiency might creep up into its revenue accumulation system. All its development expenditure might then become dependent on FDI and if the MNC decides not to invest in the concerned nation all might collapse rapidly. Again at the worst a nexus of bribery might form between the government official and the multi national corporation that will again result in inefficient allocation of resources. As many MNCs have higher level of revenue than the GDP of developing and less developed countries hence if it withdraws its fund invested in a country and other MNCs follow suit then in no time it will bring a catastrophe to the concerned countryi. What are some of the potential positive consequences of this rising power of MNCs? The arguments favoring multi-national corporation stresses on its huge capital power that a country may take advantage if that multi-national corporation invest in that country. This is especially important if that country belongs to the developing or less developed clan. Since unemployment is a huge problem in those countries, hence fresh investments by the multi-national corporations will create more job opportunity. Moreover these investments will also bring foreign direct investment in those countries inherently suffering form lower rate of investment. It is believed that multi-national corporations cultivate a better working culture and that will induce into those developing and less developed countries. Since multinational corporations hails from technologically advanced countries, thus they bear an improved technology that also gets extended and absorbed into the developing and less developed countriesii. According to catch up hypothesis such investment lead to higher growth rate than developed countries and eventually the developing and less developed countries catch up with their developed counter partiii. It has been observed that the dependency ratios in emerging markets have declinediv. As an example it is claimed that “…more than 70 million people are crossing the threshold to the middle class each year, virtually all in emerging economies. By the end of the decade, roughly 40 percent of the world’s population will have achieved middle-class status by global standards, up from less than 20 percent today.”v Another important aspect of multi-national corporations might be regarded as an improvement in infrastructure of the country they are investing. This improvement comes from the added concern of the government that multi-national corporations might not be interested to invest if the concerned country furnishes a poor infrastructure (transport, health, education etc.). Another important aspect of multi-national corporations is its capability to inject competition within the system. Since multi-national corporations are large in comparison to indigenous organization and bestowed with higher level of capital and technology; hence the domestic firm has to operate at its optimum to sustain its existence. This leads to optimum allocation of resources and highest level of efficiency. These facts for long have fuelled the concept that globalization is a boon to the developing and less developed countries and is an engine of growth. Considering all the above argument the introduction of multi-national corporations might be regarded as a boon of globalization, especially to developing and developed countries. What are some of the potential negative consequences of the rising power of MNCs? All that glitters is not gold and the same can be said about multi-national corporations. First of all owing to their sheer size they are more a threat than a friend to domestic companies. It has been witnessed that since the multi-national corporations operates in more than one country; hence it often incurs loss in a country and sell at a price that might even be less than the cost of production. This way it will outclass the indigenous small producers and eventually throw them out of the market. Hence the much-hyped competitive environment owing to the introduction of the multi-national corporations holds no ground. The technologies these giant firms come with are mostly capital intensive and that is no match for the labor-intensive economic scenario of these developing and less developed countries. Moreover owing to the abolition of indigenous companies after the introduction of the multi-national corporations many workers would be unemployed considering the change in the nature of the technique of production (from labor intensive to capital intensive). This particular argument depicts that the job creation through multi-national corporations is more a myth than reality. Again the multi-national corporations target mainly the urban areas to set up themselves and the rural part, which typically occupies the lion’s share of the developing and less developed countries remains deprived. Hence the job creation is mainly for urban people than the rural ones. This on one hand increases the number of unemployed in rural areas and on the other induce more inequality within the economy. It has also been observed that the main objective of the multi-national corporations is to tap the market potential of developing and less developed countries along with getting their job done at a cheaper rate. This also pales out the development motive of these organizations. Emanuel Arrighi has also shown in his unequal exchange theorem that the wage rate in developing and less developed countries is also lower than that in developed countryvi. Availability of this cheap labor draws the multi-national corporations to these countries and that implies that this divergence is bound to stay if the multi-national corporations have to find it lucrative enough to carry their operations in these countries. This in no way points to the abolition of global divergence of earning or inequality. On balance, are MNCs a bane or a boon of globalization? Courting the above aspects it can be said that the final judgment on multi-national corporations is still young to be delivered. If only tested by time it would be clear that whether it is a blessing of globalization or a bane. . References Bisson, P., Kirkland, R. and E. Stephenson, June 2010. “The Great Rebalancing”, Mckinsey Quarterly, McKinsey & Company Currie, N. 2008. The Post-Materialist | Fashion and Poverty, available at: http://tmagazine.blogs.nytimes.com/2008/09/05/the-post-materialist-fashion-and-poverty/ (accessed on March 30, 2011) Daniels, J.D., Radebaugh, L.H. & Sullivan, D.P. 2009. International business: environments and operations. 12th ed., NJ: Prentice Hall. Guy, F., 2009. The Global Environment of Business, Oxford: Oxford University Press. Thirlwall, A.P. 1994. Growth and Development, London: Macmillan Read More